What is the average buyback of software products

Buying software from a legal point of view

The trade in software takes place in the most varied of ways and in some cases in forms of distribution that are only economical for software. A distinction must be made between standard software, i.e. software tailored for a wide range of users that has not been adapted for the buyer, and individual software, i.e. software that is created for the provider.

The software can also be left permanently or temporarily. Furthermore, the type of transfer is very different. Standard software is often sold embodied in a medium like a piece of goods. However, the provision of software by enabling it to be downloaded is also widespread. In recent times, software has often not been left, but the provider simply provides the software on his server and allows the customer to use this software for a limited time via the Internet or to use other electronic networks (ASP).

How are these types of leasing contracts to be classified in terms of contract typology?

The decisive factor here is whether the software is standard software or individual software. It is also decisive whether the software is provided permanently for a single payment or for a limited time.

  • Standard software: If standard software is made available on a permanent basis, according to established case law, the regulations of the sales law are to be applied at least accordingly. If the duration of the lease is limited, tenancy law applies.
  • Individual software: Different regulations apply to the creation of individual software. The form in which the software is provided is irrelevant for the case law. The 12th Civil Senate at the Federal Court of Justice recently decided pragmatically and released the software from the data carrier. He decided (judgment of November 15, 2006 - Az.:XII ZR 120/04) that software can only be used if it is embodied somewhere on a data carrier. This does not have to be in the customer's possession. Software is therefore also a thing if it is embodied in the supplier, not with the customer.

Note: The following article is based on the provision of standard software in the long term and thus on the purchase of software.

The purchase of software is a typical, almost everyday IT procurement process. In many cases, it is not just about the delivery of the software. Especially when purchasing software for medium-sized and larger IT systems, the user would often not be able to independently establish the operational readiness of the respective software. Rather, he is dependent on the support of the IT provider, which then often represents an additional service. The decisive factor here is that this type of ancillary services cannot change the contract type of the sales contract as long as they do not represent the focus of the contract. This would only be the case if this ancillary service were given such weight that it represented the focus of the service. In this case, the focus would not be on the delivery of the software, but on the integration and installation of this software in the client's system environment.

1. Rights and obligations of the contracting parties in the purchase contract

The purchase contract obliges the IT provider (as the seller) to provide the IT procurer (as the buyer) with the standard software for use as intended. If the software is left embodied on a medium, ownership must be provided for it (cf. § 433 sentence 1 BGB). The software also includes the user documentation. But this is not the only duty of the seller. The law also stipulates in Section 433 (1) sentence 2 BGB that the seller is obliged to provide the buyer with the standard software free of material and legal defects (see Section 433 (1) sentence 2 BGB).

The IT procurer is obliged by the purchase contract to pay the IT provider the agreed purchase price and to accept the purchased software (Section 433 (2) BGB).

The purchase contract is fulfilled by the transfer. This means that the seller is generally not obliged to install the software on the buyer. If the buyer wants to receive this service, he must therefore agree it separately.

2. Exhaustion principle when “buying” software

Standard software is protected by copyright. At Provision of standard software on a permanent basis the so-called exhaustion principle of copyright applies against a one-off payment. In Section 69 (3) of the Copyright Act, the Copyright Act provides that the distribution of a computer program in the EU cannot be ruled out if it has been sold by way of sale with the consent of the legal owner (principle of exhaustion). The copyright law provides for the free transferability of "purchased" software to third parties. This freedom also applies to the use of the software on any system environment. This expressly does not apply to the rental.

The exhaustion principle of copyright law is an essential basic idea of ​​a legal regulation within the meaning of § 307 Paragraph 2 No. 2 BGB, from which it is not possible to effectively deviate from in GTC. This means that, at least in the terms and conditions, the software cannot be prevented from being passed on. Furthermore, according to prevailing opinion, the so-called CPU clause is inadmissible in sales law licensing terms and conditions.

It is therefore not possible in general terms and conditions to specify the use of the software for a specific system environment, as it is considered an unreasonable disadvantage for the contractual partner if the latter can no longer use the purchased software because he has changed his system environment.

In individual contracts, however, the contractual partner's rights of use can also be permissibly restricted when the software is sold. For example, the transfer of the software to third parties can be excluded in an individual contract or the use of the software can be restricted to a certain system environment.

In the Rental of standard software the IT provider, on the other hand, will be able to restrict the use of its software by the tenant to a large extent in terms of terms and conditions. This leads to the fact that some providers of standard software are flirting with the idea of ​​no longer “selling” their standard software but rather renting it out.

