The Software Warranty War Opens A Second Front

The war over software contracts is going global. Judging from the industry's response, it could turn into an ugly -- and fascinating -- fight.Last week, I discussed an EU proposal to hold software vendors to the same product liability and warranty rules that apply to most other manufacturers. The software industry's response was, to put it mildly, underwhelming.

Now the American Law Institute is getting in on the act. The ALI recently voted to back a new set of guidelines for interpreting software contract law, giving buyers an implied warranty that the software they buy will not suffer from hidden defects.

The ALI can't enforce its proposals, and it has no actual legislative powers. The group, however, is highly influential within the legal community; legislators, judges, and attorneys routinely use its guidelines and case law interpretations as reference points for their own work.

How controversial is the ALI proposal? Microsoft and the Linux Foundation recently published a joint open letter criticizing the new guidelines. Both groups agree that reinterpreting software contracts to give buyers an implied warranty against hidden material defects could seriously hurt the software industry's ability to innovate -- or even to survive, if the changes prompt a wave of costly lawsuits.

(The joint letter is available here in PDF format.)

Supporters of the EU proposal contend that open-source software, which is typically available free of charge, would remain exempt. The proposed ALI guidelines would include a similar exception for free software, whether it is open-source or proprietary.

The Linux Foundation, however, insists that the guidelines could still ensnare open-source software developers, many of which employ unconventional business models that may or may not turn out to be exempt.

As I mentioned in my last post on this topic, software warranties and liability issues are subjects that the software industry has tiptoed around for decades. The current state of affairs may suit software developers just fine, and it may indeed provide the best way to encourage innovation. Yet it has also raised nagging questions about whether this arrangement really gives software consumers a fair shake.

The EU and ALI proposals may or may not provide an equitable solution to this dilemma. But it is abundantly clear that one way or another, this is a debate the software industry can no longer avoid.