Dematerialized goods and liability in the electronic environment: the truth is, ‘there is no spoon (box)’

Abstract

This paper considers the rights and potential liabilities that may, or may not, arise in relation to contracts for ‘dematerialised’ or ‘intangible’ items. Such contracts are increasingly entered into and performed via an electronic form of communication making this a potentially significant issue for parties engaging in electronic commerce. The issues raised naturally lead to the examination of the legal arguments associated with that most infamous ‘intangible’; computer software. It is argued that in disputes relating to computer software and in particular when the issue of its classification as ‘goods’, ‘services’ or ‘something else’ have been raised, there has been a tendency to overstate the ‘unique’ nature of computer software and lose focus of the real issue of what rights and liabilities should be attached to contracts relating to these items. When other dematerialised or intangible items are considered, an unacceptable dichotomy in relation to rights and potential liabilities, often overlooked when discussing computer software, is highlighted. It is concluded that as the law stands the method by which an item is delivered may dictate the rights and obligations attached to that contract adversely discriminating against the customer using electronic commerce.

Notes

1 I must add feedback that was very gratefully received! Particular thanks to Ruth Atkins for her comments on the paper.

2 Or should I say a copy of an ‘original work’ has been sold.

3 See the approach adopted by the House of Lords to a contract for the building and delivery of a ship in Hyundai Heavy Industries Co. v. Papadopoulos and Others 1980 2 All E.R. 29.

4 That goods sold ‘match their description’, are of ‘satisfactory quality’ and are ‘fit for their purpose or purposes’ (ss13–15 SGA). That services are performed with ‘reasonable care and skill’ (s13 SGSA)

5 This is considered in more detail in the next section.

6 See Trollope & Colls Ltd v N.W. Metropolitan Regional Hospital Board 1973 1 W.L.R. 601 and Liverpool CC v Irwin 1976 2 All ER 39. The main difference between the terms implied by statute and the terms implied by the courts is that the latter are implied subject to a contrary express term and are also susceptible to being excluded or limited by an exemption clause. The statutory implied terms are also protected by s6 Unfair Contract Terms Act 1977. The protection is absolute where one party ‘deals as a consumer’ with exemption clauses rendered automatically ineffective and subject to the requirement of reasonableness where neither party deals as consumer.

7 The Sale and Supply of Goods to Consumers Regulations 2002 (Statutory Instrument 2002 No. 3045).

8 Consumer Protection Act 1987, s1.

9 Trade Descriptions Act 1968, s1 and Consumer Protection Act 1987, s20.

10 Consumer Protection (Distance Selling) Regulations 2000, regulations 3, 11 and 12.

11 As will be seen below, this question has already been considered in cases involving one of the intangible items mentioned previously—computer programs and software. It will however be suggested that the analysis and arguments considered in those cases have done little to clarify the situation. Nevertheless, useful analogies can be drawn.

12 Robinson v Graves 1935 1 KB 579; Cammell Laird & Co Ltd v Manganese Bronze and Brass Co Ltd 1934 AC 402; c.f. Lee v Griffin (1861) 1 B & S 272.

13 It is also relevant to note that the courts have appeared willing to treat a complex contract as a combination of both rather than either/or where it appears appropriate. See Hyundai Heavy Industries Co. v Papadopoulos and Others 1980 2 All E.R. 29 and some supporting comments by Lord Penrose in Beta Computers (Europe) Ltd v Adobe Systems (Europe) Ltd 1996 FSR 367 at p 396.

14 For example D Bainbridge Introduction to Computer Law 5th edn, Longman, London, 2004, p 193.

15 The necessity of such licences has been debated, see M Sherwood-Edwards ‘Seven degrees of separation: the Software Directive and UK implementation’ Computer Law and Practice Vol 9, No 5, pp 169–175, 1993 and G Smith ‘EC Software Protection Directive—an attempt to understand article 5(1)’ Computer Law and Security Report Vol 7, No 4, pp 148–151, 1991.

16 This surely remains the case, even if the item you have purchased requires continual updating to amend and correct faults and flaws in the product sold. A practice common to certain software suppliers.

