原载《<复旦人文社会科学论丛>第3辑》(英文)
Abstract: According to market demands and requirements of legal practice, Shanghai Information Committee and Shanghai Industrial and Commercial Administrative Bureau jointly issued Shanghai Computer Software Development Model Contract (2003) for the enterprises in October, 2003, which will make great progress in regularizing the development of software market. In the model contract, project management, monitoring, testing, trying on, and check and acceptance and intermediation made by Information Association when there are disputes are recommended, which show the characteristics of the model contract. The significance of popularizing the model consists in regularization of software market, promoting transformation of the government functions and driving the guild to play its role in self-discipline. However, the model is only a model. Two or more parties to the contract shall negotiate the terms on the basis of the principle of the autonomy of will for respective rights and obligations.
Key words: model contract, software development, regulation, autonomy of will
1. Introduction
In order to implement the thought of scientific development，
informationization is an inevitable choice for China in its accelerating industrialization and modernization, which is still a major historical mission for all Chinese people. A new pattern of industry, with characteristics of advanced science and technology, significant economic benefit while with less natural resources consumption and no environmental contamination, as well as full exploitation of human resources, shall be achieved through using information technology (IT) to propel industrialization, which will, in turn, stimulate IT application.[1] Informationization shall mean informationization of national economy and society, which indicates that the technology of computer, communication, network and other relevant technology should be promoted and applied in economy and society to enhance the efficiency of economy and productivity and the core competitiveness of the enterprises and that of China, and to improve people’s living standard. Informationization is a dynamic process of transforming an industrial society into IT society, signified by the larger proportion of IT industry in national economy with the closer combination of industry and information growing as an essential factor of productivity. As an important resource of informationization society, software industry should be a fundamental and strategic industry of national economy and social industrialization.[2]
Enterprises engaging in software development are playing an increasingly important role in society in our times. With the growing number of such enterprises in recent years, their significance has unfolded in the economic and commercial activities. Take Shanghai as an example; there were 1,200 software-developing enterprises with a considerable scale till the end of 2003. Boasting the advantages of their specialists, technical skills and the abilities to innovation as well as the flexible management and high efficiency, software enterprises have enjoyed more competitiveness and vitality and made a profound contribution to China’s industrialization and informationization. These enterprises, however, often enter contracts for being entrusted to develop certain software or for cooperating with other enterprises in the same trade. Consequently, there are myriads of disputes arising out of the performance or fulfillment of the contracts on software cooperation or commission development. The reasons for explaining the aforesaid problems may consist of the following facts.
In the first place, in China, the property of computer software is protected as copyright and there is no compulsory rule for registering such property by the creators or authors, which results in a weaker protection than that of the rights of a patent or a trademark. The second reason lies in the fact that many medium or small-sized enterprises tend to ignore the importance of the enforceability of contract. Furthermore, software has the features of high technology, uncertainty, high risk and unclear criteria. In 2001, Shanghai Yangpu District people’s Court received a number of litigations on developing systematic computer information management software by means of commission or cooperation. Shanghai municipal administration emphasized on such trend and issued directives that the relevant agencies, such as Shanghai Information Committee and Shanghai Industrial and Commercial Administrative Bureau, should strengthen the activities of regulating, monitoring and guiding software development market. On the other hand, software enterprises are in great need of government’s guidance, for they have to focus on developing and innovating to raise their core competitiveness, while disputes will claim too much attention cost and even bring about devastating troubles to them. In a word, problems on relative legislation and judicial practice are very serious, and thus, there exists an urgent demand for regulating software-developing contract.
