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1) Terms & Conditions
According to German law every standard agreement that is used for multiple customers falls under the scope of the Act on the Law of Terms & Conditions (Gesetz zur Regelung des Rechts der Allgemeinen Geschäftsbedingungen/AGBG). The Act itself is already very strict in order to ensure consumer protection, however, German jurisdiction took this Act even further as a base to declare many clauses – which would may be typical and admissible in your jurisdiction – as not valid. This applies e.g. to many regulations which are common in England/US with regard to warranties, liability and rights of use. To a certain extent even commercial customers are protected by the Act, in particular if the clauses are unreasonably disadvantageous.
2) Choice of law
As long as the licensor is only serving commercial customers, he can agree on a foreign law, e.g. English/US law. Only the regulations of the German “ordre public” cannot be superseded (Art. 6, 34 EGBGB), which comprises – inter alia – data protection, export control and anti-trust regulation as well as the prohibition of punitive damages. In relation to private customers the licensor can also agree on English/US law, however, not only the “ordre public” but also the German consumer protection regulations (in particular the Act on the Law of Terms & Conditions) will remain in force and supersede English/US law (Art 29 EGBGB).
The following bilingual notice should be added on top of the agreement and above the signatures:
“THIS AGREEMENT IS GOVERNED BY ENGLISH LAW AND IS SUBMITTED TO THE EXCLUSIVE JURISDICTION OF THE ENGLISH COURTS.
DIESER VERTRAG UNTERLIEGT DEM RECHT VON ENGLAND UND DER AUSSCHLIEßLICHEN ZUSTÄNDIGKEIT DER ENGLISCHEN GERICHTE.”
in order to avoid a so called “surprising” – and according to § 3 AGBG therefore void – choice of law.
However, it will be a question of licensor‘s business policy whether he asks a German customer to buy a product under English/US law and jurisdiction. This may will prevent some potential customers from signing such a contract.
3) IP law protection
Unlike the situation in other countries, in Germany the software producer is protected to a large extend by the German Copyright Act (Urheberrechtsgesetz/UrhG) without any registration. Unlike many other countries, where detailed regulations concerning the copying, modifying, renting, disassembling of software have to be included in the licence agreements, the Copyright Act grants the producer a good level of statutory rights, regardless the existence of any licence agreement.
The user needs the explicit consent of the software producer for:
- copying of the software (§ 69c no. 1 UrhG), unless the copying is necessary to run the program (eg. installing on harddisk or copying in RAM when running the program), to correct bugs or is a security backup (§ 69c UrhG)
- translation or any modification of the software (§ 69c no. 2UrhG), unless the translation or modification is necessary to run the program or to correct bugs (§ 69d UrhG)
- commercial renting of the software (§ 69c no. 3 UrhG)
- disassembling of the software (§ 69e UrhG), unless the disassembling is necessary to achieve interoperability with a third software, but only if a) the producer had not published details about the interfaces of his software before and b) only those parts of the original software are disassembled that are necessary to achieve interoperability and c) the gained information is only used to achieve interoperability and d) the gained information is not given to third persons and e) the gained information is not used to develop or market a software which is similar to the original software or for any other actions that infringe the producer's copyright.
The producer is entitled to ask the owner of such unauthorised copies to destroy them (§ 69f UrhG) and to ask the offender to refrain from any such infringing actions and, if the infringement was based on wilful or negligent action, to pay damages (§ 97 UrhG).
This copyright protection for software was implemented into German law in 1993 with regard to the EU Directive on Protection of Software, so a comparable standard of copyright protection can be found throughout all EU member states.
4) Limitation of liability and warranties
The software producers liability according to the German Civil Code (BGB) can only be limited in Terms & Conditions if
- liability for legal defects and assured features is not limited
- liability for delay, impossibility or inability is only limited to a reasonable amount (usually 5-times or 12-months licence fee) and typical damages are covered
- liability for wilful or gross negligent actions is not limited
- liability for slight negligence is not excluded for prime duties (here is only limitation to a reasonable amount possible and typical damages cannot be excluded – see above).
The software producers liability according to the Product Liability Act (Produkthaftungsgesetz – ProdHG) for damages to the customer's life, health or other objects cannot be limited.
A standard clause for the limitation of liability under German law could therefore be:
LIMITATION OF LIABILITY LICENSOR SHALL ONLY HAVE UNLIMITED LIABILITY IN RESPECT OF DAMAGES ARISING FROM LEGAL DEFECTS AND/OR THE ABSENCE OF ASSURED FEATURES IN THE LICENSOR SERVICE . LIABILITY FOR LICENSOR’S DELAY, FAILURE AND/OR INABILITY TO PERFORM OBLIGATIONS SHALL BE LIMITED TO SUCH DAMAGES AS ARE REASONABLY FORESEEABLE AND IN ANY EVENT SHALL BE LIMITED TO THE AGGREGATE AMOUNT OF FEES PAYABLE TO LICENSOR BY LICENSEE UNDER THIS AGREEMENT DURING THE TWELVE (12) MONTH PERIOD PRECEDING THE DATE THAT THE CLAIM AROSE. IN ALL OTHER CASES LICENSOR SHALL ONLY HAVE UNLIMITED LIABILITY FOR WILLFUL ACTS AND GROSS NEGLIGENCELICENSOR DIRECTORS AND MANAGING STAFF. LICENSOR’S LIABILITY FOR THE ACTS AND OMISSIONS OF ITS OTHER PERSONNEL SHALL BE LIMITED TO THE EXTENT OF ITS LIABILITY FOR FAILURE TO PERFORM OBLIGATIONS AS SET FORTH IN SECTION 13.1.
