How to Get Sued Over Your Software EULA/SaaS Contract, and Lose!
There is a court case you should be aware of where the software company lost big — and now owes the customer around $246 million for a software/services deal gone bad.
The case: Dillards (the customer) sued i2 (later acquired by JDA Software) over a failed software and services implementation. Dillards believed the i2 software was not working as promised, and after the parties couldn’t work it out, the case went to trial in Dallas in 2010. i2 lost a roughly $246 million judgment on a $10 million software and services order — yes, 24 times the contract value. How does this happen when there was a contract with a limitation of liability?
1) Don’t Overcommit and Underperform. If you do it in a big way, a court can find that you committed fraud, which is what happened in Dillards v. i2. What sealed it: i2 had previously agreed to a consent decree with the SEC stating that it had exaggerated the functionality of its products to its customers, and i2 had even hired an MIT Management professor to assess their business practices, who wrote a scathing report saying i2 was over-committing and under-performing. The jury saw all of this.
2) If You Have a Problem, Solve It Through Negotiation. Software is never perfect, and customers know this. If you have a product problem — software not working as it should, sales team oversold — fix it. Free software, credit, extension, refund. If i2 had refunded Dillards early in the process and handled the disagreement fairly, they wouldn’t be facing a $246 million judgment.
Limitation-of-liability clauses usually do protect you, but not against a finding of fraud. Fraud is an extremely high burden for the plaintiff to prove, which is why these outcomes are rare — but worth knowing about.
For the foundational decision between an EULA structure and a SaaS subscription structure, see SaaS Agreement vs. Software EULA: Which Template Do You Need?
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Legal Disclaimer:
This is for informational and educational purposes only, and does not constitute legal advice.