Warranties

The types of warranties to include in a tech contract depend on the nature of the agreement. Here are some examples of warranties commonly found in tech-related commercial contracts:

1. Services Warranties: These promises generally outline how the service provider must perform the services. For instance, the parties might agree to adhere to industry standards or use terms interpreted by case law, such as performing services in a timely, professional, and skillful manner. More specific service warranties can also be included, like requiring that all personnel have at least five years of relevant experience in providing the services.

2. Product Warranties: These warranties typically address requirements related to the products or product deliverables, including quality, condition, functionality, quantity, or performance. For example, a hardware manufacturer might warrant that the components used in a computer will not fail prematurely due to manufacturing defects.

3. Software Warranties: These warranties differ depending on whether software is licensed or developed for a customer. For licensed software, typical warranties include those related to viruses, ownership, and non-infringement. For custom-developed software, warranties might specify that the software will conform to the agreed-upon specifications and not include certain types of open-source code.

4. SaaS Warranties: In contracts for Software as a Service (SaaS), warranties should cover the SaaS’s performance according to the documentation, non-infringement of third-party intellectual property rights, and freedom from viruses. For example, a SaaS provider might guarantee that their application will work seamlessly with a specific operating system or web browser.

5. Data Protection Warranties: These warranties typically reference the obligations created under data privacy and data security provisions. For instance, a cloud service provider may warrant that their data centers adhere to data protection regulations.

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When drafting tech contracts, it’s important not to group all warranties under a single section. Different remedies and liability caps may be appropriate for breaches of different warranties. By separating warranties, you can tailor the remedies and liability limitations to suit each warranty type, providing a more balanced and effective contract.

Products

In the event of a warranty breach, the appropriate course of action and remedies can be specified in the contract. For instance, if a product warranty is breached, the possible solutions might include:

1. Replacing the faulty product; or
2. Repairing the defective product.

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To illustrate, let’s consider a tech company that sells smartphones. If a customer discovers a manufacturing defect within the warranty period, the company may either replace the device with a new one or repair the existing unit to address the issue.

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However, there might be multiple remedies at hand, which can sometimes lead to disputes. Therefore, it’s crucial to clearly specify in the contract which party has the authority to choose the appropriate remedy.

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Additionally, the contract should outline the responsibilities for various costs associated with the warranty breach. For example, in the case of a tech product warranty, the contract should state whether the customer or manufacturer is responsible for shipping costs to return the faulty product.

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Lastly, if it’s not feasible to implement the chosen remedy, the customer is typically entitled to a refund. Using the smartphone example, if the company is unable to repair or replace the defective device, the customer will receive a refund for the original purchase price.

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SaaS

In the context of a Software as a Service (SaaS) offering, warranties may cover various aspects, such as service uptime, data security, or software performance. Suppose a SaaS company provides a cloud-based project management tool with a warranty for 99.9% uptime.

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For example, a customer experiences a downtime of 0.5% over a month, breaching the 99.9% uptime warranty. Based on the contract, potential remedies may include:

1. Providing service credits to the customer’s account for the affected period; or
2. Offering a partial refund of the subscription fees for the month in question.

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The contract should clearly indicate which party has the authority to choose the appropriate remedy in case of multiple options. Moreover, it should outline the responsibilities for costs associated with addressing the breach, if any.

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If the SaaS provider cannot deliver the chosen remedy (e.g., they cannot issue service credits or provide a refund), the customer may be entitled to terminate the contract without penalty or receive a full or partial refund of the subscription fees for the affected period.

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By specifying the responsibilities and remedies related to potential warranty breaches in a SaaS contract, both parties can minimize potential disputes and ensure a smoother resolution process.

Warranty periods can vary depending on the nature of the products or services involved. For example, warranties related to physical products may have longer validity periods compared to those for software. In the tech industry, a hardware product like a laptop might have a one-year warranty, while a software product or service could have a warranty period of 90 days.

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For example, a computer manufacturing company offers a one-year warranty on their laptops, covering any defects in materials or workmanship. In contrast, the company’s software division provides a 90-day warranty for their software products, ensuring that the software functions according to its specifications.

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The starting point for the warranty period is also important and can differ based on the agreement between the parties. It could begin from the delivery date, acceptance date, or when the product is fully commissioned. The chosen starting point should be clearly stipulated in the contract to avoid any disputes.

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For example, a company purchases a custom-built server from a tech provider. The warranty period might start from the delivery date, which is when the server arrives at the company’s location. Alternatively, the warranty period could begin on the acceptance date, which is when the server has been installed and tested to ensure it meets the company’s requirements.

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Contracts may also include notification requirements for customers to report defects within the warranty period. This allows the provider to address the issue promptly and avoid disputes regarding the timing of the defect identification.

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For example, a customer purchases a software subscription with a three-month warranty. The contract states that the customer must notify the software provider of any defects or performance issues within the warranty period. If the customer encounters a problem in the second month but fails to report it until the fourth month, the provider may not be obligated to provide a remedy, as the issue was not reported within the warranty period.

Certain circumstances may warrant exclusions from the warranty coverage to protect the provider from unjustified claims. For example, a software provider may offer a warranty stating that the software will perform as described in the documentation, but they may want to exclude instances where the customer has made unauthorized modifications to the software.

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For example, a company purchases customer relationship management (CRM) software with a warranty that guarantees the software’s performance according to its documentation. However, the company decides to modify the CRM software’s source code to add custom features, which subsequently results in performance issues.

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In such cases, the software provider should include a warranty exclusion clause in the contract to protect themselves from claims related to unauthorized modifications. The exclusion clause might specify that the warranty does not cover any performance issues arising from customer-made alterations to the software.

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Typically, the exclusion clause should be worded in a way that only disqualifies warranty claims to the extent that the software was affected by the customer’s modifications. This ensures that the warranty still applies to other aspects of the software that were not impacted by the customer’s changes.

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Suppose the same company experiences an issue with the CRM software’s core functionality unrelated to their custom modifications. In this case, the warranty exclusion clause should be crafted in a manner that still allows the company to seek remedies for the core functionality issue, as it was not a result of their unauthorized alterations.