White SW Computer Law
Intellectual Property, Information Technology & Telecommunications Lawyers
Melbourne Office - PO Box 452, COLLINS STREET WEST Victoria 8007 Australia
Sydney Office - GPO Box 2506, SYDNEY New South Wales 2001 Australia
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Email: wcl@computerlaw.com.au Internet: http://www.computerlaw.com.au

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White SW Computer Law Intellectual Property, Information Technology & Telecommunications Newsletter - January 1997

Is your IT project a lemon?

When a software development project goes off the rails pre-contractual negotiations and representations may be used in a Trade Practices Act action. At all stages before and during the development, you should keep notes of all representations made and confirm the representations with the other parties involved. Whether you are the Software Developer or the customer, the party who has a documented history of all negotiations will have a great advantage should the dispute proceed to litigation.

In Westsub Discounts Pty Ltd v IDAPS Australia Ltd, IDAPS was engaged to develop a software program to handle the records for a videotape library. The project was largely unsuccessful and representations made by IDAPS' employees as to the suitability of the proposed program were important evidence used to support a claim for misleading and deceptive conduct. Representations found to have been misleading and deceptive included: “that the application software would fulfil the specific requirements of Westsub; the maximum response time for each terminal would be no more than five seconds; a debtors interface would be supplied and implemented with minimal delay; a pricing matrix would be supplied and implemented with minimal delay; and the whole computer system would be able to accommodate fifteen terminals with the same five second response time guarantee”. (Do these sound familiar?) In making its decision, the Court made extensive reference to the notes taken and records kept by both parties.

The Trade Practices Act claim was successful whilst claims in contract and breach of warranty both failed due to “entire agreement” and “limitation of liability” clauses. Negligence was also claimed but the Court did not consider it necessary to make any finding due to the success of Westsub under the Trade Practices Act. Have you considered Systems Integration Insurance?

If you are not the copyright owner of all component parts and tools used in your software development the terms and conditions of the licences for these programs need to be carefully considered before entering into a licensing agreement or copyright assignment with respect to your software. In CCH Australia Ltd and Anor v Accounting Systems 2000 (Developments) Pty Ltd and Ors, Accounting Systems 2000 (AS2000) entered into an agreement to assign its copyright to Castle Douglas Pty Ltd, a company affiliated with CCH, and in doing so stated that it was the sole beneficial owner of the copyright. In fact, the AS2000 software was a modification of a third party's software for which it had a licence to modify and on sell, subject to certain conditions, however, AS2000 was not the copyright owner. CCH, upon discovering that AS2000 was not the copyright owner, commenced litigation to rescind all agreements and contracts between AS2000 and CCH based on the fact that AS2000 had engaged in misleading and deceptive conduct in claiming to be the copyright owner if the software it was marketing. CCH was successful in their claim both at trial and on appeal.

It is important that intellectual property ownership is made clear in any pre-contractual negotiations and in your contracts. Parties engaging software developers should demand adequate contractual protection against loss and/or liability arising from copyright or other intellectual property breaches. Do you have a policy to cover these matters?

Do you rent computer software or sound recordings on a commercial basis?

Amendments made to the Copyright Act 1968 which came into effect in 1996 had the effect to include the exclusive right to enter into a commercial rental agreement as a right of a copyright owner. If you are operating a business which hires out, for example, computer games or musical recordings without a licence from the copyright owner to do so, you could be sued for infringement of copyright.

How much control do you have over your website?

If a customer has engaged a developer to create an Internet site the copyright in the site will most likely be owned by the developer and not the customer unless an assignment of copyright has been signed.

Further, if a customer has requested that certain material be incorporated into the site, the developer should seek an indemnity from the customer that that material does not infringe the copyright of any other party.

Before the site is accepted, functional and performance tests should be undertaken to examine important features, such as the response time when the site is accessed, to ensure that the development meets all the client's specifications (which should have been addressed in the contractual documentation).

Issues such as where the site will be stored; what backup facilities are available; whether the site be maintained and publicised by the developer and who is liable for losses incurred due to down time amongst others should all be covered in an appropriate agreement to ensure that the parties get the most out of your site without the need for continual dispute resolution.

In addition, remember that if your site distributes, unauthorised copyright material, misleading or deceptive material or is defamatory you may be sued. Have your considered whether you need insurance for such activities.

Are you familiar with the Electromagnetic Compatibility Framework?

Although the EMC framework has been phased in since January 1996, compliance with these regulations will begin to be enforced from January 1997. Manufacturers and suppliers should make themselves familiar with the allowable levels of radio frequency emissions from electrical and electronic goods. Suppliers will have to test goods and complete a Declaration of Conformity. These records will be randomly audited by the Spectrum Management Authority (SMA). Goods which do not conform to the required standards may be seized and monetary penalties imposed on the suppliers. Further information is available at the Australian Communications and Media Authority website (formerly Spectrum Management Authority) www.acma.gov.au.

Choose your Domain Name carefully

The US has seen many recent cases of individuals registering domain names which suggest an affiliation with a well known corporation which they hope to sell to the corporation in question. As found in Panavision International v Toeppen this practice can violate the US Federal Trademark Dilution Act. Mr Toeppen was ordered to stop using the trademarks “Panavision” and “Panaflex” as domain names and to transfer the registrations of the domain names “panavision.com” and “panaflex.com” to Panavision International. Interestingly, Toeppen who is a resident of Illinois was sued in a California Court as his infringement was directed at a Californian business. What protection do you have if you were sued by an international firm for a similar infringement?

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