White-box sales: Are you legally prepared?

COMMENTARY: 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? Selling unbranded systems is an excellent way for resellers to pitch their alternatives to the popular branded systems. It allows them to provide unique, sometimes 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 customisations that if not adequately dealt with, can land resellers in hot water.

One important legal issue for white-box resellers is the extent of the warranty that accompanies each system. 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 hardware.

It is also vital to provide warranties that are not false or misleading. The Australian Competition and Consumer Commission (ACCC) takes this very seriously. It recently instituted proceedings against LG Electronics Australia 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 OEMs will not enforce their rights against small-time resellers who bundle unauthorised software with these systems.

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 licences 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.

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 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 lawyer and associate of Arnotts Lawyers in Sydney.
He can be contacted on: (02) 9419 6355 or via email at: alan@arnotts.net.au.