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Checklist of questions that should be asked

when negotiating a warranty section on

performance warranties:

1. Does the warranty clearly state the standard to which

the vendor is subject (e.g., “free from material defects”;

“performs substantially in accordance with end user docu-

mentation” for software)?

2. Does the warranty specify the time period within which

the customer must notify the vendor of any warranty

claims?

3. Does the warranty include appropriate exclusions (e.g.,

exclusions for software errors which cannot be reproduced,

which occur in an unsupported hardware and system

software environment, or which has beenmodified by the

customer or any third party)?

4. Does the warranty include appropriate conditions prec-

edent to the vendor’s obligation to provide a remedy for

failure of performance (e.g., a requirement that the vendor

be able to reproduce the error or demonstrate the occur-

rence or a statement of the costs the customer will be

required to bear for fixing the issue)?

5. Does the warranty include sole and exclusive remedies for

breach of warranty (e.g., such as “the exclusive remedy for

breach of warranty is to fix or repair the software”)?

6. Does the warranty include an alternate exclusive remedy

in the event the first remedy fails of its essential purpose

(e.g., “refund of the purchase price”)?

7. Typically in a limited warranty section, does the Agree-

ment contain a conspicuous disclaimer of the implied

warranty of merchantability and does it also disclaim the

implied warranty of fitness for a particular purpose, the

warranty of title, or a warranty of non-infringement?

8. Is there awarranty that the licensor has taken the necessary

precautions to excluded viruses?

9. Are the limitations of liability set forth in a separate section

of the agreement from the warranty?

10. Does the agreement contain an acknowledgment by the

customer that the purchase price or license fee reflects the

negotiated warranty provisions?

Provisions that should be included in a

typical warranty section:

Based on the answers to the questions above, the warranty

section should include some of the following warranties:

• Licensor warrants that the Software shall substantially

conform to the Functional Specifications.

• The software or service provider has necessary equipment

SOFTWARE CONTRACTS

CONTINUED FROM PAGE 15

and trained personnel to perform the services consistent

with industry standards.

• The software will be free of material or hidden defects.

• The services will be performed in workmanlike manner.

• The services will be performed in accordance with in-

dustry standards.

• The software or service provider will comply with all

applicable laws.

• The software or service provider warrants that itmaintains

an information security process with physical safeguards

appropriate for the sensitivity of customer information.

• The warranty will have a time period, such as thirty (30)

to sixty (60) days.

• *This is not an exhaustive list.

Remember, warranty sections are contractual promises on how

the software or services will perform. It is always important

to seek advice from experienced legal counsel in order to un-

derstand all the risks involved when negotiating software and

service contracts.

Biographical Information:

Stephen F. Pinson is an attorney at Scott & Scott LLP — a

business, intellectual property, and technology law firm— in

Southlake, TX. He represents clients involvedwith intellectual

property and technology disputes. Specifically, he assists clients

with corporate and technology transactions. He also defends

clients in software licensing and copyright infringement mat-

ters. Prior to joining the firm, Mr. Pinson practiced in high-

stakes securities litigation, regulation, and enforcement actions.

He spent the majority of his time prosecuting and defending

large corporate clients, institutional investors, andWall Street

firms. Before entering the legal profession, he was a financial

analyst for a large international investment bank. He may be

reached at

spinson@scottandscottllp.com.