It is true that the rules of liability for defects under commercial law, which are relatively favorable for the provider, apply to the “sale” of standard software. On the other hand, the buyer's rights of use, for example the right to pass the software on to a third party, can only be restricted to a minor extent.

2.1 Requirements for liability for defects in the purchase contract

There are two basic requirements for asserting claims for defects:

  • The presence of a defect.
  • The defect must have been present when the contract was fulfilled, i.e. when the goods were delivered (transfer of risk) or when the goods were accepted.

2.1.1 The existence of a defect

The BGB knows different terms of defects, depending on the respective type of contract. The definition of defects in sales and work contracts has been harmonized since the reform of the law of obligations in 2002. The most important change is the alignment of material and legal defects and the obligation of the seller and the entrepreneur to deliver defective standard software (Section 433 (1) sentence 2 BGB) or to create it (Section 633 (1) BGB). The delivery of defective standard software is therefore a breach of contract according to the new sales and work contract law. There is therefore no longer a separate warranty institute as in the old law in sales and work contract law. The term warranty for legal liability for defects has become so independent that it will be some time before it is replaced by the term liability for defects in everyone's mind.

According to § 434 Paragraph 1 BGB, standard software is free from material defects if it has "the contractually agreed quality". Conversely, there is a material defect if the actual condition deviates unfavorably from the target condition. Cases are of course conceivable in which the contracting parties have not made a contractual agreement on properties. The law has also taken precautions for this and regulated in Section 434 (1) 2 No. 2 BGB that “the suitability for normal use of the standard software” or “the usual quality or properties to be expected by the buyer” are important.

In contrast to the law on contracts for work and services, other aspects are also taken into account in sales law, which lead to the deficiency of the standard software. First of all, the liability for advertising claims (e.g. three-liter car) is noticeable. While until now liability for the assurance of properties only existed in the event of an express assumption of liability, the seller must now be responsible for every type of service description in the form of advertising, brochures, etc. On top of that. The seller is also liable for the specifications of manufacturers and suppliers. Incorrect assembly instructions now expressly represent a material defect (so-called "IKEA clause"). If the assembly is carried out by the seller, there is a material defect if the assembly was carried out by the seller and is defective (e.g. the software was incorrectly installed and connected). Finally, all cases of wrong or insufficient deliveries are treated as a material defect. The often controversial criterion of the ability to approve the delivery is no longer relevant.

Note: Even an insignificant defect represents a material defect within the meaning of Section 434 BGB or Section 633 (2) BGB.

2.1.2 It all depends on the point in time

In addition, the so-called “transfer of risk” plays a crucial role in sales law. The passing of risk is the point in time at which the risk of loss or damage passes to the buyer. Only if the defect was present at this point in time does the buyer have warranty rights (warranty claims). Defects that arise after the point in time of the "transfer of risk", on the other hand, no longer trigger any warranty rights.

In addition, the contractor must prove that the standard software is free of defects until the risk has passed. Once the risk has passed, the client bears the burden of proof. The widespread opinion that the burden of proof is reversed to the detriment of the contractor for the first six months after the transfer of risk applies, according to Section 476 of the German Civil Code, only to consumers and is in b2b (business to business, i.e. company sales) and b2g (business to governement, i.e. sales to authorities) ) not relevant. In the case of sales law, the transfer of risk normally represents the handover (cf. § 446 BGB), i.e. the delivery of the standard software. In the case of sale by mail order, the transfer of risk according to §§ 447 i V. m. 269 BGB, the place of business of the seller, unless the parties have agreed that the place of performance is the buyer, i.e. the client. If the buyer is a consumer, the place of performance is where the consumer receives the goods (Section 474 (2) BGB).

2.2 The statutory claims for defects in sales law

The buyer has the following statutory warranty claims:

  • Subsequent performance claim
  • resignation
  • reduction
  • Compensation instead of performance
  • Reimbursement of expenses

2.2.1 Subsequent Performance

First of all, the buyer can request supplementary performance, see § 437 No. 1 BGB. Subsequent performance is the generic term for new deliveries or repairs. The right to choose is exercised by the buyer, unless the buyer's choice is unreasonable for the seller. The seller bears the costs of subsequent performance, transport, travel, labor and material costs (Section 439 (2) BGB).