Therefore, the relevant governmental agencies in Shanghai embarked on drafting software development model contract and hoped to improve it through the practical application in reality with the purpose of making preparation for the future legislation in this field. Accordingly, Shanghai Information Committee and Shanghai Industrial and Commercial Administrative Bureau jointly issued Shanghai Computer Software Development Model Contract (2003) for the enterprises in October 2003, which will bring great progress in regulating the development of software market, reducing and even eliminating disputes, and especially in providing references for medium and small-sized enterprises when signing such contracts. The intention of this paper is to describe a brief analysis of the contents, remarkable features of the model and points for attention in application of the model contract.[Page]
2.Typical Features in Shanghai Computer Software Development Model Contract
This model contract was drafted jointly by Shanghai Information Committee, as the leader, Shanghai Information Association, Shanghai Software Association and the relevant governmental agencies of Shanghai, meanwhile it absorbed the suggestions from the experts in the field of software and law. During the course of drafting it, the characteristics of software development have been fully considered as well as China’s current laws and regulations, and policies in software industry and the present market conditions. However, the application of the model contract shall be based on the principle of autonomy of will because it is not an automatically legal binding document; in other words, it is flexible and optional, not fixed or compulsory.
There are about 10,000 words, 16 articles in all, including those of definition, software development, price, intellectual property, damages on breach and so on, as well as appendix and supplements. This model contract is more accurate and elaborate than the precedents, whose features are demonstrated as follows.
2.1 The Article on Software Development
There are 8 clauses under this article. Stipulations as “project management” and “monitoring by a third party” have been adopted in the contract, which may be one of the most distinguished natures of the model. An information system development management group shall be appointed to manage the software development under delegation of either party to the contract. Either party shall notify in writing the other party when naming (an) other person(s) taking place of the original one as his own management group member(s). When such a change involves major matters of the project, the party undertaking the change shall ask in advance for the written consent from the other party. And the other party shall promptly examine the written notice and reply promptly. Both parties shall negotiate such a change on the grounds of rationality, good faith and mutual benefits.
The clause of monitoring in this article stipulates that one party (entrustor, or Party A) can engage a third party as a monitor of the software development on his behalf, who is entitled to the same authority as that of Party A. The third party shall have the corresponding competence or qualification and perform his duty in accordance with laws, otherwise the other party (entrustee,Party B) has the right to reject the monitoring conducts. Such an article enables both parties to avoid potential disputes.
Other clauses under this article are quite accurate and clear for application. For example, clause 6 on “requirement instruction, general design instruction and detailed design instruction” and clause 7 on “the report of achievement on schedule”[3] are both directed against problems leading to disputes and for the contractors’ attention.
2.2 The Article on Delivery, Check and Acceptance
This article stipulates the rights and obligations in testing, trying-on and acceptance, which brings about actually precise expectations for both parties in performing the contract. The model contract stipulates that entrustor shall promptly do the test and show the results after the delivery and shall ask entrustee to do the modification when the technical requirements or criteria have not been reached or met, provided that the software is developed in the way of commission. If the test has been passed, there shall be several days’ trying-on, and thereafter the whole system test shall be performed.[4] Such accurate stipulation is conducive for the performance of the contract and prevents either party from shirking his responsibilities.
As far as the entrusting software development contract is concerned, in general, the entrustee has more apparent initiatives and more accurate obligations, which makes him at a disadvantage, while the entrustor’s obligations, such as payment, acceptance and other assistance, which are actually too vague and general, make him take the advantageous position. But this model contract provides some effective insights solving such problems.
2.3 The Article on Warranty and Exemptions
This article rules that Party B (the entrustee ) shall warrant that the software or its affiliated rights will not infringe any third party’s intellectual property or other rights, and there are no suspending litigations against Party B’s right of the software, and the right of Party A (entrustor) to use the software delivered from Party B will not infringe any third party’s rights. And the software developed shall accord with China’s regulations and standards on software.[5] In addition, stipulations on infringements and damages are more accurate and applicable,[6] for lessons and experience from real cases and suggestions from experts and enterprises have been fully considered, which reflects the developed software product shall be flawless in legal rights, otherwise there is possibility of endless disputes.
