Do you sell whiteboxes? Are you legally prepared?
The sale and resale of white box systems is a phenomenon that has grown exponentially and will almost certainly continue to do so in 2006 and into the future. And why wouldn’t it? White boxing is an excellent way for resellers to pitch their alternatives to the popular branded systems. It allows resellers to provide unique, often- superior, customised hardware and software packages at competitive prices. However, there are several legal issues unique to the resale of white boxes, white books and all white customisations that if not adequately dealt with, can land resellers in hot water. In this column, I provide some practical warnings and solutions that can assist resellers who wish to limit their exposure to legal liability when selling white boxes.
One important legal issue for white box resellers is the extent of the warranty that accompanies each white box. White box resellers often attempt to limit the warranties that are provided. However, there are “implied”, invisible warranties that will exist regardless of any attempt to remove or restrict them by the reseller. These warranties are imposed by federal legislation known as the Trade Practices Act and its equivalent state and territory counterparts . For example, one implied warranty is that goods are of a merchantable quality. As a result, it is likely that any defective or incompatible hardware sold by a reseller may entitle a customer to a full refund, regardless of a reseller’s returns policy. As a starting point, resellers need to ensure that their white boxes work as advertised, and that any bundled software is fully compatible and supported by the relevant motherboard, CPU, hardware configuration and BIOS.
It is also vital to provide warranties that are not false or misleading. The Australian Competition and Consumer Commission (ACCC) takes this very seriously; for example, the ACCC instituted proceedings against LG Electronics Australia Pty Ltd for alleged false and misleading warranty statements made in online LG mobile phone user manuals.
Software piracy is another prevalent legal issue that is associated with white boxes. This is often caused by the common misconception that OEM’s will not enforce their rights against small-time resellers who bundle unauthorised software with white boxes. However, the sale of pirated software can attract criminal penalties and the recent Federal Court case of Microsoft v PC Club Australia (reported in CRN) shows just how hard the software behemoths can bite down on resellers if given the opportunity. In that case, PC Club was fined a whopping $1.3 million for selling counterfeit Microsoft software and COA labels. Resellers should ensure that they are confident that they are authorised to sell software; that the software is legit; and that no pirated software is “accidentally” bundled with their systems. It would also be wise to have all bundled software licenses audited by a qualified lawyer.
The third major area of legal exposure for delving in white boxes comes from just that – the unauthorised tampering, tinkering, reverse engineering, hacking or mere modding or opening of a computer chassis. Some manufacturers may even refuse to honour the manufacturer’s warranty if the internal components of the system have been reconfigured or where the chassis has been removed by unqualified or unauthorised personnel. Some “mods” might also result in legal action being brought by the OEM against the modder. For example, Lexmark International reportedly brought a lawsuit against a company that provided a microchip that could be installed on its printers to allow printing via cheap, recycled toner cartridges. Other cases have been brought against suppliers of Microsoft Xbox and Sony PlayStation mod chips. It is vital to ensure that all white box components are not only interoperable from a compatibility point of view; but from a legal perspective too.
This post has only touched the tip of the iceberg. There are a plethora of other important legal issues associated with selling white box components and packages. Resellers should ensure that their packages are vetted to prevent exposure to legal liability and to deflect liability to the hardware supplier where possible.
Disclaimer: This column is for general informational purposes only. It is not legal advice nor is it a substitute for legal advice. Readers should seek legal advice on their own particular circumstances. Alan Arnott is a technology & telecommunications lawyer with qualifications in computer science and law with Arnotts Lawyers Jones Bay Wharf in Sydney. For more information, please visit http://www.arnotts.net.au.