AttorneysEd Center

On May 19, 2009, the American Law Institute ("ALI") approved the Principles of the Law of Software Contracts (the "Principles"), which seek to "clarify and unify the law of software transactions.” However, the Principles would introduce a number of new concepts which are of concern to the software industry, and has led to strange alliances in opposition: Microsoft Corporation and the Linux Foundation, who are fierce competitors with radically different views of licensing, sent a joint letter to the ALI to express their concern about the provisions in the Principles and request a delay in their approval. The IT, Privacy & eCommerce Committee of the Association of Corporate Counsel, which includes small and large corporate licensees as well as commercial licensors and open source distributors, also wrote to express its concern that the Principles may introduce cost and uncertainty, limit flexibility for businesses and consumers, and have a negative impact on the software industry in the United States.

It is important for software industry counsel, as well as counsel for licensees, to understand key aspects of the Principles so they can respond to the Principles. Software licensors also need to consider the possibility that courts will be influenced by the Principles and that they need to review the license agreements that govern the distribution of their software products and services. Software licensors need to evaluate the possibility that the courts may adopt the Principles as applicable to their agreements through incorporation of the Principles' proposed terms.

In this installment of the Celesq®-West IP Master Series, Karen Copenhaver, Esq., a partner at Choate, Hall & Stewart LLP; Mark Radcliffe, Esq., a partner at DLA Piper LLP (US); and Ken Hammer, Esq., General Counsel of DataFlux Corporation, a subsidiary of SAS Institute, address the following concepts that are included in the Principles:
1. A new category of "Standard Form Licenses";
2. The proposed non disclaimable warranty of no hidden material defects;
3. New proposed rules on limitation of liabilities and disclaimer of warranties; and
4. New proposed rules on modifications of terms, forum selection clauses, express warranties, indemnification against infringement, merger clauses, the failure of essential purpose of a limited remedy, and automated disablement, among others.