17 At the BILETA 2004 conference. If I am incorrect and my memory has failed me I apologise and would be happy to re-attribute the anecdote to its rightful owner.

18 This definition is also applied to the Consumer Credit Act 1974, the Unfair Contract Terms Act and the Supply of Goods and Services Act 1982.

19 Halsbury's Laws of England 4th edn, Butterworths, London, 1991, Vol 35, at 1205.

20 The Supply of Goods and Services Act 1982 s12.

21 B Garner (ed) Black's Law Dictionary 7th edn, West Group, St. Paul, Minn, 1999.

22 Bainbridge, For example D Bainbridge Introduction to Computer Law 5th edn, Longman, London, 2004, p 196.

23 Such a conclusion could lead to some very interesting debates about whether the last time my software failed and dumped files from my hard drive, downloaded a virus, or allowed a hacker to gain access, it was performing its duties with reasonable care and skill??

24 In the case of ‘off the shelf’ software at least.

25 Treating the software as the ‘instructions’ for the hardware for example.

26 See St Albans City and District Council v International Computers Ltd 1997 F.S.R. 251 per Sir Iain Glidewell at p 266.

27 A ‘chose in action’ is a proprietary right in personam, in contrast with a ‘chose in possession’.

28 The only form of property recognised in computer software and other intangibles is ‘intellectual property’ which is non-physical and beyond the scope of the definition and usually not transferred under the contract and hence ‘ownership’ is not taken of it.

29 For example, the variation in reflective and non-reflective pits on a CD or the altered orientation of the magnetic particles on a magnetic disc by the presence of the program. See St Albans City and District Council v International Computers Ltd 1997 F.S.R. 251 per Sir Iain Glidewell at 265 per Sir Iain Glidewell.

30 A Scott ‘Software as “goods”: nullum simile est idem’ Computer Law and Policy Vol 3, No 4, pp 133–136, 1987.

31 As indeed a movie or music album may be when downloaded.

32 A Scott ‘Software as “goods”: nullum simile est idem’ Computer Law and Policy Vol 3, No 4 at p 135, 1987.

33 1967 2 AC 46.

34 1967 2 AC 46, per Lord Upjohn at p 128.

35 1978 68 Cr App R 183.

36 A Scott ‘Software as “goods”: nullum simile est idem’ Computer Law and Policy Vol 3, No 4 at p 136, 1987.

37 DVDs and CDs essentially contain a series of ‘bumps’ or ‘gaps’ interpreted by the reader as binary ones and zeros. This information is simply translated into its recognisable form by the technology or software in the computer, DVD or CD player. On a magnetic tape or disc the arrangement of the magnetic particles is interpreted by the player/reader.

38 P S Atiyah et al, The Sale of Goods 10th edn, Longman, Pearson Education, London, 2001, pp 66–71.

39 938 F 2d 1033 (9th Cir 1991).

40 P S Atiyah et al, The Sale of Goods 10th edn, Longman, Pearson Education, London, 2001 at p 68.

41 Although the ‘physical’ argument discussed above could be of equal application.

42 As is becoming increasingly common with Microsoft's domination of the software market.

43 1983 2 NSWLR 48.

44 1983 2 NSWLR 48, at 51. This description was adopted in the St Albans case by Scott-Baker J.

45 s14. See Wormell v RHM Agriculture Ltd 1986 1 All ER 769, a decision reversed by the Court of Appeal 1987 3 All ER 75, but on the ground that the instructions were not misleading. The Court did not suggest that misleading instructions could not amount to a breach.

46 DVDs and CDs essentially contain a series of ‘bumps’ or ‘gaps’ interpreted by the reader as binary ones and zeros. This information is simply translated into its recognisable form by the technology or software in the computer, DVD or CD player. On a magnetic tape or disc the arrangement of the magnetic particles is interpreted by the player/reader, p 38, n 18.

47 Citing E Macdonald ‘The council, the computer and the Unfair Contract Terms Act 1977’ Modern Law Review Vol 58, No 4, pp 585–594, 1995, at p 590.

