Tell Your Customer to Backup Their Data

Short answer: telling your customers to back up their data, in the contract, in the product, and in your documentation, is a cheap and genuinely effective legal defense. A Utah Supreme Court case shows that those warnings, combined with a disclaimer of indirect damages, can get a data-loss claim against a software vendor thrown out.

The Utah Supreme Court ruled in June 2012 that when a software vendor is sued for software-caused destruction of customer data, it really matters whether the vendor had told the customer to back up its data.

The Background.

A dental practice was upgrading its practice-management software, and during the process all of its data was lost. The dentist sued the vendor for the losses. The trial court threw the case out, the dentist appealed all the way to the Utah Supreme Court, and the court got it right for the vendor. Here is why.

1. Telling the Customer to Back Up Helps a Lot.

The vendor had told customers to back up their data. It mattered even more here because the dentist claimed it had backed up, but in fact had not. A clear, repeated “back up your data” warning shifts responsibility back onto the customer who ignores it.

2. Disclaimers of Indirect Damages Work.

The vendor’s EULA said it was not liable for indirect damages, and the court honored it. This is the limitation-of-liability machinery doing exactly its job (more on how to build it in What Does Your SaaS Agreement Liability Model Look Like?).

3. General Warnings Get You Credit.

When you warn a customer of a risk, here the risk of not backing up, courts give you credit for the effort. Warnings and disclaimers reinforce each other: the warning shows the customer knew the risk, and the disclaimer caps what you owe if the risk lands.

The Drafting Takeaway.

Put the back-up instruction everywhere it can do good: in your EULA or cloud services agreement, in onboarding and upgrade flows, in your user guide, and in support scripts. It costs nothing, and paired with a solid disclaimer and liability cap it is one of the cheapest risk reducers a software vendor has. This is also why a well-placed disclaimer matters so much in the first place (see Why You Need a Disclaimer in Your SaaS Agreement). I hope this helps.

For the foundational distinction that drives every data-loss dispute, see SaaS Indemnity vs. Breach of Contract: What’s the Difference?

Resources:

• Copy of the Utah Case
• What Does Your SaaS Agreement Liability Model Look Like?
• Why You Need a Disclaimer in Your SaaS Agreement

Disclaimer:

This post is for informational and educational purposes only, and is not legal advice. You should hire an attorney if you need legal advice, which should be provided only after review of all relevant facts and applicable law.