Ambiguous Licences

Tomas Nielsen, eFocus Magazine

Software houses applying models standard in Western Europe or the USA to the granting procedure of licences can bring both themselves and their customers into conflict with the law.

Given by the very nature of computer programs, the software distribution has represented a rather complex legal issue. As computer programs do not qualify for goods in the legal sense, they are neither distributable upon a purchase or lease agreement nor subject of property rights. In Slovakia (as in Europe), disposing of software is regulated by the Copyright Act. What would otherwise be deemed to be the standard software business practice is unfortunately hindered by the said Act.

The current status of the Slovak Copyright Act forces the software houses to come up with impractical solutions in order to guarantee their customers to be granted the licences in a valid manner. Unless they do so and only apply models standard in Western Europe or the USA without a more thorough consideration, they might bring themselves or their customers into conflict with the law.

As a set of commands written on a medium (a CD, a hard disk, etc.), the computer program is not a subject of property rights due to not qualifying for a "thing" in the legal sense. Solely the consent of the author or another person with copyright to the SW qualifies for legal grounds entitling computer program users to dispose of them. Granted under licence agreements, such consent abides by the Copyright Act.

What does this entail? First of all, the customer must actually conclude the agreement with the licence provider. The conclusion of the agreement is - to the surprise of some people - a process precisely set forth in the Civil Code and supplemented by the extensive rulings of the courts. The process comprises two independent phases - the proposal to contract and its acceptance. And this is where the practice faces the first problem. Accordingly, there are many computer programs on the Internet, the so-called freeware or shareware, based on a seemingly elementary principle - on the web pages, the author declares that by downloading the respective SW the users acquire the licence and undertake to be bound by the licence agreement which is mostly available on the pages (no issue if it is not the case).

Nevertheless, the Civil Code expressly sets out that only a declaration of intent addressed to a single person or to several particular persons qualifies for the proposal to contract (its acceptance is then made through the expression of the acceptance by the offeree made in the statutory manner and served to the offeror). In the given case, however, the freeware author's declaration fails to address a certain group of persons and is, in fact, totally general. Let alone have we acknowledged that by downloading the SW the user has expressed acceptance of the declaration, the agreement could not have been concluded in a valid manner as a qualified proposal to contract was absent in such a case. Where the SW author is a Slovak citizen and the program abides by Slovak law, the said procedure does not result in the licence being granted (if the SW originated somewhere else and was subjected to a different jurisdiction where licence may be granted in such a way, this would naturally be no issue).

As has been said, the clash of the standard practice and the rigid regulation can be removed by modifying the process implemented into the web application, for instance. The software download may, for example, be connected with the obligation to insert an email address into a pre-defined field. Upon clicking the Download button, the licence agreement will be sent to the service provider who should then confirm the acceptance of the agreement by another email since the transfer of the terms of licence represents a specific proposal to contract addressed to a particular person. Yet, in this case, the offeror would be the user and the offeree would be the SW author. Such a solution is quite uncomfortable and brings along higher costs with respect to the licence provider (making the freeware practically useless).

Unfortunately, solving the issue of how to conclude the agreement will not bring us much further. The Copyright Act includes a provision considerably problematic with respect to the SW - Section 40(2) under which the licence agreement shall be void unless in executed in writing. Thus, a relatively plausible question arises as to whether the above-suggested procedure (one party emailing the other party a licence agreement draft and the other party accepting it by email) leads to the conclusion of a written agreement.

It is by far not easy to find the answer to this rather simple question. The Civil Code sets forth the manners in which a written agreement can be concluded - including electronic means enabling to capture the content of the legal act and tracing the person who made the legal act. Further, it states that written form is kept in the event the legal act is made through electronic means and signed by the advanced electronic signature. At the same time, however, the law fails to set forth that the written legal act shall be valid only if signed by the authorised representative.

In plain language, in order to qualify for an agreement concluded by electronic means, the licence agreement which is by law required to have a written form must satisfy the following obligations:

  • Both the agreement proposal and its acceptance must be made by such electronic means enabling to capture the proposed draft content and the acceptance of the agreement.
  • Both the agreement draft and its acceptance must be made so as to clearly indicate which person performs the act.
  • Both acts (the proposal and the acceptance) must be signed by the authorised representative.

Let us therefore present several practical solutions commonly employed in SW distribution:

  • concluding an agreement by email;
  • proposing a licence agreement draft the first time the program is run where further installation is conditioned by clicking the "I agree" button thus expressing acceptance of the licence terms and conditions; and
  • placing an agreement on the web page or displaying it throughout the SW installation process stating that by downloading, installing or running the SW the user undertakes to be bound by the licence terms and conditions.

