Although software defects can cause considerable damage to users and to the economy as a whole, this issue has not been sufficiently reflected in Czech legal theory or practice to date. Questions are frequently raised as to the liability of software distributors for such defects and for damage arising as a consequence of such defects.

It is appropriate to state at the outset that legal theory distinguishes between factual defects and legal defects. An example of a factual defect is the malfunctioning of purchased goods; an example of a legal defect is the fact that I have not become the owner of a purchased thing, even though the thing functions perfectly. In effect, however, a factual defect is always also a legal defect, since, for example, the fact that a thing has defects means a breach of the seller’s obligation to deliver a thing without defects. The arising of liability for defects may consequently also result in the arising of liability for damage (malfunctioning technical equipment prevents the operation of an enterprise, and the entrepreneur thereby suffers damage, etc.).

This contribution will not elaborate further on aspects relating to legal defects in software (e.g. a case where the provider is not authorised to grant a licence to software, etc.), but we shall focus on questions relating to factual defects in computer programs. In the area of legal relations concerning software, the legal situation is more complicated than in the sale of tangible things. In contrast to liability for defects in a thing, we do not find in the Czech legal order any special legal regulation relating to the liability of a licence provider for factual defects in the secondary subject matter of a licence agreement – e.g. for defects in a computer program, map, or sound recording. It is therefore always advisable primarily to address the contractual regulation of this issue between the provider and acquirer of the licence.

A practical problem in the area of computer programs, however, is the circumstance that contractual arrangements (especially standardised licence terms) frequently do not contain any specification whatsoever of the computer program (including its functionality) which is licensed in the particular case. Having regard to the manner in which standardised licence terms are used in practice, this is “logical”; nonetheless, the contractual arrangement between the provider and acquirer in most cases does not expressly define the characteristics (functionality) of the program (as the secondary subject matter of the legal relationship) at all. We leave aside the question of the validity of such arrangements. It may merely be stated that proving what utility properties the software was supposed to have in such cases may then be very difficult.

Standardised licence terms for computer programs in most cases contain some regulation of the issue of liability for software defects and liability for damage caused as a consequence of software defects. Traditionally, these are provisions by which the licence provider “disclaims” any liability both for software defects and for damage caused by such defective software. These provisions, inspired by Anglo-American legal culture, are also found in many licence terms for proprietary software provided for consideration. The validity of such provisions, however, is disputed even in the country of their origin. This regulation is then usually supplemented by provisions stating that, in the event that a particular legal order does not permit a “disclaimer” of the provider’s liability, the provider’s liability is to be limited to the maximum extent permitted by the particular legal order (governing law).

It may be stated that provisions by which a licence provider “disclaims” liability for software defects and liability for damage should, under Czech law, be invalid in each individual case for being contrary to law. Specifically, this concerns conflict with the mandatory provision of Section 574(2) of the Civil Code, which provides that “an agreement by which someone waives rights which may only arise in the future is invalid”. The licence acquirer thus cannot validly waive his non-existent claims for compensation for damage, etc. This fact is then expressly laid down for commercial obligations by the provision of Section 386(1) of the Commercial Code: “A claim for compensation for damage cannot be waived before the breach of duty from which the damage may arise.”

In the event that a licence agreement for software is also a consumer contract (a contract between an entrepreneur as supplier and a consumer), mention may also be made of the provision of Section 56(3)(b) of the Civil Code, which provides that inadmissible in particular are those contractual arrangements which “exclude or limit the consumer’s rights in asserting liability for defects or liability for damage”. If, therefore, a licence agreement in the area of consumer relations contains such a provision by which the licence provider “disclaims” liability for defects or liability for damage, the consumer may invoke their invalidity (see Section 55(2) of the Civil Code). The fact whether it is an onerous or gratuitous grant of a licence to a computer program is not decisive in the above-mentioned cases.

Licence terms for computer programs also very frequently contain a provision stating that the computer program is provided “as is”. This provision could evoke the Czech legal regulation in Section 501 of the Civil Code regarding the transfer of a thing “as it stands”. This provision provides that “if a thing is transferred as it stands, the transferor is not liable for its defects, unless the thing lacks a property which the transferor declared it to have, or which the acquirer expressly stipulated.” However, as has already been correctly and repeatedly held by the Supreme Court of the Czech Republic, the limitation of liability for defects pursuant to Section 501 of the Civil Code may only be applied to things transferred in their entirety (restaurant fittings) and not to things determined individually (a motor vehicle). In the area of providing computer programs, Section 501 of the Civil Code thus cannot be applied, and such an arrangement should be assessed as invalid. Naturally, a different situation arises if both parties agree that the subject matter has specific defects.

In connection with the contractual regulation of liability for damage, marginal mention may also be made of the question of any limitation of the amount of compensation for damage in commercial relations made by agreement of the parties (including any limitation of the amount of foreseeable damage), which is generally accepted by legal theory. This variant can naturally be recommended to software distributors, the prerequisite for the validity of such an arrangement being proper formulation of these questions in the contract. As has already been mentioned above, standardised licence terms frequently contain provisions the purpose of which should be to limit the licence provider’s liability for damage, to the maximum extent permitted by the governing law. Having regard to the uncertainty of such a formulation in relation to the legal regulation in the Commercial Code, in our view such a provision of licence terms cannot be considered sufficient to have effect in the area of Czech law.

In cases where agreement of the parties is lacking, or in cases where this agreement is invalid (see above), the provisions of generally binding legal regulations apply. As has already been stated, in the area of factual defects in performance provided on the basis of licence agreements under copyright law, there is no special statutory regulation in Czech law. So whilst in legal questions relating to liability for damage it is possible to proceed from express legal regulation and relatively rich case law (and also many expert interpretations), in the case of liability for software defects the situation is more complicated. In this area, a question may arise as to whether it is possible to apply by analogy to cases of defects in performance under a licence agreement the legal regulation of liability for defects in a thing pursuant to Sections 499 et seq. of the Civil Code. However, this question may also be posed for cases of factual defects in any performance which is not a thing within the meaning of Czech legal regulation (Section 118(1) of the Civil Code). In the event that a computer program is provided for a licence fee, in our view the analogical application of the provisions regulating liability for defects in a thing pursuant to Sections 499 et seq. of the Civil Code should not be fundamentally excluded, even having regard to the primarily utility function of software. If, however, there is gratuitous provision of a licence to a computer program, the possibility of analogy with the provisions on liability for defects in a donated thing pursuant to the legal regulation of a donation agreement (Section 629 of the Civil Code) also arises. In connection with assessing liability for defects in computer programs, however, it is also necessary to take into account the fact that, especially with more complex computer programs, their error-free state cannot objectively be achieved despite every effort, for example also having regard to the frequently necessary connection with further software of third parties or with various hardware, etc.

Even from the above brief outline, it emerges fairly clearly that the issue of liability for software defects and liability for damage caused by defective software is of a complex character. Unfortunately, the significance of this issue for practice is not currently matched by the state of legislation or legal doctrinal findings. Insufficient interest in these questions may also be caused by the fact that, in most cases, specific technical knowledge is required to prove the existence of software defects.

This text was translated from Czech to English using an AI translator.