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Announcements and Publicity

Consider whether there will be a restriction on the vendor’s ability to announce the relationship or list your company on a list of customers. If your company decides that it wants to prohibit publicity with respect to the transaction, ensure that the software license agreement contains a requirement that the vendor will not make any public announcement regarding the relationship and will not use your company’s name without your company’s prior written consent.

A further complication is that some vendors are now qualifying their pricing with the customer’s obligation to participate in a very wide range of marketing and publicity activities. Those activities are frequently intrusive and time-consuming. If the customer declines to participate in those activities, the vendor can require a renegotiation of the contract pricing. These provisions should be strictly avoided.

Term and Termination

The term of a software license is driven by the license terms. A perpetual license is perpetual, while a term license would be for a term agreed upon by the parties. Termination rights generally arise under the following circumstances:

■ A party breaches its obligations under the agreement and fails to cure the breach within a specified period of time after the breaching party is notified of the breach.

■ A termination for convenience clause giving a party (usually the customer) the right to terminate the agreement at any time and for any reason.

■ Partial termination is appropriate in some types of software license agreements. Partial termination would permit the customer an opportunity to terminate only one application or deliverable without terminating the entire agreement.

■ Transition services are common and should be included in software license agreements. Upon termination or expiration of the agreement, the vendor would be required to assist the customer in its transition process.

Additional Contract Terms

In any software license transaction, the customer should ensure that the software license agreement that you have negotiated and signed is the only agreement that governs the terms of your company’s use of the software and receipt of support, maintenance, and any other professional services associated with the software. In this regard, your company will want to state specifically that no shrink-wrap, clickwrap, or other terms and conditions that are provided with product or software will be binding upon your company, even if those products and services require an affirmative acceptance of those additional terms and even if someone from your company “accepts” those terms. In addition, the following terms are commonly addressed in software license agreements:

■ Force majeure provisions should be drafted to excuse parties of their contractual obligations only for reasons beyond their control. Software vendors will attempt to broaden force majeure clauses by including events that should be within the vendor’s control like labor difficulties and issues with telecommunications providers.

■ Prohibitions on the customer’s right to assign, common in form vendor license agreements, are commonly unfair to the customer since they limit the customer’s ability to assign the license to an acquiring or merging entity. From a revenue stream perspective, this is good for the vendor since any merger or acquisition that affects the customer will result in additional license fees to the vendor. However, this is largely considered an unfair position.

Summary

Software license agreements can range from the very simply to the incredibly complex. A simple license agreement can be for a noncritical application that costs the company very little in terms of dollars and includes very little risk (i.e., if the application doesn’t work, there are alternatives that can be quickly implemented without significantly impacting the company’s business). More complex license agreements are encountered when the company is licensing a mission-critical software application (e.g., an ERP or CRM system), spending hundreds of thousands or even millions of dollars, and include complicated, long-term, and complex implementation. Whether a software license agreement is simple or complex matters very little when it comes to vendor form software license agreements. Generally speaking, vendor form software license agreements are one-sided and provide very little in terms of protection to the customer. It is critical, no matter the complexity of the transaction, that the customer read the agreement carefully and propose changes that reduce the risk to the customer and align the transaction more closely to the customer’s business objectives and requirements.

 
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