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

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167
15
Original Equipment Manufacturer
(OEM) Agreements
CHECKLIST
Key Contractual Concerns from the Perspectives of Both Parties
Scope of use of supplier technology
Supplier technology may not be exploited separately from the
OEM product
Distributors and Subdistributors
OEM’s right to use distributors and subdistributors
OEM liability for the actions of distributors and subdistributors
Private Labeling
OEM’s right to private label
Supplier’s right to ensure its intellectual property rights are
protected
Source Code Access
OEM access to source code
OEM’s liability for functionality and other issues resulting from
modications it makes to source code
Open Source Soware
Whether supplier can include open source in its products
Viral licenses
Protection of OEM proprietary soware
Territory
OEM’s right to sell its products in geographic or industry-spe-
cic areas
Support Obligations
First-level end-user support
Second-level support to OEM
168  •  A Guide to IT Contracting: Checklists, Tools, and Techniques
Training
Supplier training of OEM personnel
End-User/Customer Liability
Protecting supplier from claims and damages from end users
Requiring the OEM to protect the supplier
Pass-through terms
OEM indemnity for failure to protect supplier
Fees
All you can eat
Per unit
Percentage of OEM product fees
Audit
Conrmation of calculation and payment of fees
Expansion of Scope
OEM’s rights to expand the scope of the engagement.
Professional Services
Supplier professional services to modify and integrate its product
Professional service terms
Sell-O Period
OEM’s right to sell o products on termination of the agreement
Ongoing support
Other Issues
Term and termination
Warranties
Indemnities
S Indemnity for unauthorized warranties
Limitation of liability
Condentiality
Export/import
Acquisitions by the federal government
OVERVIEW
An Original Equipment Manufacturer (“OEM”) Agreement involves an
arrangement where one party, sometimes called the supplier, furnishes
technology to the other party, the OEM, for combination with other tech-
nology for redistribution as a complete product to customers, end users,
Original Equipment Manufacturer (OEM) Agreements • 169
and so on. e OEM essentially takes components provided by one or
more suppliers, combines them with technology of the vendor, and creates
a nished product. e OEM’s activity is sometimes referred to as adding
value to the components supplied by the supplier(s).
OEM agreements are written from either the perspective of the OEM,
the party making the distribution of the nished product, or the supplier,
the party furnishing one or more pieces for incorporation into the nished
product. e parties frequently have divergent interests. e OEM wants
broad distribution rights, strong protections from claims of intellectual
property infringement relating to the supplier’s technology, the right to
potentially distribute the nished product under a private label arrange-
ment (i.e., an arrangement in which the nished product appears to have
been entirely created by the OEM), clear support obligations, and so on.
In contrast, the supplier may be concerned about controlling liability for
claims from end users or customers purchasing the nished product, pro-
tecting its intellectual property from misuse by end users and customers,
limiting its responsibility for intellectual property infringement claims
when its technology is combined with other technology, and so on.
As an aside, the dierence between an OEM agreement and a reseller
agreement should be noted. In a reseller agreement, the supplier’s tech-
nology is sold or licensed by the reseller as is (i.e., not as part of a larger
product, but as a stand-alone product). In an OEM agreement, the sup-
plier’s technology is never sold as a stand-alone product, but only as part
of a larger product. In fact, it would be a breach of the OEM agreement to
distribute the supplier’s technology in a stand-alone fashion.
Key Contracting Concerns from the Perspectives of Both Parties
Since a business may nd itself serving in either the position of a supplier
or OEM, the following provides a discussion of the key issues presented to
both parties in these engagements.
• Scope of use of supplier technology. As a foundational issue, the
agreement should dene exactly how the supplier technology may be
used. In most cases, that means identifying the specic OEM prod-
ucts or lines of products into which the supplier technology may be
incorporated.
As noted above, the supplier will want to make clear that its tech-
nology can never be sold or licensed as a stand-alone product, but

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