When Software Disputes Become Nuclear Litigation Events
Whatever truth there is to the idea that a single mobile app brought the Iowa presidential caucuses to a screeching halt, one thing is clear. Software meltdowns can have catastrophic consequences. In today’s economy, virtually every major company, from consumer product makers to business-to-business service providers, powers its business with complex and expensive software. And over the past year, companies across the country—in scores of different sectors including finance, technology, aviation and health care—have been embroiled in high-stakes lawsuits about the software their businesses depend on. These lawsuits—brought by private actors and governmental agencies—have similarities, namely, hotly disputed allegations about how the software works, and eye-popping claims about the damage caused by faulty software.
The disgruntled software buyers in these lawsuits often seek damages well beyond the already large software sticker-price. And they often include allegations that the faulty software crippled a plaintiff’s business operations. Just last year, Hertz, the rental company, sued Accenture after Hertz spent $32 million dollars for Accenture to develop an e-commerce platform and apps to “transform the digital identity” of Hertz’s rental car business. Hertz says the software failed, and it wants its money back and more. Likewise, the city of Jackson, Mississippi, recently sued Siemens contending that Siemens’ faulty software failed to accurately measure how much water Jackson citizens consumed, causing nearly half a billion dollars in damages.
More and more frequently, commercial software suits also claim that alleged security vulnerabilities in the software financially harmed the plaintiffs. Take, for example, a Pennsylvania credit union’s suit against Fiserv for “allegedly failing to address persistent vulnerabilities in the platform that powers its banking websites and online applications.” The lawsuit contends, among other things, that security vulnerabilities in Fiserv’s software are “wreaking havoc” on the credit union’s customers. Likewise, Cisco Systems recently settled a False Claims Act case accusing Cisco of selling video surveillance software riddled with security vulnerabilities.
Other suits accuse companies of deploying software for deliberately nefarious reasons. An Israeli court recently rejected a motion to dismiss filed by NSO Group, in a case where a “prominent Saudi activist” claimed that NSO’s “cyberweapons were used to hack his phone.” Similarly, WhatsApp recently filed suit against NSO in federal court in California alleging that the company’s “spy technology” was deployed on WhatsApp users. Even apart from cases of purported international espionage, some plaintiffs are claiming that software was intentionally fraudulent, as claimed in a putative class of Tesla owners who say Tesla’s software update fraudulently limited the car’s “battery range.”
Intellectual-property disputes about software are also exploding. A recent suit between Black Knight, Inc. and PennyMac Financial Services centers around the use software that “facilitates mortgage transactions.” In the suit, Black Knight alleged that PennyMac’s recent deployment of its own mortgage transaction software misappropriated Black Knight’s trade secrets and breached the parties’ contract. PennyMac, for its part, fired back with its own accusations, including antitrust claims focused on Black Knight’s use of its market position and software contracts in ways that violate the Sherman Act.
While some of these disputes, especially those involving spy technology, may be difficult to plan for, there are certain things companies can do to limit the risks and fallout from disputes over the creation, use and deployment of software:
- Document any major software agreement—not just initially—but throughout implementation and use. Multiyear contracts for sophisticated software generally fail to anticipate the ways in which the parties’ goals and expected software functionality can change as development is underway. And too often, buyers don’t have a clear understanding of what they want (or exactly how the software will work) until the project is well underway. Companies that document changes to the scope of work (and appropriately track the project’s evolution), can avoid miscommunication and be better positioned should a dispute escalate into full-blown litigation.
- Protect your proprietary information. Contracts for customized, complex software often require inviting third parties into a company’s physical space, meaning that third parties can gain significant access to sensitive—and proprietary—information. Ensuring that the contract clearly spells out restrictions on the access to certain data, non-disclosure obligations, methods to get the data back after the contract ends, and clauses on who owns the data, can prevent serious problems should the relationship sour.
- Companies contracting for software should think carefully about whether the contract language provides an adequate remedy should the software malfunction or fail to properly launch. Most software looks great during the sales presentation; but too many software problems only surface during or after deployment, at which point the company may be crippled if the software shuts down. The best software contracts carefully allocate risk and address what happens (and who pays for it) if the software malfunctions or suffers from security vulnerabilities discovered after the project ends.
- When a dispute heats up or where litigation is unavoidable, companies should work with outside counsel experienced in explaining highly technical concepts to judges, juries or arbitrators. Success in major software disputes, as well as any complex business dispute, depends on clear and concise advocacy, and not the technical jargon and unhelpful detail that too often accompanies software disputes.
Kamal Ghali leads the cyber & digital litigation practice at Bondurant, Mixson & Elmore, and is a former Deputy Chief of the Cyber and Intellectual Property Crime Section of the U.S. Attorney’s Office in Atlanta.
Christopher T. Giovinazzo is a partner at Bondurant, Mixson & Elmore and has served as lead trial and appellate counsel in software contract disputes, including a recent federal jury trial in which his client obtained a multi-million dollar verdict.