READI

(Rights for Electronic Access to and Delivery of Information)

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LIABILITIES

Definition

Some network agreements call for the parties to be "liable" for errors or damages caused by the parties (see also Warranties and Disputes).

Discussion

This clause is often a standard one generated by legal departments, however (like "Warranties," "Disputes," and "Reports") it is recommended that it be reviewed carefully with an eye as to how the networked environment may alter time-honored procedures and interpretations. Consultation with legal advisors over the nature and extent of what constitutes liability should first be reviewed before proceeding.

Our research disclosed that the question of liability has not been adequately explored in the networked community. What constitutes liability and what damages may be forthcoming are not commonly addressed, let alone standardized. For example, should a supplier not provide the information as advertised (or if a vendor fails to deliver information on time), there is little experience in the industry as to how such failures are compensated. Likewise, should a vendor feel that the buyer breached certain aspects of the agreement (offering information to users not covered by the contract, for example) there is little experience about how the vendor may receive compensation.

In practice, it appears that the industry has come to certain understandings about the nature of what is considered acceptable. In the event that one (or both) parties fail to adhere to the spirit of the contract, then the aggrieved party (or parties) typically merely abandon the agreement--rather than enter into litigation (or other dispute procedures) employed to recover damages.

Some agreements call for specific penalties to be levied against the vendor in the event it fails to deliver the required information (or service), or according to a prescribed schedule as outlined in the contract. In some instances, certain vendors (when they fail to perform under the terms of a contract) have offered product (or service) compensation as a credit, rather than actual payment of damages. For example, some agreements call for price renegotiation when the availability of the service falls below a pre-determined minimum--90%, for example.

Other examples of credit in the event of non-compliance include:

• Extension of the contract term (i.e., giving the buyer more time on the network)

• Financial credit towards the purchase of additional services, information, or maintenance

Benefits

The principal benefit to the parties for including a liability clause is to protect the parties to the agreement in the event either wishes to proceed with litigation (or with other dispute procedures) to recover damages, if any. Under certain circumstances, it may be a requirement of the legal departments of either (or both) institutions to include such a clause in the contract.

Risks

As with all contracts that call for liabilities in the event of damages, the investment of management and legal expert time and cost in the pursuit of recovery, may exceed the actual rewards obtained (assuming a favorable judgement). Our research revealed that it is highly unlikely (unless one party, or the other, is malicious in its intent) that large sums could be recovered in the event one party initiates liability proceedings against the other.

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Any comments, or feedback?		Last Update:   Wednesday, 03 July, 2002 - 04:22 PM - EDT