Richard Raysman and Peter Brown

Generally speaking, a warranty in the context of a software license is a stipulation or promise that the subject of the license is or shall be as stated within the terms of the license. Moreover, the warranty agrees to protect the recipient if that fact is or becomes untrue. There are of course carve-outs from a warranty provision, including that the warranting party disclaims liability for reliance on the operation and functioning of the underlying software.

This issue recently arose in irth Solutions v. S&S Utilities Engineering¸ No. 19-cv-613-FPG 2019 WL5694247 (W.D.N.Y. Nov. 4, 2019). In this case, the U.S. District Court for the Western District of New York confronted a dispute about the preeminence of a specific warranty provision in a license over the general warranties the licensee alleged were included in other provisions therein. This column deals with the resolution of this dispute in favor of the licensor, on grounds that the warranty provision and related risk acknowledgment provision exculpated the licensor for liability, irrespective of the potential hints at warranties included elsewhere in the license. den

Facts and Procedural History

Plaintiff irth Solutions (plaintiff) provided software that helped utility entities manage notifications of excavation projects that will impact their property (the software). The notifications are known as "dig tickets." When a utility receives a dig ticket, it must delineate the location of its assets at an excavation site in order to protect assets and avoid interruption of services. To deal with dig tickets, utilities hire "contract locators" to identify and mark locations responsive to the ticket. These contract locators in turn utilize products like the Software to manage and process dig tickets.

Defendant S&S Utilities Engineering (defendant) is a contract locator. In August 2017, defendant licensed the software (the license) from plaintiff's predecessor in interest, Bytronics. The license set forth that Bytronics would provide defendant with software support within specific time periods. The support also entailed correcting any defects in the software. In November 2017, plaintiff acquired Bytronics and was assigned the license.

Following this acquisition, defendant alleged that plaintiff's software support "which had previously been very good [when performed by Bytronics], deteriorated significantly." In particular, defendant alleged that plaintiff's response to requests for support slowed so as to render the software completely unavailable to defendant. Defendant then left plaintiff for Apex Data Solutions and Services (Apex), a competitor of plaintiff.

Plaintiff sued defendant alleging, inter alia¸ that defendant granted Apex access to the software in contravention of the license, thereby allowing Apex to steal plaintiff's trade secrets associated with the software. Although plaintiff sued Apex and its principal as a result of this alleged misappropriation, this column focuses solely on the subsequent lawsuit filed by plaintiff against defendant alleging breach of contract and misappropriation of trade secrets. Defendant counterclaimed alleging that plaintiff breached the license by failing to provide timely customer support for the software (the counterclaim).

Although plaintiff also sought a judgment on the pleadings that it is entitled to recover from defendant any attorney fees incurred in its litigation against Apex, this column addresses only plaintiff's motion to dismiss the counterclaim.

Legal Analysis and Conclusions

Defendant's counterclaim alleged that plaintiff's failure to provide timely support services for the software violated the "Scope" and "Response Time" provisions of the license. Plaintiff countered that the counterclaim was barred by multiple limitation of liability clauses in the license in the form of "Warranty" and "Risk Acknowledgement" clauses.

The court agreed with the plaintiff and dismissed the counterclaim. First, the court held that the "Warranty" provision absolved plaintiff of responsibility for both use of and reliance on the software.  In so holding, the court cited to the counterclaim's allegations that referenced the defendant's dependence on plaintiff to provide reliable access to the software.

Second, the court held that the "Risk Acknowledgement" clause of the license required defendant to "accept[] all risks associated with using the [software]" and represented that it had "developed a backup plan in the event that [the software] may become unavailable due to any reason whatsoever." Consequently, plaintiff's supposed failure to satisfy any support obligations in a timely fashion is a "risk associated with" using the software covered by the "Risk Acknowledgment" clause of the license.

In sum, the court held that the license contained "unambiguous" terms that "shield" plaintiff from liability under the counterclaim. Defendant also argued that the general disclaimers in the "Warranty" provision of the license were overridden by the more "specific" warranties allegedly set out in the provisions of the license delineating the services to be provided by plaintiff. Again, the court disagreed. The court held that the limitation of liability language in the "Warranty" provision was language that had been found in other cases to carve out potential liability for the party seeking to assert a warranty defense.  Absent "unconscionable conduct or unequal bargaining power between the parties," which defendant had not alleged, provisions similar to the "Warranty" provision had been upheld routinely.

Accordingly, the court granted plaintiff's motion to dismiss the counterclaim.

Richard Raysman is a partner at Holland & Knight and Peter Brown is the principal at Peter Brown & Associates. They are co-authors of "Computer Law: Drafting and Negotiating Forms and Agreements" (Law Journal Press).