What constitutes goods
under the sale of goods?
According to Section 2 of the Sale of Goods Act goods include all chattels personal other than things in action and money, and all emblements[1], industrial growing crops and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.
According to Section 2 of the Sale of Goods Act goods include all chattels personal other than things in action and money, and all emblements[1], industrial growing crops and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.
The definition is
extensive and virtually all embracing. It excludes non-physical items. What
about software? Though a none-physical item but it can be embedded in some
physical form and can be sent online without being embedded in some physical.
Usually only the medium carrying the software is sold as the intellectual
property rights reside with the software developer.
Is the supply of
computer software a sale of goods?
Beta Computers (Europe)
Ltd v. Adobe Systems (Europe) Ltd[2]
Adobe had ordered
information management software from the plaintiff. The software was ordered
via telephone. The package came and it had a shrink wrap license from the
software house which is standard. On the package was a notice of terms and
conditions of licensing and further the notice stated that the opening of the
package indicates an acceptance of the terms and conditions. For one reason or
the other Adobe refused to accept the goods and sent them back. The plaintiff
refused to receive the goods back and sued for the price.
Beta Argued that it was
a contract for the sale of goods. Beta
contended that there was an unconditional and unqualified order for identified
software. This order was made on the telephone and Adobe purchased it 'blind'
so far as any terms and conditions of contract were concerned. Beta met the
order and claimed that Adobe should pay the contract price. Adobe argued that
the accepting of the license agreement was an implied condition of the contract
and it was suspensive if not accepted.
Lord Penrose held that
both view were wrong and stated that it was a single contract sui generis and contained both elements
of sale of goods and grant of a license. Was essential that the supplier
provide the medium in which the software could be conveyed as well as access to
use the software. The learned judge held
that there was no consensus ad idem until the conditions by the software author
were accepted. Lord Penrose found that the license terms by the author of the
software must form part of the contract that the purchaser made with the
supplier.
The doctrine of privity
in English law provides that contracts are binding only on those party to them.
This means that where there is a software company, supplier and end-user, the
software company must seek to create a contract with the ultimate customer. In
circumstances similar to Beta v Adobe, it could be argued that the
shrink-wrap license would be unenforceable by English law because there is no
consideration from the purchaser to the software company. The license then
becomes an unenforceable set of guidelines. However, any 'promise' by the
purchaser might be interpreted to be a form of consideration. A contract could
then exist between the software company and purchaser. If so, the outstanding
question concerns the fact that the license terms only come to the attention of
the purchaser after the apparent point of sale. The issues are the same as
those considered above. To date, no English court has addressed the question of
the validity of shrink-wrap licenses. If the issue should arise, Beta
v. Adobe may hold some persuasive authority[3].
St Albans City and
District Council v International Computers Ltd[4]
The council purchased
software from the defendants to calculate council taxes. Mistakes in the
software under calculated the amounts required to be recovered causing the
council substantial losses. The company sought to rely upon a clause in the
contract limiting the extent of their liability. The learned court found that a
disk is within the definition of goods on the other hand a computer program is
not goods. However when a defective program is encoded and sold or hired on a
disk, the seller or hirer will be in breach of the terms as to quality and
fitness. The supply of a disk is either a sale or supply of goods. Who is
right? Lord Penrose, Sir Ian Glidewell(H.C) or Lord Scott Baker?
Christopher Reed wrote
an article to the effect that when a software is encoded in a physical medium
it should be regarded as property[5].
Lord Penrose criticized all his views and said that they are unattractive to
him because they emphasize too much on the role of the physical medium. The
rights of the parties should not depend upon the medium of supply. If a book is
bought in a library and pages start falling off be termed as a contract sui
generis and thus outwit the Sale of Goods Act? Certainly not. Liability must be
established as between the publisher, supplier and end user.
A physical medium may
harm its environment if it had a virus. Most software is sold off the shelf and
online. Liability for defective software should not be based on the carrier
medium but upon whether it is mass produced off the shelf software or
customized software for a client. In the event of defective software the loss
spreading approach would make the store liable as the biggest loss spreader and
this would make it liable for breach under the Sale of Goods Act but under this
approach there would be no need to include the software house in the matter.
In the Australian case
of Toby Constructions Products Ltd. v. Computer Bar Sales Pty Ltd[6]
It was held that it would
be too simplistic altogether to say that the supply of the system was a sale of
goods merely because the bulk of the cost related to the hardware. Rather I
think it is necessary to look at all the features of the object of the sale and
the various ingredients such as price, the nature of the material which was to
be supplied, the terms of installation, and the work which the system was
designed to effect. The court suggested that mass production was a relevant
criterion in determining whether there was a sale of goods. The
court determined that the sale of a computer system, comprising both hardware
and software, constituted a sale of goods.
Eurodynamics
Systems Plc v General Automation[7]
ED designed and
developed bespoke computer application software for small to medium mainframe
computers. ED specialized in business/technical and accounting software and
wanted to expand its business and to sell both its own software and the
computers on which the software was designed to operate. In order to accomplish
this purpose, ED became a franchisee of GA with a view to purchasing computers
and associated programmes.
The express provisions
of the franchise agreement imposed an obligation on GA to support COBOL
software. After the agreement, GA started both to refuse to meet the extant
technical complaints and to provide future support for COBOL-based software to
ED. The court found that GA was in breach of express terms and awarded the sum
of £94,500 based on the estimate that, during the relevant period, ED would
have succeeded in making at least seven turnkey systems and seven application
packages. Lord Steyn held that although the ideas and concepts
involved in software remained [the defendant's] property, the reality of the
transaction is that there has been a transfer of product. In the reality of the
transaction approach classification does not matter if express duties are
breached[8].
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