2.4 The Article on Dispute Resolution
Another most significant feature of this contract model lies in the stipulation of the intermediation made by Information Association, which is the guild of software industry, when disputes arise out of the contract or performing the contract. It is stipulated that when both parties cannot solve the dispute themselves, they can apply to Shanghai Information Association for the intermediation under its rules.[7] Though such non-governmental intermediation from a trade association is very common in other countries, it is quite rare in China, for the usual methods are negotiation, arbitration and litigation in the domain. The reasons for this phenomenon are strongly alleged as the following: the institution of trade associations in China is immature and not authoritative and more importantly, traditional notions having developed out of the plan-centered economy are still entrenched in the minds of most people.
[Page]Actually solving a dispute by the intermediation by a trade association is a more economical solution and may be more helpful for the future cooperation of both parties to the contract than by arbitration or by litigation. There is evident enlightening profundity in such article. As good offices and mediation are the productive solutions of controversies among the countries, intermediation may be a more effective approach to solve personal disputes, especially in certain trades with particularly unique characters. The recommendation of this article is a milestone in a society of informationization. Obviously, though the rule of intermediation is vital on ordinary occasions, the failure of intermediation will not deter either party resorting to arbitration or litigation, for it has no legal binding force at all.
2.5 The Article on Credit
This article stipulates that either party to the contract can demand a credit report from the other and if the disputes in performing the contract are solved through litigation, either party can submit the effective judgment to Shanghai Credit Agency.[8] Such stipulation is positive for the establishment and improvement of a society in which everybody abides by the principle of good in faith. Operated with the Rule of Shanghai Personal Credit Management enacted on Feb.1, 2004, this article will strengthen the importance of performing one’s duty correctly and faithfully, for the flaws with credit will be adverse to one’s own benefit. Such a stipulation in model contract conforms to the requirement of credit in an informationization society and the economic development.
Moreover, other articles on project change, confidentiality, intellectual property, comprehensive provision, price and payment are all feasible in tackling practical problems.
Last but not least, this contract model refers to some practices in the countries with a mature and advanced market and considers the specific circumstances of Shanghai. It is a combinative product of both Chinese and western legal culture and legal practice.
3. The Significance of Shanghai Computer Software Development Model Contract
This contract is drafted in the movement of the market demands. It is jointly promulgated by Shanghai Information Committee and Shanghai Industrial and Commercial Administrative Bureau, however, it is promoted by Shanghai Software Association and Information Association, which indicates an implicit government conduct in the whole course. Nevertheless, such a conduct does not mean the action of “intervention,management or control” but that of “guide and service”. Therefore the significance of the model contract may be mentioned as follows.
3.1 To Regulate Shanghai Software Market Further
Software is one of the industries developed most rapidly in China and especially in Shanghai. However due to the underdeveloped condition of law and regulations in the software trade, which are inadequate, vague or infeasible, most enterprises tend to choose contracts on the basis of the rule of autonomy of will. Consequently, the discrepancies among unequally and unbalancedly developed enterprises, the complicacy of software, the lack of a unified standard, all have led, are leading and will lead to numerous controversial issues in which the benefits of enterprises are easily damaged and the market development may be blocked. This model contract provides a guidance and reference for enterprises’ signing such a contract. The accurate display of rights and obligations in the model contract is useful for both parties performing the contract and solving the problem fairly and promptly when there are disputes. As Shanghai Information Committee secretary-general Mr. Zhou Weidong pointed out that since software development was complicated, the promotion of the model contract would define the rights and obligations for both parties and to a certain extent cut down disputes which would occur, or help solve disputes which has occurred.[9] In brief, the model contract will play a significant role in further regulating Shanghai software market, preventing risks and decreasing disputes.
3.2 To Present An Important Signal of the Shift of Government’s Functions
It is pointed out that the government’s functions of economic regulation, market supervision, social administration and public service should be further developed and consummated in the report of the 16th NCCPC.[10] The acts of drafting and promoting the model contract reflect the great progress of municipal administration of Shanghai. Though the draft was proposed by Shanghai Information Committee, it only provided guidance and service, working as an organizer. The experts, enterprises and trade association, who really drafted and discussed the text of the model contract, have played a positive role. Furthermore the Software Association and Information Association contributed a great deal to the contract’s promotion, which bestows enterprises more autonomy in deciding whether and to which extent to apply the model contract. Such a shift of government’s functions from control and ratification to guidance and service conforms to today’s society’s requirement for a government with efficiency, service spirit and honesty. The model contract not only shows the government’s pursuit of better service for enterprises and market, but also provides examples for further guidance and service in other fields.
