I’m currently looking at buying a new software application. It’s not going to be a large purchase, but it’s relatively important (at least to me). The vendor, of course, tells me that because this isn’t a large deal for them, the contract template they’ve provided is non-negotiable.
What instantly becomes obvious, then, is the question of risk. Which, of course, is what most contract negotiations are really about anyways. In other words, are the terms of the agreement bad enough that it would make me not accept the contract and walk away from the application.
To make this assessment, I have to review the agreement in detail. I pass it along to counsel for their thoughts – especially since I was a bit biased as it’s a tool for me. Then I forward the redline to the vendor and tell them that while I understand their position, we’re unable to accept their template as written – that there are just some issues on our side that are too important to ignore.
The vendor, as expected, hemmed and hawed a bit… but eventually came back with a list of sections where they would not accept our changes. Some required a little internal discussion regarding risk – and after reminding everyone that the deal was pretty small… and limiting our total exposure from other perspectives, we felt the overall risk assessment was acceptable.
I called the vendor to let them know that we’d reached agreement. In the end we went from non-negotiable to partially-negotiated, just by doing a little work. The moral of the story is to never just give in. Assess your risk points, decide what is most important (your true needs), what’s nice to have (your wants)… and ask the other side to do the same.
The worst thing that happens is that you have a good risk assessment. The best thing is that you know your risk AND get your product, too!
In this special TGIF edition of the Licensinghandbook Blog, take 10 minutes out of your busy day to watch the following “Fair(y) Use Tale” by Eric Faden. If you’ve ever wondered about copyright law and the fair use exception, there aren’t many better ways to learn:
Just as in your normal life, contracts deal with some consistent yet unwelcome issues – such as taxes.
Let’s see, there exist: sales tax, use tax, value added tax, ad valorem tax, excise tax, income tax, transfer tax, and my personal favorite, tariffs.
In most licensing situations in the US, you should ONLY be worried about paying sales and use taxes. Language that lists any other taxes should be cut down to only address sales and use tax if for no other reason that within the US, those are the taxes that really apply to the sale itself – and they’re the only taxes that the seller is required to collect from you. The other taxes, even if they apply, are really the responsibility of the seller… but if they can get you to pay, so much the better for them. [I’ll save discussion of telecom tariffs for another day, but these are NOT taxes – they’re fees that are passed along to the buyer.]
Even within sales and use taxes, though, there are some exceptions (depending on your specific state’s laws) which might allow you to avoid paying taxes on the purchase of software in the event that the software is delivered electronically. My state (North Carolina) is one of those states.
We have an additional requirement – maintenance can’t be mandatory. I didn’t think this requirement really merited any extra attention until the other day. All I’ll say at this point is that I would recommend that anyone who has this requirement in their sales tax law quietly (and quickly) insert language into your template agreements that clearly states that maintenance is OPTIONAL and not mandatory, and that the buyer is free to purchase maintenance from anyone they wish (or refrain from buying maintenance entirely).
Oh… and if you happen to be a NC-based person like me and you work on the procurement side of the house, please get in touch. We need to talk.
Filed under: contract terms, fees, IP Indemnity, license grant, NDA, negotiation, risk, Uncategorized, warranty
When was the last time that someone referred to you as the Order Prevention Department? Business folks tend to think that a contracts staff is only there to stop them from getting their next purchase. We know better, of course, but it doesn’t change the fact that we are constantly having to show value and purpose to our existence in the fact of adversity.
Recently, I was engaged in the beginning of a deal that would end with the purchase of a large technology system. The evaluation was done via an almost picture-perfect RFx process, spearheaded by a business owner who knows the value of a corporate contracts group and for whom I hold great respect. As the selection process neared conclusion, the business got anxious. They “needed” to start work immediately to meet their internal deadlines and thus wanted to do a…
… wait for it …
… bu, bum, baaaah…
Letter of Intent!
I wanted to cry. Here we were, humming along beautifully, and they wanted to derail it with a Letter of Intent (LoI).
Now, if you’ve never heard of a LoI, it is to a contract what a golf cart is to a car. In other words, it might eventually get you to your destination, but without the protection afforded by an enclosed vehicle. LoI’s are one of the banes of a contract negotiator’s existence – a poor excuse for a contract and they are sometimes seen as the easy way out to get a deal done quickly.
In the particular example above, the business wanted to use it as a bridge to get work started while we negotiated the full agreement. Since LoIs take at least some time, there’s a choice to devote some effort to the LoI rather than review the full agreement. Granted, the full contract will require MORE time, but I don’t think it outweighs the risks of the average LoI.
When confronted with a request to review a LoI (and when you can’t negotiate with the business to just forge ahead with the full agreement), then remember to at least lock down the following things:
1. Term. Place a limit on how long this interim agreement is going to last. The shorter the term, the less the risk.
2. Fee/Rate. Clearly state the rate/fees and how they will be calculated. A fixed fee is always best (and even better if that fee is $0.00). If you really want to protect yourself, include a cap on the total amount of money that can be expensed under the LoI. Remember always that a one-week engagement isn’t equal to only 40 hours – 2 resources = 80 hours, 3 resources = 120 hours. Multiply against your listed hourly rate and you can see “small” agreement add up quickly. Oh, and don’t forget about capping expenses, too.
3. License. If you’re getting access to software without a full license – WATCH OUT. All of the standard license issues still apply (IP indemnification and virii for example). Also remember that if for any reason the full agreement doesn’t get signed, it’s most likely that your license will terminate.
4. Services. Clarify ownership for anything created as a result of services performed. What happens if the full agreement isn’t completed? Do you lose ownership? How about work that includes your confidential information?
5. Warranty. Depending on how long the LoI lasts, or how any deliverables are created and delivered, you may need/desire a warranty for those deliverables.
6. Indemnification. As mentioned above, and for deliverables/services, too, you will want to be indemnified in the event that the vendor uses something they don’t have the right to use in performing the work. You will also want a general indemnification if the vendor is going to be onsite at your facilities in the interim term.
7. Confidentiality. Hopefully you’ve already completed a Non-Disclosure or Confidentiality Agreement with any vendor that you’re willing to use a LoI with – but if not, include your standard confidentiality language.
8. Termination. As with any other license or services agreement, include standard termination for breach language. Make sure you also retain the ability to terminate the LoI at any time, for any reason. It’s probably reasonable that you will have to pay for services performed up to the moment of termination, but don’t forget to tie it to ownership over work completed and paid for.
9. Governing Law. Fairly self-explanatory, but don’t forget to cover governing law. And remove jurisdictional statements, just like always.
Oh, and to make matters even worse, each of the terms you negotiate in the LoI may change in the full agreement, as the risk you (or the vendor) are willing to tolerate in a short-term agreement may be drastically different than the risk you (or they) are willing to take in the long run. The usual saving grace in all of this is that the vendor probably doesn’t want the LoI either – work together to make it palatable.
Filed under: Uncategorized
We’ll return next week with a new article. In the meantime, please do me a favor. Go hug your mom, dad, brothers, sisters, sons, daughters, cousins and any other relative you have. You never know how much time you have until you don’t have any at all.
Your contract will be there when you get back. I promise.