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$5.6 Million Awarded When Distributor Failed To Exercise “Best Efforts”

April 1989

In what appears to be the first time a court has considered the issue, a federal judge in Oklahoma has issued an order preventing a software vendor from triggering a hidden software mechanism to disable the system of a software licensee during a contract dispute.

The licensee claimed that it had withheld payment due to bugs in a system it had purchased. The vendor, who apparently had access to the licensee’s system, threatened to retaliate by activating a function that would make the licensee’s data unaccessible, though it would not destroy the data.

Referring to a public policy against enforcing an “abhorrent” contract, the judge implicitly criticized the software vendor for including the device in its software without informing the licensee. The judge’s decision suggests that a customer who is informed of the presence of a drop dead device at the time it enters the contract to obtain the software will have to live with the consequences.

TLB Comment: A variant of the device in this case, called a “time bomb,” will automatically disable a system unless the software vendor takes an affirmative action to prevent it from operating. In light of the Oklahoma case, it is advisable that the existence of a time bomb be disclosed by the software vendor. Licensees, on the other hand, should require a clause in their contracts by which the vendor warrants that the software does not contain any device that will interrupt the operation of the system.