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Software Vendor Forced to Pay Damages After Introducing

April 1992

In our April 1989 issue we reported on a case in which a federal judge had issued an order preventing a software vendor from triggering a hidden software mechanism that would disable the system of a software licensee that was in arrears on its license payments. This article resulted in many inquiries (from both lawyers and software companies) for further guidance on the ability of software vendors to use so-called “time bombs” and “drop-dead” devices. Unfortunately, we were forced to report the complete absence of cases on this subject, apart from the case which attracted the inquiries. Recently, as second case was decided involving this issue. A Missouri appeals court has upheld a jury verdict against a software vendor who loaded a lock-up program into its customer’s system during the course of a payment dispute.

Professional Systems Corp. (“PSC”) (not to be confused with Professional Systems Corp at 1240 Kona Drive, Compton, CA 90220, also known as “Physicians’ Office Computer”) had licensed software to Clayton X-Ray Co. When Clayton refused to pay the balance of the purchase price, claiming operational problems, PSC obtained access to the system under the guise of needing to make some program changes. Instead of servicing the computer, PSC loaded the lock-up program, which shut down the system at a later date, and displayed the message: “Call Professional Systems Corporation About Your Bill.”

Clayton then sued for conversion — the civil alternative to the criminal charge of larceny — and received a judgment for actual and punitive damages.

TLB Comment: This case is consistent with the advice we provided in our 1989 issue. A software vendor should not use any disabling software on a customer’s system unless the existence of the software, and the circumstances under which it might be used, are expressly disclosed in a license agreement. In light of the vendor interest that we have seen in disabling devices, we recommend that licensees protect themselves by requiring licensors to represent and warrant that no disabling devices are present at the time the software is transferred, and prohibiting the licensor from installing such a device in the future.