J A N U A R Y - FEBRUARY THE COMPUTER LAW A N D SECURITY REPORT

The proposal to amend the Agreement was not accepted, possibly because it was the nature of software, rather than the principles of the Code, which was the source of the problem. After informal discussions it was agreed that the best solution would be the adoption by the GATT Committee on Customs Valuation of a Decision interpreting the Agreement so as to exclude the value of instructions or data from the transaction value of

software. I will discuss the GATT Software Decision in the next issue.

Theo Lyimo

Theo Lyimo is Senior Technical Officer with the Customs Co-operation Council in Brussels. This article is personal. The CCC is not associated with any issue or view expressed herein.

THE WlGGLESWORTH PRESS CONFERENCE: MUCH ADO ABOUT NOTHING

On 22nd October a group of 24 journalists, mainly from the computer press, travelled to the Council Chamber of the Law Society to hear an announcement by Wigglesworth, a small London insurance broker. What was it (apart from the buffet lunch) that tempted 24 busy journalists to make the trip and spend a couple of hours in the company of the Wigglesworth entourage? Was it the auspicious venue? The presence of William Powell MP, the promoter of the software amendment legislation, or Dr. Simon Elsom, secretary of the Copyright Committee of the British Computer Society, or was it the pre-briefing hand out, alleging that MOST MAINTENANCE CONTRACTS ARE ILLEGAL ? (shock, horror). It was probably a combination of all those factors - or rather the implied credibility given to the accusation by the status of the speakers and the nature of the venue. Ten out of ten for the press relations, if nothing else.

The main selling point of the meeting was the address by Andrew Paddick who was there to deliver the great message: in the early days of computers the main ingredient of a maintenance agreement was the regular preventative service visit. Today, with much more reliable computers, most maintenance agreements for micros no longer include preventative maintenance, thus the user pays for a breakdown response only. The unpredictability of breakdowns means that the maintenance company is running a risk. Companies that accept risks are called (you've guessed it) insurance companies. Insurance companies have to be licensed by the Board of Trade. Companies that are not, from the IBM's of this world down to the typewriter shop on the corner, are trading illegally and, if Andrew Paddick had his way, would be clapped in irons so that he could sell more insurance policies. The chain of logic seems to be of the "my father eats porridge, all Scotsmen eat porridge, therefore my father is a Scotsman" variety. However, insurance companies agree to pay money if certain events occur whereas maintenance companies agree to maintain the equipment in running order. To do that they provide a service. There is a difference which Wigglesworth have conveniently overlooked.

For me the highlight of the day was the talk given by Dr. Simon Elsom on software maintenance, and the moves being taken in the States to protect software purchasers who are unable to obtain software support if the software house ceases to trade. Very interesting and worthy of a separate article, but not directly

relevant to the main subject.

As might have been expected, this event has been given extensive coverage in the computer press. IBM have gone so far as to consult their legal department ... who do not agree with the Paddick interpretation of the law. They have not given their detailed reasoning for this opinion, but as long ago as May 1985, when Paddick first aired his theory in a letter to the Law Society Gazette, Robert Sevenson, attorney to Hewlett Packard, responded with a detailed legal argument, which concluded: "1 do not believe that, all maintenance contracts and extended warranties/guarantees do amount to insurance contracts, in which case it cleady is not necessary for manufacturers or suppliers to involve insurance companies or to seek Department of Trade authorisation. This is especially so if the facility is offered as part of the sale package and the defects covered are precisely defined." Vested interest on the other side of the fence, but I have myself seen an independent counsel's opinion that reaches precisely the same conslusions. However, Paddick's arguments have clearly found sympathy in the one sector that would benefit from a change in the law: a letter to the insurance industry's major trade journal, the Post Magazine and Insurance Monitor, takes the argument one stage further: if IBM and ICL are trading illegally why not the AA and the RAC ? They also charge money in advance for agreeing to respond to their members breakdown risks. Most of the journalists copy has followed the hand out of Paddick's speech which, after the headline 'Multi-million pound illegal insurance market exposed', revels in phrases such as "...the staggering and almost unbelievable truth ..." Not wishing to be outdone, the journalists have copied the

sensationalism with "MP calls for enquiry on "cowboy' services'

'Users must beware of the illegal maintenance deal'

'The computer maintenance fraud' and 'Sites warned of maintenance fraud'

Removing the hysteria, the basic facts are:

