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Data Agreements

Checklist

Key Contractual Protections

□ Include basic contractual protections common to all technology agreements

  • - Confidentiality
  • - Limitation of liability
  • - Termination rights

□ Ensure the scope of the license is broad enough to include all intended uses, both those existing at the time the contract is signed and reasonably anticipated in the future

□ Pre-negotiate fees for increasing the scope of the license

□ Avoid overreaching audit rights

  • - Limit frequency of audits
  • - Limit the type of records that can be reviewed
  • - Limit the duration of the audit
  • - Include protections relating to third-party audits (e.g., require auditors to sign an NDA and to be mutually agreed upon by the parties)
  • - Limit costs recoverable for third-party auditors
  • - Reject requests from the vendor to recover internal personnel costs

□ Warranties

  • - Rights to grant the license
  • - The vendor has no knowledge of infringement claims
  • - Reasonable efforts to ensure timeliness and accuracy of data
  • - Reasonable efforts to notify the customer of known errors in the data

□ Include an indemnification against infringement claims based on the customer’s licensed use of the data

□ Negotiate broad termination rights, including termination for convenience, wherever possible

□ Tire contract should specify the manner and format of delivery for the data

□ Tire customer should ensure it has the unilateral right to renew the contract for at least a few years

□ Tire agreement should include price protection for the initial term and first few renewal terms

Overview

Data or data feed agreements are a special type of license agreement that involves access to a collection of data. That data is typically harvested by the vendor from various public sources. Tire data can relate to mapping data for real estate—related transactions, market data relating to the financial markets, data gleaned from public records (e.g., real estate transactions, business licenses, marriage licenses), or aggregated data harvested from user interactions with websites or search engine requests. The common thread is that the data is generally not created by the vendor, but merely collected or harvested from various public sources and then licensed as a package. In many instances, the vendor may have invested extraordinary time and money in creating the database.

Data agreements present unusual contracting issues. First, the vendors generally insist on using their own form agreements. Second, they also strongly resist any substantive revisions to those agreements. Finally, the data being licensed is normally provided on essentially an as-is and as-available basis, without warranties of any kind.

Key Contractual Protections

Given the foregoing challenges, this chapter discusses the revisions that can generally be negotiated with these types of vendors:

■ Basic contract protections. Certain protections should be considered regardless of type of technology contract. These provisions should be included in data agreements (e.g., confidentiality, limitation of liability).

■ License scope. One of the most critical elements of a data agreement is the scope of the license being granted. That is, the specific language in the contract that says what the customer may and may not do with the data. This is the area where most errors are made. Customers fail to really think through all the purposes they may have for the data. Customers must carefully consider this issue, including potential future uses, and ensure all uses are clearly described and included in the agreement.

■ Fees for increased use. Most data is licensed depending on the breadth of its use. Increased use typically requires the payment of additional fees. It is important to pre-negotiate fees for potential areas where use may increase or change over time and include them in the contract (e.g., increased users accessing the data, increased areas where the data may be used). Failing to do so may result in the customer having little or no negotiating leverage when it comes time to discuss fees for increased use with the vendor.

■ Limitations on audit rights. Most data agreements include extensive audit rights permitting the vendor to enter the customers premises and access its systems and records. These audits can be very invasive and disruptive. In addition, if the customer, itself, has highly sensitive data (e.g., personally identifiable data), granting access to this type of broad access may create a security risk. These types of audit rights should be eliminated wherever possible and replaced with a more limited right to inspect records created in the ordinary conduct of the customer’s business. The following is an example of a more appropriate audit right:

Compliance with license. On vendor’s written request, no more than once during any twelve (12)-month period of the term of this agreement, vendor or a mutually agreed upon nationally recognized auditor may review customer’s generally available records regarding its compliance with the agreement. For the avoidance of doubt, customer shall be under no obligation to create or compile information that is not readily available in the ordinary course of its business. Customer shall make the records available in a conference room at its facilities at a mutually agreed upon date and time. The foregoing review right shall not afford vendor any other access to customer’s facilities, systems, and records. Hie review shall not unreasonably interfere with customer’s operations. Hie review shall be completed within two (2) business days. Prior to being granted access to customer records or facilities, vendor’s third-party auditor shall execute customer’s required nondisclosure agreement. Vendor and any third-party auditor shall comply with customer’s then-current standard access and security policies while present at customer facilities. All information obtained during the course of an audit shall be deemed customer confidential information.

■ Be wary of audit clauses that shift the cost of the audit to the customer if noncompliance is identified (e.g., the customer has underpaid license fees). Hiose costs can be substantial, sometimes running from tens of thousands to hundreds of thousands of dollars. If this language cannot be avoided, include a limitation that the costs of the audit cannot exceed, for example, 25% of the amount of the underpayment.

