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A Guide to IT Contracting by Michael R. Overly, Matthew A. Karlyn

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147
13
Key Issues and Guiding Principles
for Negotiating a Software
License or OEM Agreement
CHECKLIST
Initial Matters
Customer executes mutual NDA
NDA only addresses condentiality
Use company’s standard license agreement
Give customer proposed agreement early
Customer should return redline of agreement before negotiation
begins
No calls to “talk over the agreement” before redlines
Respond to customer’s redline with company’s redline
Accept customer’s revisions or propose alternative language
Show customers form to legal counsel
No negotiating revisions without legal counsel
No discussion of agreement with customer’s attorneys
Create basic term sheet
Never rely on redlines produced by customer or third party
Require editable Word documents
Be cautious in mailing documents outside company
Defer negotiation of open provisions
Negotiate telephonically
Business and legal teams need e-mail access during negotiations
Defer negotiation for questions requiring internal consideration
License/Ownership Scope
Non-exclusive
148  •  A Guide to IT Contracting: Checklists, Tools, and Techniques
Nontransferable
Nonsublicensable
No irrevocable licenses
Required development activities?
No access to source code
Customer must use standard end user license agreement
Licensee has no ownership interest in company’s soware
Pricing
Commensurate with scope of license granted
No single-price broad licenses
Specify uses for soware in xed-price license
Annual maintenance fee
Major new versions and new soware products
Company retains audit rights
Limitations of Liability
Includes exclusion of consequential damages and cap on direct
damages
If mutual, exclude customer misuse of company soware and IP
Cap on company’s overall damages
Breaches of condentiality and willful misconduct exclusions
Warranties
Requires material compliance with company’s documentation
No longer than 90 days
Exclusive remedy for breach is repair
Implied warranties
Written warranties not included in agreement
Support and Maintenance
Support vs. maintenance
No new versions or new functionality in support
No material alterations to standard support program
Priced annually
Automatic renewal of support term
No commitment to support aer ve years
No agreements to provide “free” professional services
Initial xed fees become “then current rates”
Payment
Based on objective and easily identiable event
Testing/acceptance language reviewed by legal counsel
License fees not subject to refund
Key Issues and Guiding Principles for Negotiating 149
Monthly invoices
No xed-fee arrangements
Term and Termination
Consistency between license type and term of support
Initial term with automatic year-to-year renewal
Licenses immediately terminate
Licenses to end users do not terminate with customer agreement
Misuse terminates perpetual license
Opportunity to cure before termination for cause
Infringement Indemnication
Company liability unlimited
Legal counsel dras indemnication
Company controls defense/settlement
Standing alone”
Approved list of countries/jurisdictions
KEY ISSUES AND GUIDING PRINCIPLES
is chapter discusses the dierent topics and issues that should be con-
sidered in negotiating a customer (i.e., outbound) soware license or OEM
agreement. e summary is designed to minimize the time required to nego-
tiate these types of agreements, make the process proceed more smoothly,
and ensure your company’s business and legal objectives are achieved.
INITIAL MATTERS
• e customer should execute a mutual nondisclosure/condentiality
agreement (NDA) before engaging in any substantive discussions.
• e NDA should be mutual (protecting both parties’ condential
information).
• Be sure the NDA does not address matters other than condenti-
ality (e.g., no provisions regarding intellectual property ownership,
license rights, representations and warranties, indemnication).
• Insist on using the company’s standard license agreement. is will
result in a much better agreement and reduce the time and expense

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