3.3 To Provide A Positive Exploration into the Functions of Trade Association after China’s Entrance to WTO
Trade association has played a role in countries with developed market. While in China, since its establishment and development were more related to administration and its importance for enterprises is somehow neglected. For instance, trade association in China did not play its due role in western countries’ anti-dumping actions against Chinese enterprises. With the development of software, the rule of market should be esteemed. The administration of China has laid down that information industry agencies should bring software associations’ function to full play in fields as market investigation, information communication, self-discipline in consultation and estimation, intellectual property protection, quality evaluation and policy research in order to promote a sound development of software industry.[11] It also commands that software association should perform its duties of evaluating software enterprises based on the rule of the open, fair and equal criteria.[12] Accordingly, trade associations should be effectively self-disciplined and make efforts to promote regulation of the market. With the draft and promotion of the model contract, software association has exploited the opportunity improving its ability and also set a good example for other trade associations. The Information Association’s role as a quasi arbitrator or judge has an especial profundity for trade associations. The adoption of intermediation by trade associations conforms to the stipulation in Several Decisions on Improving Socialist Market Economy by CPC that trade associations should be adopted according to market rules and stipulations on trade-discipline.[13]
4.Points for Attention in Applying Shanghai Computer Software Development Model Contract
Since this model contract only provides a reference, parties to the contract can decide whether or not and how much to apply it. Several articles in the model contract can be regarded as reminders. It is not a standard contract and accordingly two or more parties to the contract shall abide by the rule of autonomy of will when they try to sign a contract.
The relative accuracy of the model contract enables a layperson to apply it without much trouble except for several professional and legal terms. However, listing the most important terms in a contract, the model is far from the consummation in that some provisions can be improved by supplementary clauses owing to some legal problems still existing. Take the article of dispute resolution for example, which stipulates that when there are disputes, either party can apply for intermediation to Shanghai Information Association under its rule of intermediation or apply for arbitration to Shanghai Arbitration Committee under its rule of arbitration. However, such two methods should not be counterparts for free choice. Though both are solved by nongovernmental organizations, the intermediation made by the former has no legally binding effect, and in case of the failure to reach a consensus, either party can apply for arbitration or lodge a complaint in the court. In sharp contrast, according to law, in China, between arbitration and litigation the relevant parties can only choose either of them. And if both parties choose arbitration, they shall not bring a suit to the court. The two rights are mutually exclusive. Therefore litigation is the counterpart of arbitration, rather than intermediation. And the wish for intermediation by a trade association becoming legally effective in future is not realistic. Chongqing Computer Software Development Model Contract (2004) tackled this problem sagaciously, which stipulates that the parties to the contract can choose arbitration or litigation when the intermediation fails.[14] Furthermore, the agreed arbitration agency shall not be restrained to Shanghai Arbitration Committee, whereas Shanghai Sub-agency of China International Economy and Trade Arbitration Committee or other arbitration agencies all over China or even throughout the world may be applicable, too. Being non-governmental organizations, arbitration agencies should not be confined to a certain administrative district. Enterprises in other areas or overseas should have the right choosing whichever arbitration agencies in or outside Shanghai. Being a local model contract though, articles on arbitration shall not imply exclusion and be localized.
