News & Insights

Beware when purchasing software and other technology

Journal of the Michigan Dental Association (April 2018)

By Daniel J. Schulte, MDA Legal Counsel
April 2, 2018

Question: I recently replaced my electronic dental record system and purchased an electronic back up service from a well-known national dental supply company. Due to a local disaster all the dental records stored on the computer hardware in my office were destroyed and are not recoverable. When I contacted this company I purchased back up services from I was told that they had failed to back up my records as they promised. I was told that all I could recover from this company was three months of fees I paid for the backup service. My damages are significantly greater than this. How can this be?

Answer:   A complete review of the contracts you entered into would be necessary to directly answer your question. The company you are doing business most likely included a provision limiting its liability to you for damages you incur related or connected with a failure of its product to perform as represented. The limitation provision is sometimes absolute (i.e. there is no obligation to compensate you under any circumstances). Other times, the amount of the obligation is limited to what would be an unacceptably low amount that bears no relationship to the actual amount of the damages you have incurred (e.g. three months of fees you paid for the backup service). Such a damages limitation is objectionable. A purchaser should reasonably be able to expect that when a product fails to produce as represented and causes foreseeable damages to be incurred that the seller will compensate the purchaser accordingly.

This company may have taken it a step further and included a provision where the it disclaimed any warranties in addition to the damages limitation. Such a provision states that the company makes no warranty (express or implied) that its product will function as it has been represented to function or even that it is free of defects. The company may have, in addition, included a provision that disclaims any warranty that would otherwise be provided by law and disclaimed liability for its own negligence or other actions or inactions. If a seller has so little faith that its product or service will do what it is represented to do that it expressly states it will not stand behind it, you should look for another seller.  

The best way to avoid the situation you are in is to carefully review your contracts when purchasing equipment, software or services. You should be aware at the outset what the limitations on damages are and what, if any, warranties are being made regarding the performance and suitability of what it is you are purchasing.

Why would anyone purchase a product or service when the company selling it is unwilling to stand behind it with a warranty and/or is unwilling to make its customer whole in the event that the customer suffers damages resulting from the product or service to function as it was represented to function? The answer is likely that these damage limitation and warranty disclaimer provisions are buried in the fine print and that purchasers do not contemplate the meaning of the provisions until after a disaster, when it is too late.

You should have an attorney review your contracts and assess your position. You may have claims against the company you purchased backup services from based on your contracts and misrepresentation, fraud and other common law theories. In addition, the conduct of your backup service provider may constitute a deceptive trade practice and be actionable pursuant to the Michigan Consumer Protection Act (this law also allows the Michigan Attorney General and prosecuting attorneys to file lawsuits for deceptive trade practices).

Dan also appears in the same publication, interviewed for the article "It's Important to be Aware of Antitrust Law" (below).

About Daniel Schulte ...

Daniel J. Schulte has more than 20 years experience representing small business owners in all aspects of transactional, operational and regulatory legal matters. A Certified Public Accountant as well as an attorney, Dan is the firm's managing partner and chair of the Health Care Practice Group.  

He regularly advises and counsels concerning the formation of business entities, the preparation and review of business and corporate contracts, the purchase and sale of ownership interests in businesses and/or their assets, and the purchase, sale and leasing of real estate. A significant component of Dan’s practice involves representing healthcare professionals in state regulatory matters, including disciplinary and other licensing disputes with the State of Michigan, and federal regulatory matters including fraud and abuse issues. He also counsels on the anti-kickback and Stark laws, preparation of compliance programs, and responding to and negotiating settlements in connection with government enforcement actions.

Dan is well-known for his knowledge and experience in the area of association law, and is primarily responsible for the firm’s representation of the Michigan State Medical Society the Michigan Dental Association and the Michigan Osteopathic Association.  His work related to association law includes the drafting and review of new legislation and the preparation of Amicus Curiae Briefs for filing in Michigan’s Supreme Court and Court of Appeals on a variety of topics affecting health care professionals practicing in Michigan.

Dan writes articles and presents frequently before legal, medical and business groups on a variety of topics, including HIPAA, the HITECH Act, the Stark Law, the fraud and abuse laws, health care compliance plans, business succession planning, asset protection, and estate and tax planning. 

He is ranked among The Best Lawyers in America®, and has been named a “Michigan Super Lawyer” by Thomson Reuters.

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