Why Software and App Development is a Liability Minefield for Tech Companies

Compensation awards for intellectual property and product liability claims are increasing in both frequency and size. And in these litigious times, all businesses face an uphill battle to stay protected. In this article, we will walk you through why software and app development is a liability minefield for tech companies.But the rapid growth and pace of change in their industry make this problem particularly acute for software and app developers.

The Most Common Types of Intellectual Property Infringement

As a developer, there are many examples of potential infringements of intellectual property rights.But most will fall under the following headings –

• the use of copyrighted code without the owner’s consent

• the use of copyright code in a manner not authorized by the owner

• making copies of licensed software without the owner’s authorization

• allowing third parties to use licensed software without the owner’s authorization

Some of these may also be breaches of a license agreement. And such is the complexity of the business that it’s unfortunately all too easy for even the best-intentioned developers to commit inadvertent breaches of this kind.The sums of money claimed in such cases have been enormous. And if you’re found in such breach you’re also likely to incur heavy fines for violating one or more of the state or federal regulatory codes designed to protect intellectual property.

Product Liability Risks

It’s also important to realize that, quite apart from any intellectual property issues, software and apps are products like any other. So developers and suppliers may be liable, in much the same way as the manufacturer of a physical product, for any injury or loss caused to a purchaser or third party.A developer might be held liable, for example, for providing software that made a customer or third party’s computers liable to a cyber-attack.And in the age of the Internet of Things (IoT) and 5G, when a huge range of home appliances and vehicles depend on software or apps for their operation, developers will likely find themselves in the frontline of an ever-increasing number of claims for product malfunctions.

Excluding Liability with Watertight Contract Wording

The good news is that the terms of the contract between you and the purchaser or user of your software may exclude many liabilities. But the law in this field is complex and rapidly changing. So the advice of an attorney is vital to ensure that all documents are watertight.Moreover, most contracts will not exclude liability for losses caused to third parties. These may include the purchasers or users of a malfunctioning product that relies on software supplied by you to the manufacturer.

What Type of Insurance Do You Need

Court awards in these kinds of cases can be eye-watering, and even entirely spurious or speculative claims may be ruinously expensive to defend. So it is imperative for tech firms, solopreneurs and corporations alike, both to take steps to reduce their risk and to make sure that they are adequately insured.A commercial general liability (CGL) policy may cover you against some intellectual property and product liability risks, but it may not give you the industry-specific coverage you need. Depending on the exact nature of your business, it may, therefore, be a good idea to take out a separate “Technology Errors & Omissions (E&O)” policy.This type of insurance not only provides cover against any claims for negligence; it will also meet the potentially disastrous legal costs of defending your business.

Talk to the Experts

But it’s important to understand that in such a new and rapidly evolving industry, in which a wide variety of different business types operate, you’re unlikely to find an “off the peg” standard policy that exactly meets your needs.What you need instead is an individual solution, tailored to your needs, of the kind which we at Brashears Insurance specialize in providing.For an initial consultation, you can call us today on 805-564-7645 or send us a message here.