[Hague-jur-commercial-law] Contract issue: Product Liability Lawsuits Are New Threat to Microsoft

[James Love]

* Still, a big hurdle for class-action plaintiffs, legal experts say, 
will be the standard software license. It is what all computer users see 
and click to agree to -- even if they seldom read it -- when they start 
a new machine or load a new software program. For the plaintiffs to 
prevail, a judge will have to rule, in effect, that the software license 
is unenforceable or is overridden by another standard, like the "fit for 
intended use" rule that applies to most consumer products.

* Class-action lawyers say they are confident that this standard will 
eventually be applied. "As a matter of policy, I think the courts will 
find that software companies have basic obligations to provide a product 
that does what it is supposed to do," said Terry Gross, a partner of 
Gross & Belsky, a firm in San Francisco. "And that the companies cannot 
avoid those obligations just because of the language in the license."


http://www.nytimes.com/2003/10/06/technology/06SOFT.html

October 6, 2003Microsoft software -- have crashed computers and networks 
around the world. It is only a matter of time, they said, before the 
class-action suits against Microsoft start dropping.

The first came last week, filed in State Superior Court in Los Angeles, 
asserting that Microsoft engaged in unfair business practices and 
violated California consumer protection laws by selling software riddled 
with security flaws. The suit seeks class-action status. More such suits 
are anticipated.

The litigation, legal experts said, is an effort to use the courts to 
make software subject to product liability law -- a burden the industry 
has so far avoided and strenuously resisted.

"For a software company to be held liable would be a real extension of 
liability as it now stands," said Jeffrey D. Neuburger, a technology 
lawyer at Brown Raysman Millstein Felder & Steiner.

To date, software companies have sidestepped liability suits partly by 
selling customers a license to use their programs -- not actual 
ownership -- with a lengthy list of caveats and disclaimers. So the 
warranty programs offered by PC makers, for example, cover hardware but 
not software.

The industry has argued that software is a highly complex product, often 
misused or modified by consumers. Assigning responsibility for a 
failure, the argument goes, would be unfair to any single company.

Besides, software executives say, the industry is a fast-changing global 
business that is largely led by United States companies. Opening the 
industry up to product liability lawsuits, they say, would chill 
innovation and undermine the competitiveness of American companies.

Yet whether the software industry can remain beyond the reach of product 
liability is still not certain. The modern economy -- from office work 
to financial markets to power grids -- depends increasingly on software. 
And the trial lawyers are not the only ones who think software makers 
should face stronger incentives to create products that are more 
reliable and secure.

Outside of the courthouse, regulations and legislation may also be 
deployed to prod the industry toward more secure software. A report last 
year by a National Academy of Sciences panel, made up largely of 
computer scientists from universities and companies, included the 
recommendation that "policy makers should consider legislative responses 
to the failure of existing incentives to cause the market to respond 
adequately to the security challenge."

The debate over software liability seems certain to become more intense, 
computer security experts say, and some shift toward holding software 
makers responsible for defects may be inevitable.

"The broad issue is, as a matter of policy, do we want suppliers of 
products and systems that are critical to our economy to be able to 
absolve themselves of all liability," said Mark D. Rasch, a former 
federal prosecutor who is a senior vice president of Solutionary Inc., a 
computer security firm.

But class-action suits against Microsoft over security matters, legal 
experts say, will be hard-fought and difficult to win. Such cases are 
trying to break new ground in a way that recent class-action antitrust 
suits against Microsoft, for example, did not.

In the antitrust cases, the class-action plaintiffs filed in the wake of 
the landmark federal case that found the company was a monopoly that had 
repeatedly abused its market power. Microsoft has tried to settle its 
antitrust class actions, including agreeing to pay a $1.1 billion 
settlement in California earlier this year.

Microsoft, by contrast, has suffered no reverses in court that would 
establish any liability for flawed software. In the current case, it is 
conceding nothing. Microsoft issued a statement saying that developing 
the most secure software possible was a top priority for the company.

"This complaint misses the point," the Microsoft statement added. "The 
problems caused by viruses and other security attacks are the result of 
criminal acts by the people who write viruses."

The suit was filed by an experienced product liability lawyer, Dana B. 
Taschner, on behalf of Marcy Levitas Hamilton, a Los Angeles film 
editor, and other members of the proposed class.

The 19-page complaint is a broad-brush document arguing that Microsoft's 
Windows operating system, which runs 90 percent of all personal 
computers in the world, is poorly designed, flaw-ridden, and that the 
company ships software it knows is riddled with security flaws. The 
complaint adds that Microsoft's system for warning the public of 
security problems is so confusing and technically complex that it is of 
little use to the ordinary computer user.

Because of Microsoft's insecure software, the complaint asserts, Ms. 
Hamilton suffered identity theft -- someone obtained unauthorized access 
to her Social Security number and bank account information, which was 
stored on her computer.

Still, a big hurdle for class-action plaintiffs, legal experts say, will 
be the standard software license. It is what all computer users see and 
click to agree to -- even if they seldom read it -- when they start a 
new machine or load a new software program. For the plaintiffs to 
prevail, a judge will have to rule, in effect, that the software license 
is unenforceable or is overridden by another standard, like the "fit for 
intended use" rule that applies to most consumer products.

Class-action lawyers say they are confident that this standard will 
eventually be applied. "As a matter of policy, I think the courts will 
find that software companies have basic obligations to provide a product 
that does what it is supposed to do," said Terry Gross, a partner of 
Gross & Belsky, a firm in San Francisco. "And that the companies cannot 
avoid those obligations just because of the language in the license."