- Limit the costs recoverable to the “reasonable” costs of the third-party auditor. Reject requests to also compensate the vendor for its internal personnel time. Such requests are not consistent with industry practice.

  • - Also, most licensor form audit clauses have the cost of the audit shift if there is a 5% or more difference in fees or usage. For licensees, that percentage should be negotiated to 10% or 15%.
  • - Finally, include a statement that no auditor can be engaged on a contingent fee basis. That is, auditors that only get paid if they actually find a noncompliance. Such audit engagements can easily get out of hand as the auditor conducts a protracted audit, knowing it won’t be paid if does not uncover a noncompliance.

■ Warranties. In most cases, vendors will not offer much in the way of substantive warranties. That said, the following warranties can usually be negotiated (revised to reflect the defined terms in the agreement):

  • - Vendor has all rights necessary, including rights of third parties, to grant the license provided under this agreement.
  • - To the best of vendor’s knowledge as of the effective date, customer’s licensed use of the data shall not infringe the intellectual property rights of any third party.
  • • Vendor shall use commercially reasonable efforts to ensure the accuracy and timeliness of the data licensed.
  • • Alternate language to the foregoing warranty: Vendor shall use such efforts as are common to other licensors of markets of this kind to ensure the accuracy and timeliness of the data licensed.
  • - Vendor shall use reasonable efforts to promptly notify customer of any errors in the licensed data of which vendor becomes aware.

■ Indemnity. The vendor should be required to provide a basic indemnity in the event the customer’s “licensed use of the data” infringes the intellectual property rights of any third party. Even though the underlying data may have been obtained from third parties and the vendor may be reticent to offer an indemnity of this kind, it is common in the industry to be able to negotiate this protection in most data agreements.

■ Termination rights. Given the fact that most data agreements have little in the way of contractual protections or performance requirements, whenever possible, termination for convenience rights should be included: “Customer may terminate this Agreement at any time, without cause or penalty, on thirty (30) days prior written notice to Vendor.”

  • - Hie foregoing termination right is frequently difficult to negotiate. In such cases, consider offering to toll the termination right for the first six months of the contract or to provide for a longer notice period prior to termination: “At any time after the initial six (6) months of the term, Customer may terminate this Agreement at any time, without cause or penalty, on sixty (60) days prior written notice to Vendor.”
  • - Hie customer should also have the right to terminate without penalty if the data being licensed becomes the subject of an intellectual property infringement claim or if the vendor repeatedly fails to deliver the data as required under the agreement.
  • - Data format. Ensure the data will be provided in a format that will be usable to the customer. That is, the contract should specifically identify the means of providing the data and the electronic format of the data.
  • - Renewal rights. The customer should negotiate the ability to unilaterally renew the agreement for a defined number of years. For example, the customer might negotiate the ability to unilaterally renew for up to three one-year terms following the initial term. After that, the contract may automatically renew for additional one-year terms, but either party can elect not to renew by, for example, providing notice to the other party at least ninety days prior to the next renewal data.

■ Price protection. Negotiate price protection during the term of the agreement as in the following language:

Fees during renewal terms. Vendor’s fees hereunder shall be fixed during the initial term. Thereafter, vendor may increase such fees for a renewal term by providing notice to customer at least sixty (60) days prior to the commencement of such term. Any increase shall not exceed the lesser of: (i) four percent (4%) of the fees charged during the preceding term; or (ii) the amount equal to the percentage change in the consumer price index (“CPI”) during the preceding calendar year. For purposes of the foregoing, the CPI shall be the index compiled by the United States Department of Labor’s Bureau of Labor Statistics, Consumer Price Index for all Urban Consumers (“CIP-U”) having a base of 100 in 1982-1984, using that portion of the index that appears under the caption “Other Goods and Services.” (For reference, the CPI is currently posted on the website of the Bureau of Labor Statistics at www.bls.gov.) The percentage change in the CPI shall be calculated by comparing the annual CPI figures and expressing the increase in the CPI as a percentage. If the CPI is no longer published, or the CPI currently published is materially changed, vendor and customer will negotiate, in good faith, revisions to this section to reflect and account for such changes in the CPI.

Summary

Data agreements present unique issues. Unlike most other types of license agreements, the vendor may not be the creator of the content being licensed. Rather, that content may be harvested from hundreds or even thousands of other databases and public records. Vendors may be very reticent to provide many of the protections found in other licensing engagements. In these cases, the focus should be on basic protections: intellectual property indemnity, termination rights, and basic assurances that the data will be current and free of known errors.

 
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