Software Licensing (Global)

Response #1: I think the most successful approach that I've seen is to have the in-house attorney work closely with procurement to use a sourcing exercise to create a competitive environment. Even if you plan to use a particular vendor, creating a Plan B and letting the vendor know you have options, makes the negotiation that much easier. If an existing vendor feels they have technical or user-level lock-in, then they will try to dictate the terms of the contract. Make them compete and you will get a better deal.¹

 

Response #2: From the perspective of the IT supplier: My transactions that require negotiations typically center around the End User License Agreement (EULA) and Maintenance and Support (M&S) portion of the transaction rather than the terms of sale. My company leverages a channel model so the Terms of Service (TOS) are between the end user and the re-seller. EULA and M&S are pass through and will often times be negotiated with enterprise customers.

 

I usually negotiate directly with the legal team or their contracts department under direction of the legal team. It is helpful to negotiate with a counterpart that has some technical knowledge in the IT space to avoid prolonged rounds of red lines and a grasp of IT concepts. If they do not have technical knowledge than often times they will need to consult with Intellectual Property (IP), engineering or the office of the Chief Information Officer (CIO)/Chief Information Security Officer (CISO)/Chief Technology Officer (CTO).

 

Same goes for the compliance part of the question.²

 

Response #3: I'll offer my perspective, as someone who has served as both a vendor/licensor software licensing lawyer/manager (for IBM & AT&T), and as a customer/licensee lead in the IT enterprise procurement dept. (for JPMC and as an IP lawyer for a top tier law firm). In my experience, larger companies (as buyers/licensees) tend to have their IT staff lead the negotiations, with engagement of either in-house legal or outside counsel as needed, based largely on the size and complexity of the transaction. While legal engagement is often necessary, it is always a recipe for disaster when an IT lead (customer side) or a sales rep (vendor side) takes the approach of "throwing it over the wall" and asking the procurement legal team (or IP legal team) to handle the contract without serious involvement by the business stakeholders. This is true because the lawyers will understand the contract (and Intellectual Property Right - IPR - issues), but frequently do not have a good understanding of the business needs and pain points that a particular license agreement is designed to address.

 

An approach we've used effectively on the vendor side is to maintain "playbooks" (or annotations) covering each of the key sections of a license agreement (e.g., license grant; warranty, limitation of liability (LOL), IP infringement indemnity; etc.). This approach allows a procurement person or IT person -- or any non-lawyer -- to handle most of the negotiations with a clear understanding of acceptable fall-back positions.

 

If your organization is large enough, Communication and Networking (C&N) professionals and paralegals trained in licensing can be a highly effective and efficient resource (in fact, the most skilled license negotiator who ever worked on my staff was not a lawyer -- she was a skilled paralegal with training in negotiating enterprise license transactions). Budget permitting, I strongly encourage you to consider providing appropriate skills-based training to procurement and IT staff -- for example, the International Association for Contract and Commercial Management, IACCM, offers some excellent certification programs for non-licensing professionals who are expected to handle complex IT transactions.

 

As for your compliance question, on the vendor size side I've seen large IT licensors -- e.g., Big Blue -- who have self-funded compliance programs: For enterprise customers, audit rights in a license agreement are invoked every few years to keep customers honest ... what was once seen as an "expense" to the vendor (paying for the audit function) is, today, often regarded as a revenue center, since frequently audits disclose instances of non-compliance, resulting in additional licensing revenues. Other IT vendors hire groups such as the Business Software Alliance (BSA.org) to perform audits; and, in turn, customers might hire an external firm (e.g., Scott & Scott, LLP) to defend an audit.

 

BSA publishes a license compliance survey every few years, which is an excellent resource to keep on hand. It may help a licensee's IT and Legal teams to identify risk areas and negotiate better protections when it comes time to engage in contract discussions. As a buyer/licensee, the time to think about compliance issues is BEFORE an audit request arises -- ideally, as a routine internal business practice. While IT is perhaps the more appropriate party to spearhead an internal audit process and manage compliance as a routine business practice, a licensee's LEGAL team (and arguably a licensor's as well) should always be engaged when a formal vendor compliance audit is requested.³