Software Licenses: Why litigation is rare, and coming developments

Software is an indispensable part of business operations. From small startups to large multinationals, they all depend on software to run their day-to-day business smoothly. Nowadays practically every organisation manages a big portfolio of software licenses, each with its own terms and conditions. What to do when such terms and conditions are unacceptable, prices keep rising, and buyers see no ways of opposing this? They cannot just leave. Buyers of software often feel they have no choice; they must either accept unfavourable conditions, or unacceptable risks for their business – with screens going black as a worst-case scenario.

The multitude and variety of licenses, conditions that are often difficult to read, restrictive conditions that actually make normal use impossible, the hidden impossibility to get rid of support and maintenance costs once these have been agreed, are but a few examples of the many catches giving rise to potentially fierce conflicts. Neither the quantity, nor the scope of such disputes in practice is reflected in litigation. If it comes to litigation at all, the matter is often settled at the last moment. Why is litigation on software licenses and support relatively rare? 

The legal framework around (software) licenses lags behind the economic relevance of software. If we look at the economic value of software in society, a Directive from 1991 plus a small set of articles in the Dutch Copyright Act is a rather meagre result. For example, the law does not give substance to the software license. In general, a license is understood as permission to do or to use something. A software license usually consists of terms of use of a copyright-protected work (the source code and/or the object code). In de Software Directive (Directive 91/250/EC), the term ‘’computer program’’ was given limited substance, as was the term “software license”. Most questions relevant to the course of trade – is software a “good” or a “thing”, can it be sold (or just used), and if so, are the terms of the license included in the transfer or not? – were initially not answered by the legislator, but by the (European) courts. 

In addition, software licenses are left to the discretion of professional parties and their freedom of contract. After all, professional parties can agree on whatever they want as a matter of principle. For now, the limited legislative framework tends to create uncertainty for litigating suppliers or customers. A clear legal framework offers support, and without support the risks involved in litigation are bigger.

There is relatively little case law on software.

The Beeldbrigade judgment from 2012 was important; the Dutch Supreme Court held in this judgment that the title on sale (Title 7.1 DCC) applies to the purchase of standard software for a non-time-restricted use against payment of a specific amount of money. Before, it was not certain whether the purchase of software – also in purely electronic form – would be put on a par with purchase and that software could also be sold. This was a favourable development for buyers; the sales regime offers buyers more protection than the general law of obligations (Book 6 DCC). The title on sale contains special provisions about non-conformity, the obligation to complain and the statute of limitations, which apply both in B2B and in B2C relationships. For example, in a conformity or non-conformity regime it is not only the agreement (usually the standard terms and conditions of the supplier) that dictates the requirements the thing has to meet, but also that the buyer can expect the thing to have the normal features necessary for normal use, even if this has not been agreed in writing.

Since 2012 we have had to satisfy ourselves with mere ‘crumbs’ of property-law clarification. Moreover, the little case law is very casuistic in nature. Developments in case law regarding the interpretation and application of license terms and conditions are still few and far between.

Scarce and casuistic case law is not inviting to litigants. Here too, we see that the less guidance there is, the greater the risk of proceedings. Little case law may therefore lead to even less case law; it is a vicious circle. As a consequence, the law in this field has hardly developed at all.

Little legislation and little case law thus pose an obstacle to the submitting of a license issue to the courts. But this is not the only problem; it is doubtful whether buyers in particular feel sufficiently protected by the law and the judicial system to take the plunge.

In relationships between professional parties, an equal balance of power still tends to be assumed. The freedom of contract is a principle that nobody likes to encroach on. The question is whether this principle is still tenable in the IT market. 

This imbalance is the main reason why there is so little litigation on software, and it is caused mainly by the dependence typical of market relations in ICT field. The use of an ICT solution creates a certain dependence on the supplier as a matter of course, even more so if such a solution supports the key processes of the organisation. As the continuity of the organisation is likely to be at stake, organisations will shy away from disputes with a supplier, let alone from escalation to legal proceedings with large risks, including the risk that their product is halted. This de facto dependence creates a strong position for suppliers large and small, which results in imbalance between the parties. 

What with IT suppliers growing ever larger, imbalance in size is also more common. This imbalance increases if there is little legislation and case law that can offer tools to interpret and apply terms of suppliers, and that buyers can draw support from.

At the same time, suppliers too have their reasons to be wary of litigation: an unfavourable interpretation of their standard terms of use may hit a supplier’s business model hard, affecting not only the case at hand, but their entire market. Listed companies even face an immediate risk for their share price.

And yet, something is stirring. The trend started since the Beeldbrigade judgment and EU case law in the Usedsoft case shortly afterwards is fortified in laws on products incorporating software. Increasingly, all sorts of (EU) legislative initiatives are tarring software, software components in products, and digital services with the same brush and are offering them the same degree of protection as other things get. A recent example is the revised Product Liability Directive (EU/2024/2853), still to be converted at national levels, in which the term “product’’ expressly includes software.

Competition authorities are starting to examine the software market and market relations between suppliers and professional buyers. In 2022 the ACM took a big step by targeting health care ICT in the Leidraad Zorg-ICT (Health Care ICT Guidelines), in which it stated expressly that dependence may result in a de facto dominant position and that this may lead to abuse, even if there is no economic market power. European sector associations are also making themselves heard; in 2022 four European CIO associations – including CIO Platform Nederland – proposed eleven ‘fair principles’ in B2B relations between business users and cloud providers to inspire governments. In addition, these platforms also jointly make broadly shared complaints public, all the way up to the European Commission. 

These developments are important and necessary. They can step up the development of law around software and software products, including the embedding of software and the software license in the law of property. There is a lot in store for us.