We use cookies to give you the best online experience. By using our website you agree to our use of cookies in accordance with our cookie policy. Learn more here.Close Me
This question was answered by Steven Dutton of the McLane Law
Firm
Q: I recently called our company's software vendor to cancel
our license agreement, but was told that it does not allow us to
simply cancel. In fact, our vendor claims that we are contractually
obligated to continue paying for the software (which we do not use)
for another full year. How can this be?
A: The short answer is that the terms and conditions of the
software license your company has with the vendor contain an
"automatic renewal" or "evergreen clause."
A typical evergreen clause may read something like this:
Each Term shall automatically renew for subsequent periods of
the same length as the initial Term unless either party gives the
other written notice of termination at least thirty (30) days prior
to expiration of the then-current Term.
Under this clause, if the customer does not provide timely
written notice, the contract automatically renews. These types of
clauses may be included in various contracts, but are particularly
prevalent in service, distribution and supply contracts.
The question for individuals and businesses who are parties to
contracts containing an evergreen clause is seemingly simple:
"Are they enforceable?" The answer is, perhaps not
surprisingly: "It depends."
There are many court decisions across the country addressing the
enforceability of evergreen clauses. In most cases, particularly in
the context of business-to-business contracts, courts strictly
construe these provisions where the contract language is clear and
unambiguous. If the contract language is not followed and notice is
not given within the required time to terminate, the contract
extends for another term automatically.
While case law may favor those parties attempting to enforce
these clauses, a few state legislatures have passed laws that may
make it difficult for these parties to rely on evergreen
clauses.
For example, Illinois, New York and Wisconsin have passed
legislation which affects the enforceability of evergreen clauses
in certain scenarios, by creating disclosure and notice of renewal
requirements. The failure to comply with these statutory
requirements may affect the enforceability of the evergreen
clause.
Companies doing business in states that have statutes regulating
these clauses should be mindful of these recently passed statutes
so as to ensure compliance. Similarly, parties who find themselves
unwillingly bound to another contract term as a result of an
evergreen clause should also be aware as these statutes may provide
defenses to an automatic renewal claim.
The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
To print this article, all you need is to be registered on Mondaq.com.
Click to Login as an existing user or Register so you can print this article.
The Supreme Court in New York County recently dismissed a $20 million suit in a sanctioning order in response to the Plaintiff’s destruction of electronically stored information ("ESI").
