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Sun 15 Feb 2009 04:00 AM

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Know your rights

Ziad Choueiri explains how having solid representation and warranties built into IT contracts allows enterprises to better protect their rights.

Representations and warranties form a crucial aspect of any contract. A representation is a declaration made by one party, normally the seller or developer, that terms included in the contract are true to the best of the seller's/developer's knowledge at the time of signing.

A warranty supplements a representation by ensuring that any representations made by the seller/developer are backed through some form of repair, replacement or compensation to the purchaser. In essence their inclusion in contracts facilitates the allocation of risk between the parties.

In considering the complexity and diversity of today's technology, representations and warranties form an integral part of ensuring the purchaser, whether they are a distributor or end user, that the product or service meets the requirements for the purpose for which they were intended without creating any undue liability or risk for the purchaser.

Certain aspects of an IT based contract require the presence of representations and warranties due to their importance to the successful application of the product by the purchaser without infringing a third parties' rights.

Intellectual Property ("IP") issues are considered among the primary representations and warranties that a purchaser must ensure are in order. Does the seller/developer have the necessary/required rights to develop, manufacture, assemble, market or sell the product in question?

In referring to this issue, software, rather than hardware, is generally the focus here and so it would be prudent of the purchaser to ensure that the supplier/developer has the rights to use and sell the software, with the appropriate permission from any concerned third parties.

In order to support this representation, it must be leveraged by a warranty ensuring protection for the purchaser from any action filed against them by a third party for infringement of IP issues i.e. copyright, trade marks and patents.

This is considered vital when working with software developers so as to make certain that the product sold is in fact the property of the developer or at the very least that the proper rights have been granted to them by the relevant third party for development and/or alterations.

Representations and warranties also aid in providing guarantees that the product being delivered or sold is fit for the purpose for which it was intended. Certain purchasers will require systems and software for select purposes.

The seller/developer should represent and warrant that after receiving instructions and specific requests, the software is ready to meet the standards and performance requirements needed by the purchaser.

Purchasers should also insist that the product or software be free of any deficiencies. These terms are heavily negotiated between the contracting parties.

It is common for the purchaser to withhold a portion of the payment to ensure that the warranted deficiencies are corrected. Sellers/developers may attempt to reduce the time period of the warranty, their level of commitment to repair times and provision of qualified technicians or the nature of the deficiency.

A purchaser must remain vigilant for conditions that stipulate that any default present as a result of certain conditions or acts of negligence by the purchaser are not to be included in the warranty, and which are not provided advanced warnings for.

A useful tool that supports representations and warranties would be a "test phase" to ensure that the product functions as it should and as required by the purchaser. This test phase sets guidelines for the seller/developer as to what is expected from the product and, in turn, the purchaser is satisfied that the representations and warranties declared are what is needed to adequately protect their interests.

Ziad Choueiri is a solicitor with the Rights Lawyers.

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