The Utah Supreme Court ruled in June 2012, that when a software vendor is sued for its software’s destruction of customer data, it really matters whether the software vendor told the customer to backup its data or not. Ok, let me explain this (from the software or SaaS company POV for its EULA or cloud services agreement).
Background. A Dentist was upgrading its practice management software, and during the process all of its data was lost (i.e. the Dentist had to manually re-enter all the data…not very fun). So of course, like any good Dentist it sued the software vendor to compensate it for its losses. Early in the case, the court threw out the case, and the Dentist appealed all the way to the Utah Supreme Court. The good news is the Utah Supreme Court got it right. Let’s go through what the Utah Supreme Court said.
1) Telling Your Customer to Backup its Data Helps…A Lot (especially when the Dentist said it had backed up its data, but in fact it had not…yep that is what happened in this case).
2) Disclaimers of Indirect Damages also Work (in other words, the software vendor stated in its EULA that it is not liable for indirect damages, and the court agreed).
3) General Warnings Work (think about it this way, you may not be able to make the law, but if you warn a customer of a risk (in this case to backup its data) courts are going to give you credit for that effort)).
So whether you are drafting a EULA or a cloud services agreement—or training your support department or writing your user guide—telling a customer to backup its data can really make a difference. While issues like this are not fun to think about or discuss, these things do happen in the real world and (as you know) no software is perfect. I am happy to report that the Utah Supreme Court got it right in this case.