A London hotel has won £111,000 in damages from supplier Red Sky IT, in a case that could have strong implications for UK software licensing terms as well as sales pitches.
The Kingsway Hall Hotel alleged that the Entirety online booking software consistently underperformed and that it was forced to employ extra staff to cover the problems. It had hoped that the software would speed check-in and check-out, and improve reservation processing. In the end, the hotel bought a replacement product.
Lawyers called it an “important” judgement that highlighted to customers they could question licensing terms that were wighted against them. The damages were awarded for lost profits, the cost of the software, and the additional staffing costs.
During the case, the hotel successfully overcame a clause in Red Sky’s software licence that said if the software did not perform as advertised, customers would have to make use of maintenance and support functions – and effectively could not do anything else. Red Sky suggested in hearings at the Technology and Construction Court that the term protected it from lawsuits.
Judge Toulmin ruled that this liability clause was not “reasonable” and that Red Sky should have alerted the hotel to problems with the software during demonstrations. Red Sky did not immediately return calls for comment.
In a sales pitch that secured the licensing sale to the hotel, Red Sky had also shown examples of the software in use that were not closely related to the hotel’s needs, the judge said, meaning Red Sky could not exclude itself from liability.
Read the CIO online editorial blog on IT sales techniques
Additionally, Toulmin wrote in the judgement that Red Sky should have known its software was “not fit for the purpose” of what the hotel needed, adding that the Entirety software “did not meet the standard that a reasonable person would regard as satisfactory”.
In a further problem, after signing the licence, the hotel was not supplied with full operating documents for using the software.
Tom Greenbank, solicitor at law firm Pinsent Masons, said the case meant it could become more difficult for software suppliers to place the blame on customers for choosing a system that is problematic or not right for the purpose intended.
Much would hinge on whether software firms “supply the customer with all the information” that the contract promises, in order for them to make an “informed choice”, he said.
Product demonstrations would also have to be clearly relevant he said. While suppliers would “inevitably be reluctant to reveal weaknesses” in their products, they would have to be more up-front and demonstrate the system working in exactly the right environment for the customer, he said.
But he warned that vendors would likely shy away from this. “As a supplier would you really want to show the defects or weaknesses when you’re competing for work? Nevertheless, they may have to be wary of overpromising.”
The news comes four months on from a high profile case between large enterprises, that also placed sales pitches in the limelight. In January, BSkyB successfully sued EDS for damages – which have so far hit £270 million including interest – after the supplier was found to have lied about the timescales needed for a large software implementation.
While that case placed much of the blame on a former sales head at EDS, observers said that the judgement could mean customers will demand clear proof from suppliers of what their products and services will deliver, before any contracts are signed.
Alan Owens, partner at Morrison & Foerster, said the big problem for Red Sky was that its terms and conditions of licensing “went too far”, and combined with the misleading nature of Red Sky’s sales demonstration this drew attention to the problem.
While the case did not set new law, he said, it could serve as encouragement to other disappointed customers of off-the-shelf software who felt it was missold and unfit for purpose.
“If businesses see that their licensing terms and conditions are weighted heavily against them, from this case they can see the law does afford them some strength – even if the supplier has tried to exclude itself.”