Digital Download And Supply Of Goods

Paul Waddington from Australia pointed me to this rather interesting story. In summary, the Supreme Court of New South Wales has upheld the ruling of a lower court stating that a digital download of software does not amount to “supply of goods” and hence cannot be protected by the Sales of Goods Act.

As it turns out, Comrad Medical Systems, a medical software developer developed a patient registration and appointment system for Gammasonics Institute for Medical Research. After the software was deployed at Gammasonics they found that it was lacking in some respects. For example, it could not interface with Medicare, a feature which was mentioned in the contract between the two companies. So Gammasonics decided to terminate the contract and refused to pay. Comrad turned around and sued Gammasonics in the hope of getting them to pay up.

Gammasonics decided to use the provisions of the Sales of Goods Act to make their case that Comrad supplied them goods that were not fit for their intended purpose. And here is where things get interesting. The judge threw out that argument because the software did not fall into the definition of “goods” since it was downloaded from the Comrad web site and not shipped to them by physical media such as a DVD. No kidding. However, the judge, in his infinite wisdom, did admit that this “could” lead to injustice and said that if there was an injustice, it was up to the parliament to change the law and not him.

I thought the job of a judge was to interpret and apply the law on behalf of the state that created it. I am definitely no legal expert, but it is quite evident to me that grave injustice was done in this case and the judges in both courts blamed the law for the injustice that they admittedly delivered in their courts. Even an idiot will understand that the goods in this case is the software and not the medium. Gammasonics were not going to stamp or engrave their patient data on DVD’s supplied by Comrad. So I am curious to know exactly how much interpretation and application of the law these judges actually did.

I find this case particularly interesting because software vendors are moving from physical distribution of software on DVD to digital downloads, which I believe is a good thing, for reasons other than those found useful by the Gammasonics lawyers. In all the twelve years that I have been in the software business I have never shipped a single CD or DVD to anyone. All my products are available as digital downloads only. Funny thing is, with the cloud, there won’t even be a download since the software will be running on the vendor’s server. So obviously these laws need to be changed to reflect the present state of affairs.

Are the laws in your country or state regarding the sale of goods as hopelessly outdated as those of New South Wales? Wait. Don’t bother to answer that question. You sign off all your rights in the EULA anyways. 😉

  • I am interested to see what other say here.

    Don't know that I agree an injustice was done nor that the interpretation is incorrect.
    That laws may need changing is a point of view that will change depending on which fence you sit on; for instance, why would software developers want the law changed? This ruling mean they can supply what ever they want – merchantable or not – and cannot be held accountable.

    On the other hand it also means the conditions of any EULA simple do NOT exist!

    I don’t particularly like what I see; partly because I see the ruling giving developers an unjustifiable out, denying customers protection they other wise would have believe they had; but the flip side is, any EULA attached or embedded can not be applied and therefore developers are going to have to decided whether it is in their interest to allow changes that would improve customer protection resulting in the removal of some of their ‘protection’.

    As for the ‘cloud’ this could mean customers knowing they have NO protection at any level would/could/must simply ensure they do not use software of ‘that type’.

  • Paul: “Don't know that I agree an injustice was done nor that the interpretation is incorrect.”

    Not sure that I understand what you mean. I believe a grave injustice was done because no interpretation and application of the law was done. Period. This defeats ones of the main purposes of having a judiciary. Otherwise any police officer is perfectly capable of reading a law book and throwing someone in jail for a period prescribed in the book.

  • murda

    The law was interpreted as not being applicable in this instance. If there isn't a current law that is applicable, distorting the interpretation of another isn't justice.

  • This is interesting because different people are going to look at this several ways but Murda is probable correct and in a funny way this supports, and helps me also.

    I really do want to listen to what others think and say about the ruling and its consequences, and I am very sure Autodesk’s legal(s) will be watching also.

  • murda,

    I find it hard to believe that denying justice because of an outdated law can somehow been seen as delivering justice. Especially since all that was needed in this case was a simple application of common sense to the particular outdated law. If the judges cannot (or are not allowed to) do that, then what's the point of them being there?

  • Paul,

    I really hope that you do not make this about Autodesk.

  • Nah! …..(taking time to think) …..how might I do that…..(more thinking)…..oh, that's how! 😉

  • murda

    Deelip, I agree that the law hasn't kept pace with technology. However, Gammasonics invoked consumer law. Consumer law defines the explicit statutory obligations of both parties, ie, it's a default contract. These two parties had a negotiated contract, which has specifications outside of statutory obligations. Their dispute can be argued over their contractual obligations, which is why this isn't an injustice. There are laws that cover the case, but they don't fall under consumer law. As the story says, the amendments that we agree should be made are in the works, but they'll apply to consumer law, not to negotiated contract disputes between businesses.

  • I understand your point completely. I see that this is more of a technicality and possibly poor lawyering. That too on two consecutive occasions.

    The only way I see this as justice is if the negotiated contract between the two parties had a clause that stated that the software would work as prescribed only of the software was delivered by DVD and not if it was digitally downloaded? If the law invoked by the Gammosonics lawyers could not be applied, couldn’t the judges use the agreement between the parties to deliver justice?

    I understand that I do not know what exactly went on during the hearings. I am simply looking at this from the outside and calling it as I see it. I see that the judge admitted that there was a possibility of injustice being done. As a lay man, without knowing how the legal system in New South Wales works, I just think that injustice was indeed done.

  • murda

    It isn't the medium that's really at issue in this case, it's whether or not consumer legislation is appropriate. Gammasonics had already been successfully sued for breach of contract after terminating the project they'd contracted to. The contract may well have held conditions of termination that Gammasonics ignored. Their appeal maintained that the contract *implied* that the statutory obligations of the Sales of Goods Act applied, in addition to the contractual clauses. The court's reaction was to make the easier ruling, black and white because of the legislative shortcoming, rather than having to consider Comrad's counter. Which was, if the Sales of Goods Act applied, can a contract that doesn't specify the inclusion of terms be held to imply them? Which would have ramifications on all contracts, not just this one.