1. A high number of companies offering computer maintenance go into liquidation each year.

2. They tend to be at the small end of the market and are often retailers offering an add on service to their sale.

THE COMPUTER L A W A N D SECURITY REPORT 5 CLSR

3. An equaltyhigh number of companies offer a poor service with ill trained engineers. The financial consequences to their customers could be far greater than the annual maintenance fee. One company recently lost business worth £250 ,000 because of delays in repairing its computer. Other companies, who have blindly signed maintenance agreements without properly reading them, have found them- selves contractually committed to an incompetant or unsuitable company for up to 7 years. None of these problems are addressed by Wigglesworth's policy, which allows (leaves) the purchaser tochoose his own maintenance company, warts and all.

4. Wigglesworth have a theory, which has so far received little support from the legal fraternity, that a maintenance contract is an insurance policy. It has a strong vested interest in proving its theory.

5. Wigglesworth are selling insured maintenance at a rate of 5% of equipment value. By the time the dealer, and Wigglesworth, have taken their commission, a much lower figure will reach the underwriter. This rate is way below the rates charged by other British insurers, many of whom have withdrawn from the market because they could not write business profitably at such premiums. Even one of Wigglesworth's own guest speakers, a large maintenance company, expressed surprise that such low rates were being charged.

This problem is not about insurance and insurance relations: it is about selecting the right maintenance company: one that has the right level of service and expertise, that has acceptable contract conditions and that will still be in business at the ~fnd of the agreement. Companies that go for the cheapest deal available are liable to be disappointed in at least one of these criteria.

David Davies

THE r

In the current commercial climate in the computer industry it hardly seems possible that it is not so long ago that computers were only available on a rental basis` Mind you, in those days computers were not nearly so reliable as they are today, software availability was minimal and apart from needing stringent environmental conditions, most computers needed about as much space as the average 'semi'. When one now looks at the size, power storage capacity and the software available for even minis and micros nowadays, it hardly seems possible that some current commercial attitudes still seem to be influenced by out-moded views that were associated with the early machines.

One attitude is the 'tablets of stone' philosophy in which most computer companies hold their own standard conditions and I have a lovely story to demonstrate this! When I was with the CEGB we were negotiating a hire and maintenance contract for a replacement machine in an existing system and one condition that we found particularly objectionable was the one that gave the manufacturer the unilateral right to enter our premises and re-possess the machine in the event of non- payment of invoices, We pointed out that we processed our invoices on the system and in the absence of sa~sfatory maintenance (there was, of course, no guarantee associated with the maintenance service) we could not pay any invoices. We also pointed out that the power station workers' wages were also processed on the same system and non-payment of their wages might have undesirable results. The manufacturer's negotiator immediately recognised the unacceptable nature of his clause and assured us that it would never be implemented. 'Fine' we said, "then just delete it!' A look of horror came over his face, 'Good heavens' he replied 'We cannot possibly do that - the clause was

HIRE AND MAINTENANCE OF COMPUTERS

written by our lawyers'. As I recall it, it took a series of frantic phone calls to get the clause deleted.

The attitude I still find from the trade is that the contract should be tailored to fit the conditions and not vice-versa.

The second attitude that thas persisted over the years since the original rental contracts is that whilst the manufacturer needs protection in the conditions, the customer does not. Indeed it may be said that originally there was no need for standard clauses such as performance, patents, ownership etc. as property never passed to the customer and provided he had the right to terminate the contract at any time, any dissatis- faction on his part meant that he could easily extricate himself from the arrangement without having committed himself to the expenditure of large capital sums.

Of course, this remedy was more apparant than real as once having phased out his manual systems, the customer became more and more dependant on his computer system and the termination of the contract would probably hurt the customer more than the contractor. This situation has only been exacerbated by time, but notwithstanding this fact, a close examination of most manufacturer's rental conditions reveal an almost complete absence of customer protection. It was to remedy this inbalance that the Institute of Purchasing and Supply (IPS) decided to publish a set of model conditions titled 'Model Form of Conditions of Contract for the Hire and Servicing (Maintenance) of Computer Equipment' to supplement the Purchase and Maintenance models I have described in previous issues. Also, as w i th the other models, there is a Shortened Form of the Hire and Maintenance conditions.

I think that I should point out at this stage that with the changed cost ratio of hardware to software resulting from the decreased cost of hardware and the increased cost and availability of software, hiring is not as attractive a