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  • Risk Prevention of Software Service Contracts

    Risk Prevention of Software Service Contracts

    More and more companies apply software in handling business operations. They have to sign a software service contract (“SSC”) or a software development contract (“SDC”). In practice, many companies only pay attention to the payment article, which stipulates that the commissioning party would pay upon the acceptance of the deliveries.

    This opinion is very dangerous. In fact, in the 57th issue of the “Legal Notebook”, we have analyzed the common risks and risk prevention methods from the perspective of the commissioning party in the paper “Risk Prevention for Software Development Contracts”.

    We will analyze the risks and risk prevention methods of the SSC in this paper.

    First, it is recommended to distinguish the SSC from the SDC. According to the “Contract Law”, and the “Interpretation of the Supreme People’s Court on Issues relating to Applicable Laws for Trial of Dispute Cases involving Technical Contracts”, SDC and SSC are different. A SDC focuses on R&D, which means a party shall develop a new software, or modify a software according to the commissioning party’s needs; normally, a SDC might create a new technology, and have a risk of development failure. A SSC focuses on the party would apply professional technology knowledge, experience and information to solve the specific technology problems for the commissioning party; normally, a SSC might not create a new technology, nor have a risk of development failure. If the commissioning party only requires services, such as the installation, debugging, technique support, maintenance of software, then it shall sign a SSC. In view of these, the commissioning party shall pay attention to the title and content of the relevant contract, and demonstrate the characteristics of a SSC. In addition, the dispute related to a SSC is a normal commercial contract dispute, which should be under the jurisdiction of civil division. The dispute related to a SDC is a IPR dispute, which shall be under the jurisdiction of IPR division. If the commissioning party failed to demonstrate appropriately, it might be troublesome while filling and the trial would have different focus.

    Second, the party shall solve the specific technology problems for the commissioning party, so the implementation of a SSC might involve the issues related to cooperation, technical guidance, acceptance, and so on. In practice, it is very common that the parties are confused in a SSC. For example, in the case (2018) Hu Min Shen No.2999, the judge points out, “The parties are confused in the contract involved; the parties have different interpretations on the ‘party’ which shall be responsible for the design and manufacture of the furnace.” Therefore, from the perspective of the commissioning party, it is recommended to clarify its own needs, and prescribe the role, responsibilities and liabilities of each party accurately.

    Third, the service persons and payment shall be stipulated clearly. In the implementation of a SSC, if the service persons have been changed, this might result in a poor communication, or changes in ideas and other problems. It is recommended to clearly stipulate the name of the persons, the qualification requirements, and the methods in dealing with the changes of persons. In addition, normally, a SSC would adopt a phased payment method. If possible, the percentage of the prepayment shall not be too large; and the amount and time for each phase shall be special designed. For example, partial of the payment and quality guarantee payment should be paid upon the acceptance of the deliveries.

    Finally, it is recommended to stipulate the acceptance criteria and quality requirements as specific as possible. The quality is the top one dispute. A more comprehensive description on the effect, purpose, quality requirements, after-sales service of the software could be used to identify the liabilities more clearly, which is also helpful to the judge in hearing relevant disputes. In addition, if there is any change during the implementation of a SSC, it is also recommended to stipulate in the SSC, sign a supplementary agreement, or use other written methods to fix the evidence, such as the emails, confirmation letter with signature and so on.