LICENSOR SHALL ONLY BE LIABLE FOR SLIGHT NEGLIGENCE IF A MATERIAL OBLIGATION (WHICH IS OF SPECIAL IMPORTANCE FOR THE ACHIEVEMENT OF THE OBJECTIVE OF THIS AGREEMENT) ISNOT PERFORMED AND IN ANY EVENT LICENSOR’S LIABILITY THEREFOR SHALL BE LIMITED AS PROVIDED BY SECTION 13.1.
LICENSOR SHALL NOT BE LIABLE FOR ANY SPECIAL INDIRECT, INCIDENTAL OR CONSEQUENTIAL LOSS OR DAMAGE UNLESS LICENSOR, ITS DIRECTORS OR MANAGING STAFF ACTED WILLFULLY OR WERE GROSSLY NEGLIGENT.
LICENSOR’S LIABILITY FOR THE LOSS OF DATA SHALL BE LIMITED TO THE TYPICAL COSTS OF RECOVERY WHICH WOULD HAVE ARISEN IF PUBLISHER HAD MADE ORDERLY BACKUPS.
NOTHING IN THIS AGREEMENT SHALL EXCLUDE OR LIMIT THE LIABILITY OF LICENSOR ARISING FROM THE GERMAN PRODUCT LIABILITY ACT.
Under German law licensor has to give a statutory warranty to its customer. Its extent is dependent on the type of software licence, e.g. purchase or lease (see below 5.).
Within 6 months the purchaser has the statutory right to reduce the purchase price, cancel the purchase or ask for a new delivery in case of defects of the software. These rights cannot totally be excluded in Terms & Conditions. This means, that the customer still has the right to reduce the purchase price or cancel the purchase if prior repair or replacement fail. This has to be explicitly stated in the Terms & Conditions.
Licensor is obliged by law to warrant the absence of faults for the complete term of the lease. This statutory right cannot be excluded or limited to a certain time. In addition licensee would have the statutory right to terminate the contract if a fault of the software appears. At least this right can be waived, unless licensor is not able to repair or replace the software.
The enforceability of waivers of certain warranties in Germany is generally not effected by the fact that an agreement is governed by foreign law. The only limit for the enforceability is the so called “ordre public”, what is not relevant in most IT matters (see above). For example the “ordre public” prevents from enforcing punitive damage in Germany as this is something absolutely unknown to German jurisdiction.
5) Contract forms
The permanent grant of a software licence with a single fee that has to be paid by the licensee is regarded by German law as "purchase". The main distinctive element of such a purchase is that the buyer becomes the owner of the software. This does not effect the question that the licensor keeps the copyright of the software. A licence agreement’s clause that a transfer of the licence shall not be permitted, is in conflict with the owner's right to transfer his property. The customer has the right to transfer (e.g. by selling) the software . Of course he then has to uninstall this software on his own computers. Only lease of the software is prohibited by law if the licensor does not agree. However, the licensee can be obliged to transfer the licence only if the new licensee excepts the Terms & Conditions of the licence agreement.
If the licence is granted for a certain period of time (e.g. as long, as monthly or yearly subscription fees are paid), the licence is regarded by German law as „lease“.
No special “written” or “notarised” form is necessary for such contracts. They can even be entered into orally. This means that also purchase orders (if they are executed by the supplier) establish an contract. According to German law such individual agreements always supersede the general terms & conditions (§ 4 AGBG).
6) Enforcement and interpretation of English language agreements
The enforcement and interpretation of English language agreements is no problem in Germany. The language of an agreement is not of any legal relevance if German law applies. If judges need professional translation services, they just ask the parties to provide this.
7) Legal validity of clickwrap/shrinkwrap licences
The question of legal validity of clickwrap/shrinkwrap licences has not yet been finally discussed by legal experts.
The easy way is, if the software producer sells the software directly to the customer. Then he can make his terms & conditions part of the contract. However, the producer has to make it clear before the software is sold, that the sale will be subject to his terms & conditions. A sticker on the box can only give this necessary information, if the customer receives the product before he buys it. If the producer does not have his own retail shop, this will usually not be the case. Also a clickwrap/shrinkwrap licence that is in the box will not be sufficient, if the customer has not been instructed before the sale that additional terms & conditions will apply.
If the software is sold to the customer by a retailer, things get more complicated because of the 3-party-relationship. The producer has only a contractual relationship with the retailer and the retailer has a second contractual relationship with the customer. There is no direct contract between the producer and the customer. Since the customer buys the software, it is regarded as “surprising” if he shall be forced to close an additional contract with the producer, because if he already has to pay the retailer for the software, he can rely on the fact that the retailer is allowed to grant him the necessary rights of use for the software. If the producer chooses this way of distribution, it would be his duty to ensure that the customer is informed before the sale that additional terms & conditions apply. In these cases even a sticker on the box or the text of the terms & conditions printed on the box is often not seen as sufficient to avoid the “surprising” element, because this information can get lost between the colourful advertising and software description which is usually printed on the boxes and in addition, the customer is not obliged to read the information which is printed on the box. Legal experts therefore often require an expressly oral or separate written information by the retailer about the additional terms & conditions of the producer.
If the clickwrap/shrinkwrap licence agreement is regarded as being void, the customer is allowed to use the software without the limitations that are set up in the licence agreement. Even if refunding of the purchase price is offered to him, he cannot be forced to return the software.
8) Agency
Every company has at least one legal representative who can bind a company by his signature. Besides this management can authorise workers to represent and bind the company in all or selected matters.
Apparent authority is of course also very important. If a company lets someone, who has not been authorised in due form, speak for the company and lets him sign agreements and if this happens more or less regularly, the company cannot argue that this person was not authorised. Third parties are protected by apparent authority.
9) Other local requirements
Agreements have not to be registered in Germany. Of course the company itself has to be registered both at court and at the local public administration.
© 2001 Jens Barkemeyer
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