Secondly, articles on liability of breach of contract and damages stipulate that for delay of per 10 or X days, the party who breaches the contract shall pay the other party who performs his obligations certain percentage of the total worth of the contract, while the whole damages shall not exceed 5% of the whole contract price.[15] In fact, there lies another problem, for there is no accurate stipulation directed against the party whose accumulative damages exceed 5% of the worth. In such a condition, the non-breaching party tends to rescind the contract and claim fair damages. However, the model contract has not provided accurate stipulation, which is a common phenomenon in the reality. For example, both parties agreed that the entrustor shall pay a damage of 0.5% of total amount delayed per day from the next day after the agreed payment date, while the whole damages may exceed 5% of the total amount when the tenth day comes. However, because there is none of other liabilities that are drawn into the contract, how to require the breaching party to bear the actually additional damages from the eleventh day? As a result, the entrustor took an unfair advantage of this flaw that he consciously delayed the payment for 2 months since the ceiling damages were fixed, never exceeding 5%. If there were more accurate provisions on further damages such as raising daily damages or rescinding the contract and claim of liability for material breach, the entrustor would take it more seriously.
And thirdly, the articles on intellectual property and rights of exploitation are the cores of software development contract. This model contract displays several conditions for choice. However unclear application of the right may appear without analyzing the given conditions. For example, it is stipulated that Party A and Party B jointly possess the intellectual property of the developed software, either party may not disclose, assign or license to any third party the relevant technology, software, unique technique, confidential information and technology documents without the other party’s consent and except for the developing itself, either party may not exploit the aforesaid documents and technology commercially without the other party’s written consent. When breaching the agreement, the party in breach shall cease or suspend the injury and pay the damages.[16] However, actually the aforesaid stipulation can only be applied in joint-possession, while when only one party possesses the intellectual property, the right-holder can dispose his rights at his discretion, and such stipulation seems unnecessary and inappropriate hereon.
Accordingly, in order to avoid disputes on equivocation, both parties should negotiate on every terms, especially those key terms when applying the model contract.
5.Conclusion
According to the following statistics of China’s export of high-grade technological products in recent years, IT products account for about 93% and in which products of computer and communication account for a major as 80%. From Jan. to Nov. 2003, the value of IT export was $93.35 billion, accounting for 96.1% of the high-grade technology products export, in which the value of software and communication products export was $52.39 billion and $28.34 billion, accounting for 54% and 29.2% in export of high-grade technology products respectively.[17] From Jan. to Dec. 2004, the worth of IT export was $154.77 billion, accounting for 93.5% of the high-grade technology products export, in which the worth of software and communication products export was $83.93 billion and $52.44 billion, accounting for 50.7% and 31.7% in export of high-grade technology products respectively.[18] From Jan. to Sep. 2005, the value of IT export was $138.72 billion, accounting for 92.5% of the high-grade technology products export, in which the worth of software and communication products export was $73.15 billion and $48.11 billion, accounting for 48.8% and 32.1% in export of high-grade technology products respectively.[19] Such statistics manifests China’s rapid development and considerable strength in hardware trade, however, there is still much margin for development of software. Though in China the revenue of software increased from 44.1 billion yuan(RMB) in 1999 to 220 billion yuan(RMB) in 2004 and the value of export increased from $0.25 billion to $2.8 billion in 2004,[20] compared with the scale of international software trade and the export amount of India, there is still an apparent lag for China’s efforts. Since Chinese government has issued the policy of “vitalizing trade through technology” and the guidance of developing software trade, which requires developing IT to propel industrialization, we should make every effort to develop market domestically and abroad, based on the enterprises in the market-oriented economy, exploiting every opportunity and enhancing the market expansion. An object of software development has also been set forth to that effect, till the end of 2005, the revenue of software trade should reach 250 billion yuan, the percentage of occupation of native market by software made in China should reach 60%, the value of software export shall reach $5 billion. Furthermore, a certain amount of software products with international competitiveness shall be developed, software specialists shall reach 800,000, and more software with self-sustained intellectual property shall be developed.[21]
As a major industry in information society, in future, software industry will be attached more importance to and gain more support and assistance. Accordingly, the relevant laws and regulations shall keep pace with this trend. It is quite reasonable that the model contract is drafted initially in Shanghai because of its more developed software trade. We wish the promotion of this model contract could dwindle or even eradicate the disorder such as failure to deliver the assignment under the contract, the property of the software impinged consciously or unconsciously. We also wish the model contract could play an active role in regulating and promoting software trade development in Shanghai and make its contribution to software development in China. After this model contract was drafted, other provinces and cities have followed the example to regulate its software trade, such as Chonging Computer Software Development Model Contract, which content is similar to that of Shanghai. There is no doubt that a national unified model should be more effective. Central government’s policy of rejuvenating China through science and education by improving the regulations of market and shift of the government functions to serve enterprises and market will make it a profound breakthrough to draft a unified model contract in guiding national software association and in regulating software development and assignment.
