Warranty Hidden Defects Software

24 May 2006

Sylvie De Oliveira

On 30 March 2006, the French Senate has adopted, as the National Assembly did, the bill ratifying the ordinance dated 17 February 2005, regarding the seller’s warranty of conformity of goods offered to customers. This ordinance implements the European directive 1999/44/EC of 25 May 1999 on certain aspects of the sale of consumer goods and associated warranties into French law.

These new legal provisions are important in so far as they modify Article 1648 of the French Civil Code. Article 1648 states gives a warranty to a buyer of goods that the goods will not contain any hidden defects. The warranty is subject to a “brief time limit which will vary according to the nature of the hidden defects, the type of goods and to any local customs where the sale has been concluded.

The new legal provisions have done away with this “brief time limit” and instead give buyers two years from the time when the hidden defect is discovered. This amendment clarifies the scope of the Article 1648 warranty.

This issue has implications for software. For a long time the application of the “brief time limit” and, indeed, the applicability of the hidden defects warranty to software has been subject to much debate. Discussion has concentrated mainly on how to define the concept of hidden defects in relation to software. Despite much pressure from the software industry, case law has upheld the applicability of the hidden defects warranty to software.

Under French law, a hidden defect is defined as a defect that impedes the use of the goods or that makes the use of the goods inappropriate to their purposes. By “use”, French law means the purpose for which such goods are commonly supplied and that the goods supplied under the contract are reasonably fit for that purpose. This meaning is to be distinguished from a particular purpose that can be specified in the contract between the seller and the buyer. In that event, it is longer a “hidden defects” warranty issue but an issue falling within the scope of the conformity of the delivered goods to the contract (article 1604 of civil code).

Using this definition of hidden defects, case law has held that the existence of a virus on software media or a functional defect impeding the proper use of software constitutes a hidden defect. The Court has considered that since the performance level of the software was specifically mentioned in the technical characteristics, this problem of performance relates to conformity with needs.

According to this case, when a software defect is discovered, the software buyer is entitled to claim against the seller or the software publisher using the hidden defects warranty during the two years following discovery/ disclosure. The buyer is entitled to (i) claim for reimbursement of the paid fees (provided he returns the software but if the buyer does claim a complete refund the claim will not succeed if the software has been used for a long period of time); or (ii) to claim for the reimbursement of the portion of the licence fee attributable to part of the software part affected by the hidden defect.

The increase in the time limit of the hidden defects warranty does not affect the starting point of the time limit. This has always been and continues to be the time at which a defect is discovered as opposed to the time when the delivery of the goods took place. This latter starting point is more difficult to determine and makes it impossible for sellers to time bound the extent of their potential liability under the warranty. One small comfort for software vendors - agreements concluded before 17 February 2005 will not be covered by the new legal provisions.