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 Outline
Fundamentals of information technology contracts
 Terms of the contract
 Entire agreement
 Software acquisition
 Hardware acquisition
 Breach of contract
 Misrepresentation

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 Fundamentals of information technology contracts

❑ Terms of the contract

Sometimes, it may be difficult to determine whether a contract exists, particularly where there
have been long and protracted negotiations.
In many situations where the whole contract is in writing (by deed or otherwise), this might
appear to be an easy matter, providing one is skilled in ‘legalese’, the technical legal jargon still
commonly found in legal documents and notwithstanding that many words used in the computer industry are lacking precision
(such as database in Vogon above). But even where the contract is wholly in writing, things are not necessarily that
straightforward and the law may insert
additional terms (implied terms) into the contract or strike out some of the terms apparently
agreed upon by the parties to the contract.

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 Fundamentals of information technology contracts

❑ Entire agreement

In negotiations leading up to the formation of a contract, it is easy to make exaggerated claims

as to the performance and specification of computers and software and the carrying out of obligations under the contract.
Such representations, which may be in writing or oral or both, can prove troublesome later especially if one party’s
understanding of the representations differs from the others or if they conflict with the formal contractual documents.
In some cases, it may be difficult to know whether a letter of intent or a letter setting out the client’s requirements or
the software developer’s recommendations is part of the contract between the parties.
To overcome such difficulties (and, in some cases, to prevent being bound by an exaggerated or false claim made earlier) it
is common for the formal written contract to include a term to the effect that it represents the entire agreement between
the parties.

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 Fundamentals of information technology contracts

❑ Software acquisition
The most common method of acquiring computer software is by way of a license which is granted by the copyright owner to the
person or company acquiring a copy of the software,
giving permission to use the software in return for the license fee – the ‘price’.
The license may be for a fixed, perhaps renewable, period of time or there may be no mention of duration, in
which case it can be assumed that the license will last as long as the software is subject to copyright protection.
(After expiry of the copyright, a license is not longer required to perform the acts restricted by the copyright.)
The copyright owner will prefer to grant a license because he will want to retain the copyright in the software and be free to grant
licenses to others.
The incense may be exclusive, however, which means that the copyright owner cannot grant licenses
to others in respect of that software.
More usually, the license will be non-exclusive so that the copyright owner will be free to grant licenses to anyone else he wishes to.
An exclusive license might be appropriate in connection with bespoke software written for a client in accordance with
the client’s requirements,
ownership of copyright will be transferred instead and this form of transaction is called an assignment of copyright but apart
from transferring ownership of copyright an assignment, as with a license agreement, will contain numerous other terms dealing with
aspects such as warranties, liability for defects, permitted uses, termination, applicable law, etc.
The special nature of computer software and the fact that a copy of software is usually acquired by means of a license have several
legal implications.

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 Fundamentals of information technology contracts

❑ Hardware acquisition

As far as computer equipment (hardware) is concerned, this may be purchased outright or hired.
If purchased then the Sale of Goods Act 1979 will apply and terms as to quality, complying with
description, satisfactory quality, etc.
will be implied into the contract, subject to any valid exemption clauses.
There have been some important changes to this Act.
The Sale and Supply of Goods with a requirement that goods must be of satisfactory quality.
to apply if the goods meet the standard that a reasonable person would regard as satisfactory.
Account is to be taken of the description of the goods, the price and all other relevant circumstances.
In a welcome tightening of the implied term, defines the aspects of quality to be taken into account, being:
■ fitness for all the purposes for which goods of the kind in question are commonly supplied
■ appearance and finish
■ freedom from minor defects
■ safety
■ durability.

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 Fundamentals of information technology contracts

❑ Breach of contract

If a party to a contract is in breach of one or more of its terms, the remedy depends on the
status of the particular term or terms which have been broken. The aggrieved party may want
to repudiate the contract, treat the contract as discharged by reason of the other party’s
breach and recover any money he has paid out as well as any other expenses and losses suffered.

❑ Misrepresentation

If you are negotiating with a salesperson with a view to acquiring computer software, he or she
may make statements regarding the software and its performance.
It is not unknown for a salesperson to describe the product in glowing terms and you would expect him to highlight the best features.
Sometimes, he can go too far; he may be anxious to make a sale and may make statements which are simply untrue in an effort to try to
induce you to buy the product.
Some statements are so wild that no one is expected to take them seriously; these are sometimes referred toas advertising ‘puff’.

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SUMMARY
■ Terms of a contract may be:
– written or oral or a combination of both;
– express or implied.
■ Terms may be implied by legislation or by the courts (common law).
■ Terms will be implied by the courts only if necessary to give business efficacy to the contract.
■ Particular terms may be implied in contracts for the supply of computer systems.
■ Express terms may be controlled by:
– legislation – for example, exclusion clauses may be struck out;
– the courts, where the term is in restraint of trade.
■ Terms may be implied to set quality standards.
■ Contracts for the acquisition of hardware are sale of goods contracts for which:
■ The consequences of a breach of contract depend on the classification of the term in question:
– for conditions, the aggrieved party may repudiate the contract and/or seek damages;
– for warranties, the aggrieved party may seek damages only;
– in the case of innominate terms, it depends on the seriousness of the breach.
■ Late delivery is normally a breach of condition, but:
– in a contract for writing software, it is more likely to be a warranty, especially:
– if the contract has a term for liquidated damages for late delivery.
■ It is accepted that software usually contains errors and delivering software with errors:
– is not necessarily a breach of condition;
– or even a breach of contract if the contract provides that the developer will fix errors.
■ The normal remedy for misrepresentation is rescission, however:
– if the misrepresentation is negligent or innocent, a court may award damages instead