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Do Software Companies Have Unlimited Liabilities?

Contributed by mm | November 19, 2003 11:23 AM PST

I just ran into this ZDNet story that someone is suing Microsoft for its failure to provide secure software and asking for damage by alleged identify theft due to software bugs. Also, you may read an interview of the plantiff in this CNN story.

The case was actually filed more than a month ago so its not news any more. However, this case is almost first-of-its-kind because software companies are usually perceived as have only limited liability because a typical End-Uer Licensing Agreement (EULA) essentially no warranties and shield software companies from most, if not all, liabilities.

I side with Microsoft in this case. It's not only because from the stories I can hardly see how the plantiff can prove it's Microsoft software that causes the identify theft. (They seemingly didn't know who stole the identity, not to mention how someone stole the plantiff's identity.) Moreover, this suit is simple ignorance of economics of law.

Software is never written to be bug-free or it can only be produced with a prohibitive price. Imagine if software companies need to take liabilities for all subsequent losses should their products contain bugs, those companies need to spend much more labor on testing and seek liability insurance coverage like surgeons. If this is the case, $1,000,000 per Windows copy is not impossible: who knows if millionaires will not use Windows?

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