Tailor-made Contracts in IT Law

Successful monetization of software also requires that the associated contracts take into account the specific circumstances of each individual case. No matter how good a software or other IT product is – if the contracts do not properly reflect the scope of functions, the provider makes itself vulnerable. Sufficient time and resources should therefore be allocated to drafting contracts for every project. Even if this can be very time-consuming in individual cases, this is not the place to cut corners. The unchecked use of sample contracts from the Internet or a translation of existing contracts that were designed for other legal systems can lead to undesirable legal consequences. For example, there is a risk that desired liability and warranty exclusions may be inadequate or even ineffective. IT projects typically involve a large number of legal issues that need to be regulated accordingly in the contracts. The requirements for the contracts can vary greatly in individual cases – it always depends on the underlying project. Typically, this involves the production of software, the acquisition of hardware and the acquisition of software for a one-off payment or the acquisition of hardware and software for a fixed term (SaaS/ASP). It is not uncommon for different services and the underlying contract types to be combined, which can lead to complex contracts. Even blockchain-based projects usually cannot do without suitable IT contracts. Long gone are the days of the “wild west” of the blockchain scene; today, far more differentiated regulation must be observed. Naturally, this also has an impact on contract design.

The Importance of Contract Typological Classification and Service Description in IT Contracts

Before drafting new IT contracts or reviewing existing ones, the question of how the contract is to be legally classified must be clarified. The historical German Civil Code with its traditional contract types is reaching its limits with the multitude of new models of economic cooperation and service provision in the IT sector. If the essential components of an IT contract can be assigned to one of the traditional contract types of the BGB, the corresponding provisions are used in practice (if necessary, mutatis mutandis). What at first glance appears to be a simple task often proves to be challenging in practice. This is not least due to the seemingly endless possibilities that have opened up in the IT sector in recent years. The constant development in this area inevitably gives rise to new legal challenges. Be it classic SaaS applications, robo-advisors, staking-as-a-service, NFT projects or AI applications. Traditional contract types such as purchase contracts, contracts for work and services, service contracts or rental agreements under the German Civil Code (BGB) often reach their limits. In principle, these are contracts under the law of obligations within the meaning of the BGB. However, the exact contract typology classification is essential, for example to determine the applicable law on defects. When assessing the validity of general terms and conditions, it is also examined whether they are compatible with the essential basic ideas of the statutory provision from which they deviate and whether the general terms and conditions are consistent with the nature of the underlying type of contract. This makes a precise description of services all the more important, as this allows conclusions to be drawn about the underlying type of contract in case of doubt. In practice, service level agreements (SLAs) are often agreed for this purpose.

IT Contracts Between Private Autonomy and Legal Requirements

As already indicated, private autonomy, i.e. the right to draft contracts freely in terms of content, is not unlimited. Freedom of contract only exists as long as it does not violate mandatory legal limits. Such limits may arise from the law, either expressly or from an evaluative point of view. Regulatory provisions may also impose certain requirements on the content of contracts. One example of this is the DORA regulation relating to the financial sector, which specifies a number of minimum contents for contracts with ICT third-party service providers. In addition, special requirements regularly exist with regard to liability, warranty rights and contractual penalties. As a result, such clauses are often ineffective in practice because the specified limits have not been adhered to. European and national legislators have not been idle in recent years either. One of the major reforms in recent years is the so-called Digital Content Directive, which meanwhile has also been implemented in the German Civil Code. This contains far-reaching regulations for consumer contracts for digital content or services. For the first time, the BGB regulates issues specifically tailored to digital products and sets out, for example, requirements for provision, warranty and updating obligations. The applicability of these provisions must therefore be examined on a case-by-case basis. A careful legal review and adaptation of the contract content is therefore essential to ensure compliance with all relevant legal requirements and to minimize legal risks.

The lawyer responsible for advising on ICT services and drafting IT contracts at our law firm is Attorney Anton Schröder.