Quick Guide to Licensing Agreements: Tipping the Balance Towards Clients (Part 1/3)

20 August 2009
5 minute read
Best practice

Quick Guide to Licensing Agreements: Tipping the Balance Towards Clients (Part 1/3)

20 August 2009
5 minute read

tipping_the_balanceTimothy Nuckles is a technology lawyer from Madison, Wisconsin.

He runs Nuckles Law, a technology law firm specializing in helping companies do better deals with IT Procurement.

In this series Tim gives us a quick guide to negotiating more favourable licensing agreements.

PART ONE – Tipping the Balance of Agreements towards Clients

Start Offensive

Most buyers of commercial software products usually negotiate from their software vendor’s standard form of EULA and Maintenance Agreement (embedded or stand-alone), whose terms inevitably are terribly vendor-biased and devoid of any buyer protections. They start negotiations by attempting to “neutralize” the various vendor-biased provisions, without giving any thought to what should be their true end game (addressing their own needs, their expense preferences, elements of risk, etc.).

The fact is, the vendor’s terms are typically so vendor-biased that neutralizing them is not of much value to the buyer. For any term, the vendor’s starting point was so extreme that, even after bargaining down somewhat, the vendor is still in a dandy position, and the buyer is not. Sadly, most buyers stop negotiations after this impotent neutralizing exercise and consummate their deal with a vendor, without even attempting to add in buyer-favorable terms and protections. Stated another way, buyers usually negotiate from what one might call a “defensive” posture, when they ought to be on the “offensive”, affirmatively and assertively bargaining for terms that serve and protect their interests.

So, my first general recommendation to buyers of commercial software is to break out of their habitual neutralize-the-terms routine. These exercises take a lot of time (for both sides), and they produce actually very little or no benefit to buyers.

Buyer Advantage

My second general recommendation to buyers is to stop regarding themselves as the disadvantaged party in a software deal, and to start regarding themselves as the advantaged party. There are several dimensions to this notion, but first and foremost is a very fundamental recognition: buyers have dollars to spend on software, and software vendors want their money. Right out of the gate, this is a position of strength, not weakness.

When buyers drop unproductive habits and routines, and start to approach software negotiations as empowered (not disadvantaged) buyers, a new world of possibilities is available to them. We’ll have to reserve this for another discussion, but here’s a quick example. Buyers should figure out what terms are important for all of their software acquisitions, and actually draft their own versions of those terms. License grant, indemnification provisions, warranties, and so on.

In my practice, for example, I have a standard Software License Agreement (SLA) that I use for enterprise app’s and major app’s. It’s not a terribly buyer-biased SLA (that would be counter-productive), but it does contain tons of buyer-favorable terms and protections. In the enterprise and major app’s arena anyway, vendors will often agree to work from my paper instead of their own. In fact, my paper gets introduced at the RFP stage, such that my client can base its buying decision on a vendor’s appetite for our presented terms, as opposed to selecting a vendor and then beginning negotiations on terms. This is better from a buying decision perspective (it’s much harder to win terms and conditions from a vendor after they know “they’re it,” the chosen vendor), and it also greatly reduces negotiation cycle times. When this approach has been used, and a vendor is selected, there simply aren’t many terms left to negotiate.

The Naked Negotiator

Another approach, one often used by public sector software buyers here in the U.S., is to basically attach naked terms to an RFP (as opposed to a full-blown agreement). Under this approach, the buyer is saying, “Should we strike a deal, these terms must be part of our deal. We don’t care necessarily where they appear in your contracts, but they have to be in there, and your other terms cannot conflict with them.” I use this approach with clients, public or private sector, when I’m not able to introduce one or more full agreements (usually occurs because of the uniqueness of a particular deal).

Timothy Nuckles is a technology lawyer and runs Nuckles Law.

Read Part Two – Future Proofing Contracts by Maximising Flexibility

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