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16 October 2001
Giving away software for free (freeware) has become increasingly popular with many companies over the last decade. It is now particularly easy to effect thanks to the widespread use of the Internet. Offering freeware can serve various purposes (eg, marketing, customer binding or encouraging closer cooperation). Often the parties do not spell out a purchase or licensing agreement in these cases, particularly if they have ongoing business relations. This update considers the issue of liability for freeware pursuant to Swiss law, focusing on liability for damage to other software and hardware, data loss and other damage resulting from its use. The scope of this update is limited to contractual liability and excludes liability for tort (Swiss Code of Obligations Article 41).
Pursuant to the Swiss Code of Obligations parties are essentially free to enter into a contract regarding any kind of obligation, since there is no limit to the types of contract that may be executed under Swiss law. However, certain compulsory provisions limit this freedom.
Contracts will be explicitly regulated if they fall within the contract types set forth in the Swiss Code of Obligations (eg, purchase or rent contracts). They will be regulated only by the general part of the Swiss Code of Obligations if they do not fall within the scope of the special sections of the code (eg, lease or franchise contracts). Even if a certain type of contract is regulated by the Swiss Code of Obligations, the parties are free to stipulate different rules unless compulsory provisions apply. Where the parties do not stipulate their own rules to govern a certain situation, the issue is resolved in accordance with the respective provisions of the Swiss Code of Obligations. Consequently, in the case of a purchase contract it is sufficient if the parties just agree on the object and the price. All other issues arising from the contract will be resolved pursuant to the section of the Swiss Code of Obligations on purchase contracts. The situation is slightly more complicated in the case of contracts which are not regulated by the special sections of the Swiss Code of Obligations, since it is not fully clear which provisions apply where the parties have not stipulated a rule for a certain situation. The first, general rules of the Swiss Code of Obligations will always apply, and the specific provisions for a certain type of contract that best resembles the contract in the given situation may also apply by analogy.
However, even where the parties have stipulated certain terms, these terms might not in fact be applicable. This is the case where a rule of the Swiss Code of Obligations is compulsory (eg, a party cannot waive liability for gross negligence before the incident that leads to liability occurs). This is also true where a contract-type regulated by the code fits the situation well enough to assume that its compulsory provisions must also apply to the particular contract in question.
This mechanism of the Swiss Code of Obligations is the legal framework that governs contractual liability when giving away freeware to business partners.
When considering liability for freeware, the starting point is always to check whether the parties have entered into an explicit agreement regulating liability for the software. Even if the parties have not agreed on individual terms and conditions, there will still be a contract between them and the general rules of the Swiss Code of Obligations will apply. It is therefore important not only to determine the legal boundaries of contractual regulations, but also to investigate the situation where no regulations at all have been agreed on by the parties.
The two defining characteristics of a contract for the use of software with respect to liability are its duration and the charge. The Swiss Code of Obligations does not regulate software contracts. Where a regulated type of contract comes close enough to the characteristics and the problems of a particular software contract, its governing rules can apply.
If software is to be used for a certain time only, the software agreement will share many of the characteristics of a rental agreement or a usufructuary lease. In cases where this time-limited use is for free, the rules regulating the loan of objects seem to be appropriate, as the loan of an object is by definition free of charge. Where the software is given away with no restrictions as far as duration of use is concerned, the software is considered to have been 'sold'. Therefore, the rules on purchase will be applicable in the case of standard software; if the software is not standard, the rules on work contracts may be appropriate. Where the software is 'sold' at no charge the transaction is very close to a donation and will be treated accordingly.
When determining liability it is significant if software has been given away for free. In the case of freeware the Swiss Code of Obligations would tend to ease the liability, as the contract does not directly benefit the person giving away the software.
The main indication of a donation or loan is if there is no return on the transaction at all. Where a whole set of contracts governs the relation between the parties it might be difficult to judge whether there is a return or not. Where software is given away for free, the motives (eg, to attract more business) do not change the free nature of the transaction. Nevertheless, if a donation or a loan is closely connected with other contractual obligations this may affect whether it is characterized as truly free of charge.
Where a software transaction can be characterized as a donation or a loan, because it does not directly benefit the provider, liability is limited to gross negligence and unlawful intent (Swiss Code of Obligations Articles 99 and 248). Pursuant to the Swiss Code of Obligations any waiver of liability for unlawful intent and gross negligence prior to the occurrence of damage is null and void (Swiss Code of Obligations Article 100). Therefore, the minimum liability for freeware is identical with or without a contract.
Pursuant to the Swiss Code of Obligations a party will be liable for damage arising from a default of an obligation unless it proves that the damage is not its fault (Swiss Code of Obligations Article 97). This tenet is basically true for liability for rental agreements, usufructuary leases and purchases, as well as services contracts. As already noted, liability pursuant to the Swiss Code of Obligations can be waived with the exception of gross negligence and unlawful intent (Swiss Code of Obligations Article 100), so the maximum liability for freeware is very different with or without a spelled-out contract.
For companies that give away software for free to business partners, contractual
regulations waiving liability to the lawful limit are vital. Where such regulations
are not in place, a possible return directly linked to the freeware is the critical
characteristic when determining the resulting liability.
For further information on this topic please contact André Thalmann or Michel Brunner at Walder Wyss & Partners by telephone (+41 1 265 7511) or by fax (+41 1 265 7550) or by email (email@example.com or firstname.lastname@example.org).
The materials contained on this website are for general information purposes only and are subject to the disclaimer.
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