In Short

The Situation:  Whether warranties accompany software used in other products turns on many factors, including whether the designer is providing a "good" or "service," statements in advertising, representations made in sales pitches, contractual terms, and state law.

The Issue: How can software suppliers balance their interest in promoting and selling their software while protecting themselves from unexpected liability for breach of warranty?

Looking Ahead: Careful planning and scrutiny of projects, promotional materials, sales presentations, and contracts can reduce the risk of liability for software suppliers while not inhibiting product sales.

"Good" or "Service"

Courts define software as a "good" when a transaction involves pre-packaged software, even if there are service modifications or ancillary services incidental to the transaction. Courts view software as a "service" when a transaction involves designing software from scratch or acquiring a manufacturer's skill or knowledge in software design. The distinction matters.

The California Commercial Code ("Code") governs transactions involving "goods," including how manufacturers can disclaim implied warranties. In addition, California's Song-Beverly Consumer Warranty Act ("Act") supplements the Code and applies to the sale of a "good." The Act prevents a component-part manufacturer from disclaiming implied warranties if it provides an express warranty. However, if the component-part manufacturer does not provide an express warranty, the Code will permit the component-part manufacturer to disclaim implied warranties and to limit remedies for breach of warranty.

Common law contract principles govern a transaction for a "service." Common law principles allow parties to limit or provide warranties and remedies.

The software designer and supplier may be able to shape the transaction to influence the determination of software as a "good" or "service." The supplier should be aware of and plan for the legal consequences, such as through contract terms or insurance.