Drafting suitable contracts for own software products in Germany can be time-consuming and costly. Regardless of whether both the provider and the customer are German companies or only the customer, the latter will regularly insist on the agreement being governed by German law. Many providers of software products therefore repeatedly resort to supposedly suitable sample contracts from the Internet or translate existing contracts from other jurisdictions into German and subject them to German law. This often leads to extensive contracts – especially from Anglo-American jurisdictions – finding their way into contractual relations that are subject to German law. Caution is required here: Just because something is in the contract and sounds advantageous for the provider does not automatically mean that the contract is fully effective. The German legal practice with regard to the law of general terms and conditions is stricter than many other legal systems. In addition, problems can arise if the contract incorrectly classifies the underlying legal relationship and inappropriate provisions are made as a result. Such contracts are often largely ineffective and, in the event of a dispute, the statutory provisions must be used, which is usually not in the interests of the parties.
Typical Problem with SaaS, ASP and Cloud Computing
In today’s digital economy, business models such as Software-as-a-Service (SaaS) and Application Service Providing (ASP), in which the provider’s software applications are made available to the customer via the internet (Cloud Computing), are particularly widespread. Typically, for example, standardized software is made available to a large number of customers via the Internet. These customers usually pay a “subscription fee” and can use the software for as long as the contractual relationship exists. This offers a number of advantages for providers and customers: The provider can easily scale its software and reduce costs, while customers generally do not need any special hardware or personnel resources to use the software. As already mentioned, the contracts typological classification, i.e. the question of which of the contract types regulated in the special law of obligations of the German Civil Code (BGB) the contract is assigned to, plays a decisive role in assessing the effectiveness of the individual contract clauses. The classification has a legal impact in many respects. For example, it has an influence on the assessment of the content of general terms and conditions. It also determines which provisions must be applied if the contract is (partially) invalid. Finally, it determines which warranty rights the recipient of the service is entitled to. Even if the contracting parties have not regulated a specific issue, the statutory provisions are used to close the regulatory gap. The allocation to one of the contract types in the special law of obligations can be difficult in individual cases. These are often so-called mixed-type contracts, which can be assigned to more than one type of contract depending on the obligation to perform. Contracts that are merely translated or copied from different sources often do not take these subtleties into account, which can have disastrous consequences for the users of such contracts.
What Should be Taken Into Account and What are the Limitations in German Law?
The parties generally have an interest in agreeing on exclusions of liability and minimizing the liability risk as far as possible. In addition, indemnification clauses and contractual penalties are particularly desirable in the IT sector. As most SaaS or ASP contracts are pre-formulated contractual terms that have not been individually negotiated between the contracting parties, the limits of German law on general terms and conditions must be observed. This is particularly strict for the aforementioned agreements and exclusions of liability. Furthermore, in the case of a contract with consumers, the statutory provisions on contracts for digital products may also become relevant. In addition, it should be borne in mind that many contracts already lack an accurate description of the services owed, i.e. the main performance obligations of the contracting parties, or the description is inadequate. This is particularly disadvantageous, as the main performance obligations – apart from the transparency requirement – are generally not subject to GTC control. It is therefore possible to determine here what exactly is owed and what is not. Thus, a clear definition of the main performance obligations can also lead to indirect exclusions and limitations of liability.
Attorney Anton Schröder
The lawyer responsible for matters relating to IT law at our law firm is Anton Schröder.
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