48 P S Atiyah et al, The Sale of Goods 10th edn, Longman, Pearson Education, London, 2001.

49 In a transaction for the purchase of a book from a shop, a distinction is made between the liabilities of the shop or publisher and the author. The former may be liable under the SGA for missing pages or poor manufacture but not liable in respect of erroneous information contained within the book. See M G Bridge The Sale of Goods Oxford University Press, Oxford, 1998, p 31.

50 In a transaction for the purchase of a book from a shop, a distinction is made between the liabilities of the shop or publisher and the author. The former may be liable under the SGA for missing pages or poor manufacture but not liable in respect of erroneous information contained within the book. See M G Bridge The Sale of Goods Oxford University Press, Oxford, 1998, p 31.

51 See I Lloyd ‘A rose by any other name’ Journal of Business Law, pp 48–54, January 1993.

52 This line of reasoning is returned to below. It is submitted that this is the approach that should be taken in relation to dematerialised goods.

53 Torkington v Magee 1902 2 K.B. 427 at p 430: ‘“chose in action” is a known legal expression used to describe all personal rights of property which can only be claimed or enforced by action, and not by taking physical possession’.

54 In the computer software context this was recognised by Steyn J in Eurodynamics Systems v General Automation Ltd (1988) unreported 6 September, LEXIS.

55 925 F 2d 670 (1991).

56 B Napier ‘The future of information technology law’ Cambridge Law Journal, Vol 51, No 1, pp 46–65, 1992, at pp 55–57.

57 B Napier ‘The future of information technology law’ Cambridge Law Journal, Vol 51, No 1, pp 46–65, 1992, at pp 55–57.

58 St Albans City and District Council v International Computers Limited 1995 F.S.R. 686 at 699.

59 B Napier ‘The future of information technology law’ Cambridge Law Journal, Vol 51, No 1, pp 46–65, 1992, at p 55.

60 Direct down–loading from the Internet for example.

61 See St Albans City and District Council v International Computers Ltd 1997 F.S.R. 251 per Sir Iain Glidewell at p 265. However, certain measures including unfair terms legislation and distance selling provisions are more difficult for the common law to emulate.

62 For example; the much criticised ‘merchantable quality’ terminology remained until 1994.

63 R Bradgate Commercial Law 3rd edn Butterworths, London, 2003, p 273.

64 E Macdonald and D Rowland Information Technology Law 2nd edn, Cavendish, London 2000, p 185.

65 Beta Computers (Europe) Ltd v Adobe Systems (Europe) Ltd 1996 FSR 367.

66 Beta Computers (Europe) Ltd v Adobe Systems (Europe) Ltd 1996 FSR 367 at p 376.

67 Beta Computers (Europe) Ltd v Adobe Systems (Europe) Ltd 1996 FSR 367. See also, C Reed and J Angel Computer Law 4th edn, Blackstone Press, London, 2000, p 44.

68 6th September 1988 (unreported) LEXIS.

69 R Bradgate Commercial Law 3rd edn Butterworths, London, 2003, p 273.

70 R Bradgate Commercial Law 3rd edn Butterworths, London, 2003, p 273

71 1995 FSR 686.

72 1995 FSR 686 at 699.

73 B Napier ‘The future of information technology law’ Cambridge Law Journal, Vol 51, No 1, pp 46–65, 1992, at pp 55–57.

74 Defined in s11. Where the contract is between a supplier and a consumer the Regulations on Unfair Terms in Consumer Contracts 1999 would also remain relevant.

75 See, Macdonald and Rowland, E Macdonald and D Rowland Information Technology Law 2nd edn, Cavendish, London 2000, ch 4, pp 185–186.

76 1946 2 All ER 691.

77 St Albans City and District Council v International Computers Limited 1997 F.S.R. 251 at 266.

78 For example, the protection afforded the consumer under the Consumer Protection (Distance Selling) Regulations 2000.

79 For example the protection afforded by s6 of the Unfair Contract Terms Act 1977.