The Supreme Court of New South Wales has confirmed that the supply of software through a digital download fulfilment mechanism is not a supply of "goods" for the purposes of the sale of goods legislation. The result, which had been anticipated by commentators and practitioners for many years, may lead to legislative reform.
The case is Gammasonics Institute for Medical Research v Comrad Medical Systems. Comrad agreed to supply software to Gammasonics. The product was supposed to assist Gammasonics to register patients and appointments and to process Medicare claims. Gammasonics downloaded the software from Comrad’s server. The software was never provided to Gammasonics in tangible form (such as on a DVD). Gammasonics believed the software was defective. Although the judgment does not say so expressly, it seems that Gammasonics refused to pay. Comrad sued Gammasonics in the Local Court for repudiation of the contract. Gammasonics sought to justify their conduct by arguing that Comrad had breached terms implied into the contract by operation of the Sale of Goods Act, including that the software would be of merchantable quality and fit for purpose. Gammasonics lost that argument ‑ on grounds that included the finding that the software was not "goods" for the purposes of the sale of goods legislation. Gammasonic was ordered to pay damages of about $58,000. Gammasonic appealed to the Supreme Court. Fullerton J upheld the decision of the Local Court.
It has been apparent in NSW since 1983 that the mere licensing of software, without the supply of any tangible products, may not constitute a sale of goods (this was the result of the decision in the Toby Constructions case). No subsequent decision of an Australian court had ever answered the question.
Fullerton J recognised the consequence of her decision was that consumers purchasing software delivered online would have fewer protections than those who purchase software delivered by other means. This, she said, was a matter for the legislature rather than the courts.
The analysis in this decision applies equally to the delivery of content through digital downloads, such as music, ringtones, video or e-books. And, although it was not decided under Australia’s Trade Practices Act, the definition of "goods" in that legislation is not materially different, so the reasoning will also be applied in claims for breach of non-excludable conditions and warranties implied as a result of the operation of that Act.
The federal government has recently proposed important amendments to the consumer protection provisions of the Trade Practices Act – see our alert for an overview. The draft legislation (known as the Australian Consumer Law) amends the definition of "goods" to specifically include computer software. It is curious that software has been singled out for special treatment by the new Australian Consumer Law, and that the same approach is not proposed for other "products" that can, and will increasingly, be delivered as digital downloads.
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This item has been reported on ZDNet Australia
This posting has been reported at http://www.zdnet.com.au/downloaded-software-presents-legal-woes-33930287... - look there for further comments.
Cuts both ways?
Wouldn't this cut both ways? ie Gammasonics should not have to pay for the "goods", since they received nothing "tangible". Wouldn't Comrad have to pay back whatever Gammatronics had paid them, since Comrad "delivered" "nothing"?
Cuts both ways
Dave, no in this case Gammasonics supplied services of value. Lawyers would call your scenario a total failure of consideration, but that would only apply where the supplier's promises had no value. An example would be if a supplier attempts to totally exclude liability for their product. I should clarify that in this case the judge went on to find that the software was delivered in working order. Patrick
Did Gammasonics supply a
Did Gammasonics supply a service? There is no service element to the supply of software on a disk, that doesn't change if the software is downloaded? This case seems to just leave downloads in limbo. Question - both Comrade and Gammasonics stored the program in a physical machine at either end of the 'transport'/download, during which time the data is also borne along a physical medium - a data cable/phoneline ... so at what point was it not housed physically? It seems to me that the concept of physical is a dodgy distinction to be using given one could even go so far as to say that radio waves are a form of data storage/transport that required a physical medium.
Goods vs services
The question in the case was whether the software supplied by Gammasonics constituted "goods" for the purposes of the Sale of Goods Act. That legislation does not deal with the supply of services. For this reason, the court did not consider whether or not Gammasonics supplied a service instead of goods. If the case had been run under the (now superseded) Part 2 of Division V of the Trade Practices Act, the court would almost certainly have held there was a supply of a service, on the basis that a service includes the grant of a right (here, the right to run the program). Under the new Australian Consumer Law, software is deemed to be a "good", which has some other legal consequences - see this post.
In answer to your question about physical housing, paragraphs 28 and 29 of the judgment are probably incomplete, as they fail to recognise the possibility of transmission occurring over a wireless network. In the end, I don't think that makes any difference. The court's decision is straightforward - "goods" means tangible items capable of being owned, and the copy of the software supplied by Gammasonics did not fit within that concept.