Notes
In 2004, the revenue of global software trade was $886.2 billion and will reach about $950 billion. See The Software Export Enterprises Shall Make Efforts to Enhance Core Competitiveness and Cultivate Self-sustaining Brands, a speech made by Mr. Wei Jianguo,
[1] Build a Well-off Society in an All-round Way, Create a New Situation in Building Socialism with Chinese Characteristics----the Report on the 16th NCCPC, in 16th NCCPC Documents Collection, (Beijing: People’s Publishing Agency, 2002) 21.
[2] Informationization Office of the State Council of P.R.China, The Compendium of Vitalizing Software Industry (2002-2005), at http://www.bjcg.gov.cn/szcg/fgybz/t20050804_119229.htm.
[3] See Related Terms in Shanghai Computer Software Development Model Contract (2003),at http://xxb.sh.gov.cn/upload/4946/ruanjian.doc.
[4] Article 5 in Shanghai Computer Software Development Model Contract (2003).
[5] See Related Terms in Shanghai Computer Software Development Model Contract (2003).
[6] Article 2, Clause 9 in Shanghai Computer Software Development Model Contract (2003).
[7] Article 13 in Shanghai Computer Software Development Model Contract (2003).
[8] Article 16 in Shanghai Computer Software Development Model Contract (2003).
[9] Shanghai Computer Software Development Model Contract Is Iinitial in China ,the speech made by Mr. Zhou Weidong, on Dec.15, 2003. http://www.qianlong.com/.
[10] Build a Well-off Society in an All-round Way, Create a New Situation in Building Socialism with Chinese Characteristics----the Report on the 16th NCCPC, 27.
[11] Article 37 of Several Policies on the Development of Software and Integrated Circuit Industry, State Council, Jun.24,2000, at http://www.chinaicip.com/policy/ZCFG_004.HTM.
[12] Article 38 of Several Policies on the Development of Software and Integrated Circuit Industry, State Council, Jun.24,2000.
[13] Several Decisions on Improving Socialist Market Economy by CPC, (Beijing: People’s Publishing Agency, 2002)19.
[14] Article 13 of Chongqing Computer Software Development Model Contract (2004), at
http://www.cqit.gov.vn/UserImages/00000177.doc.
[15] Article 11 of Shanghai Computer Software Development Model Contract (2003).
[16] Article 6 of Shanghai Computer Software Development Model Contract (2003).
[17] See Classified statistics of China’s high-grade technology products import and export, Jan.-Nov. 2003, at http://kjs.mofcom.gov.cn/bn/bn.html.
[18] See Classified Statistics of China’s High-grade Technology Products Import and Export, Jan.-Dec. 2004, at http://kjs.mofcom.gov.cn/aarticle/bn/bo/200501/20050100341301.html.
[19] Classified Statistics of China’s High-grade Technology Products Import and Export, Jan.-Sept. 2005, at http://kjs.mfcom.gov.cn/aarticle/bn/cbw/200510/20051000693234.html.
[20] See the lecture made by Mr. Bo Xilai at the Summit Forum of International Software and Information Service Cooperation for Ministers and Enterprisers from Different States, at
http://kjs.mofcom.gov.cn/aarticle/ztxx/bb/bf/200506/20050600130712.html.
[21] Informationization Office of the State Council, The Compendium of Vitalizing Software Industry (2002-2005).