2.2.2 Withdrawal

If the subsequent performance has failed, the buyer and the customer can withdraw from the purchase or work contract (§ 437 No. 2 BGB). The subsequent performance is deemed to have failed in accordance with Section 440 sentence 2 of the German Civil Code (BGB) from the second unsuccessful attempt at subsequent performance. However, the prerequisite is that the seller or contractor has previously been unsuccessfully given a reasonable deadline for performance or supplementary performance, see Section 323 (1) of the German Civil Code (BGB). In certain cases, a deadline is not necessary. These are listed in Section 323 (2) BGB and in Section 326 (5) BGB. If the defect is only insignificant, however, withdrawal is not possible (Section 323 (5) sentence 2 BGB).

Tip: Withdrawal transforms the contract into an obligation to provide a return guarantee. Both parties have to give back what they have received on the basis of the contract. The general withdrawal regulations according to §§ 346 ff. BGB apply to the withdrawal. According to the prevailing opinion so far, the client must surrender the uses, i.e. the benefits of use (§ 100 BGB) (§§ 439 Paragraph 4 in conjunction with 346 Paragraph 1 BGB). The Federal Court of Justice doubts, however, whether the provision of § 439 Paragraph 4 BGB in the interpretation desired by the legislator with Directive 1999/44 / EC of the European Parliament and of the Council of May 25, 1999 on certain aspects of the sale of consumer goods and guarantees for consumer goods (OJ No. L 171/12 of 7 July 1999, Consumer Goods Sales Directive). According to Art. 3 Para. 2 to 4 of this guideline, the production of the contractual condition of the consumer good (also) by replacement delivery for the consumer free of charge and without significant inconvenience for the consumer.

The Federal Court of Justice therefore suspended proceedings on August 16, 2006 (VIII ZR 200/05), which had the legality of the compensation for use as the object, and submitted the issue to the Court of Justice of the European Communities (ECJ) for a preliminary ruling. It remains to be seen how the ECJ will decide.

The client must also pay compensation for the deterioration or loss of the standard software, whereby the deterioration through normal, intended use cannot be compensated. If the standard software has otherwise deteriorated or perished, the person legally entitled to withdraw (e.g. the buyer who withdraws due to a defect) is privileged in accordance with Section 346 (3) No. 3 BGB. If he has treated the standard software in the same way as he normally treats his standard software and if it has been damaged or lost in the process, he does not have to pay any compensation ("sloppy privilege").

Example: A buyer withdraws from the purchase contract due to a defect in the purchased car after unsuccessful subsequent performance. He continues to use the car until it is returned. He is also entitled to do so. As always, he parks the car on the street at night. This is damaged or stolen. In this case, the buyer will only have to pay the benefit that he had due to the use of the car. However, he does not have to pay compensation for the damage or loss of the car.

2.2.3 Reduction

Under the same conditions as in the case of withdrawal (unsuccessful setting of a deadline), the buyer can also reduce the purchase price instead of withdrawing (Section 437 No. 2 BGB).

Note: All of the warranty claims discussed above are so-called no-fault claims. This means that when asserting these rights it does not matter whether the seller is to blame for the defect in any form. The reduction and resignation have been design rights since the reform of the law of obligations. This means that the buyer does not have to sue for approval of a reduction in price or withdrawal, as was previously the case, but that the contract changes accordingly with the declaration of reduction in price or withdrawal. He can therefore sue directly for repayment of part of the remuneration (reduction) or for repayment of the entire remuneration, step by step against return of the standard software (withdrawal). If the remuneration has not yet been paid, he can deduct the reduced amount or refuse to pay and return the standard software. If necessary, the prerequisites for the reduction in price and withdrawal would have to be examined in court.

2.2.4 Compensation for Damages

The buyer can also assert a claim for damages, § 437 No. 3 BGB. Unless the debtor can prove that he is not responsible for the defect. If the seller wants to claim damages instead of the performance in accordance with § 281 BGB, a previous, unsuccessful grace period for performance or supplementary performance must have taken place. However, this is available after unsuccessful supplementary performance. It should also not be overlooked that there are restrictions in the event of a possible claim for damages in the event of an insignificant defect (Section 281 (1) sentence 3 BGB). As an alternative to compensation and under the same conditions, reimbursement of expenses can also be requested in accordance with Section 284 of the German Civil Code (BGB).

2.2.5 Statute of limitations for claims for defects

All claims for defects listed above expire within two years (Section 438 (1) No. 3 BGB). The statute of limitations begins with the delivery of the standard software (Section 438 (2) BGB). The buyer has the option of interrupting the statute of limitations by filing a lawsuit or by initiating independent evidence proceedings. In the b2b or b2g area, the seller can reduce the statute of limitations to one year in terms and conditions and exclude it for used standard software. If an entrepreneur sells to a consumer, he cannot shorten the statute of limitations for new standard software and limit it to one year for used standard software.

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