The first case wherein the parties exchange the agreement draft in or attached to an email letter may be deemed to be rather unambiguous from the viewpoint of the first two conditions. The email address clearly indicates the sender and its content cannot be challenged from the legal point of view. Fraudulent conduct cannot be excluded either, just the same as with documentary agreements. Hence the issue is rather how to prove subsequently that the acts have actually been performed by the indicated persons than to meet the basic statutory requirements pertaining to the written declarations of intent.

If the email communication indicates the parties' interest to enter into an agreement, and this intent is clear, then it cannot be excluded that such a procedure will lead to the conclusion of an agreement since the law generally allows the agreements to be concluded not only in writing but also orally or by means of action or failure to act.

However, meeting the third condition is at question. No doubts arise if the advanced electronic signature is used, as the above-mentioned regulation of the Civil Code implies. Section 2(d) of the Act regulating the electronic signature provides that a signed electronic document shall mean: "an electronic document for which an electronic signature was created, provided such an electronic document is available together with the electronic signature of the same document". This law defines the electronic document as "a digital document stored on a physical medium, transferred or processed by technical means in electric, magnetic, optical of other form".

Therefrom, it might be inferred that it is possible to sign the electronic document also using the standard electronic signature. In line with the long-term legal interpretation practice, the law requires that the electronic document be stored physically. Hence a data file of no permanent nature or a data file not traceable on a physical medium in its original form does not qualify for an electronic document.

To what extent the written declaration of intent sent via email may be signed without using the electronic signature is widely questionable. To rely on the fact that electronic signatures can be replaced e.g. by the printed name in the document would be far risky and would not lead to conclusion of the agreement in my opinion. Should, however, documents be signed by hand, scanned and subsequently exchanged via email, I would tend to opine that a written agreement has been concluded.

The second of the said cases is far more complicated. Systems enabling to display the licence agreement wording only once or failing to connect the clicking of the "I agree" button with any other process definitely fail to comply with the condition to capture the content of the action. If, however, this has led to generating a PDF version of the agreement and the acceptance, for instance, I believe that the first condition for the written form would be met.

This will by far not do. The system should be engineered so as to clearly indicate that the licence agreement is being offered right to the particular user as well as the fact who clicked the "I agree" button. This can be reached e.g. by allocating a particular identifier to the particular natural person if the user is a natural person or to a particular natural person authorised to act on behalf of a legal entity if the user is a business (e.g. the login name and password) and only after entering them the personalised agreement draft shall be displayed and the "I agree" button activated. By connecting the information about the clicking the button with the clear identifier of the particular person and registering these facts into a traceable form will presumably also allow for satisfying the second condition for the written action.

A signature will definitely be required in order to meet the statutory conditions for a valid written agreement. It is absolutely not so easy to replace the signature. Although the law admits that the signature be replaced with "mechanical means in cases where it is usual", it is considerably doubtful whether it is possible to deem any data identifier (beyond the electronic signature regulated by law or the electronic seal) a mechanical means replacing the signature. Similarly, arranging the signature on the licence agreement draft will be problematic as well. It cannot be excluded that the technical inventiveness of software houses will create a practice which could qualify for it. Any such solution, however, will never eliminate the doubts of whether or not the licence has actually been provided.

On the contrary, doubts are not raised where the software provider declares on their web pages or in the course of the installation process that any person forwarding (downloading, installing the SW, etc.) thereby acquires a licence and undertakes to be bound by the licence terms and conditions. Such a procedure lacks a qualified proposal to contract and hence no contract can be concluded (even in no other form than the written form).

The simplest solution is to always provide the licence under a written documentary agreement signed by both parties. Even in the event of distributing the software via the Internet, a process leading to the attachment of signature to a documentary contract may be triggered (e.g. by means of clicking the respective button). This definitely does not cause any practical problems as to tailored software, yet it is more problematic (and more costly as to the processes) with the out-of-the-box SW and basically impossible with freeware. A solution is also to use the electronic signature, although such a step represents only a minimum simplification. Some problems of concluding licence agreements can be removed by creative providers - though only in a complicated way so as the procedure does not evoke any doubts. While inspiration need not be sought far away, definite solution might be brought by an amendment to the Copyright Act (as in other countries) reacting to the specific aspects of software distribution. By Czech Copyright Act, the said issues are regulated in a simple way:

  • No written form is required for licence agreements (with the exception of exclusive licences).
  • It provides that even a declaration of intent towards a general group of persons qualifies for a proposal to contract.
  • It also allows for concluding a licence agreement (where standard) even without notifying the offeror of the fact that the offeree will proceed in line with the proposal, "particularly that they will provide or accept the performance".

Accordingly, unless the Copyright Act is amended, the standard SW distribution practice upon non-documentary agreements shall remain ambiguous.