United States: Encountering Common Technology Contracts

Last Updated: May 30 2018
Article by Kirkpatrick Law PC

Technology agreements are often very unique, and so are are the contracts among the parties that buy, sell, create, license, or use technology. Tech-contracts form books will not likely aid much in drafting an adequate contract for technology. When asked to review a technology contract for a client, it is often knowing what is missing from the contract rather than what is in the contract itself. Corporate counsel often hire external technology lawyers to review, draft, or negotiate technology contracts such as software licensing agreements because of their ability to identify software licensing issues, resolve complex licensing models, and compare the subject deal to the many other unique technology contract structures to solve problems.

Notably, there are a few technology contract types that should signal a need for a technology attorney to review. Software examples are used below to narrow the focus, but these could be true for other technology types.

One-Sided Enterprise Agreements

Unfortunately, enterprise software agreements are often drafted completely in favor of the software publisher. For businesses that wish to procure enterprise software, beginning a deal with a one-sided agreement can be an arduous, time-consuming, and costly task. Businesses that do not negotiate these contracts because of its own perceived lack of leverage or in an effort to save money and time can find itself in an even worse position after the deal is concluded. An un-negotiated contract may be a misunderstood contract. Misunderstandings in software contracts can lead to software infringement, other intellectual property infringement, or unanticipated fees. Surprise in business can be a very bad thing. Even if there is no bargaining power, consulting with an software attorney before executing an software licensing agreement can help the business at a minimum understand the licensing model, identify terms and conditions that may be outside the norm for similar products, and describe ways to mitigate risks internally.

The Short and Simple Agreement

Against common expectation, the short and simple technology contract can be one of the most difficult to review. Reviewing a short software contract demands the need to understand what should be included in a software agreement in the first place. Short software agreements may only address and mitigate the legal issues of the publisher in providing the software to a user. At first pass, the contract may seem reasonable because the terms and conditions may not necessarily be unreasonable. However, it is important for the buyer, licensor, or user to know the issues that are important from its perspective and to ensure that such business and legal issues are adequately addressed from the perspective of its interests as well. A software attorney can help a company by identifying which issues should be be addressed, include the appropriate clauses, or explain the risks of not making revisions in its favor.

The Standard Agreement

From a publisher's or seller's perspective, the standard agreement can initially be convenient as long as it is rarely read or negotiated by their customers. However, using a standard contract form for software can create more problems than it resolves if it is negotiated by a knowledgeable software procurement department or a software attorney because the number of issues that will need to be resolved can be great, which can mean longer and more expensive sales cycles, as well as potentially lower client satisfaction from the onset of the relationship. Additionally, vague contract terms can lead to disputes and uncertainty if questions arise after execution.

From a licensor's perspective, standard agreements do not usually provide an adequate explanation of what is being licensed, how the license model works, what the service level is, and so on. Software is created unique and specific by its nature, and using generic contract terms for a specific product, service, or solution can raise many questions if the contract is not tailored to the need of the buyer or licensee.

Technology contracts should describe the technology and answer many questions about how it should be used properly, what happens if it is not used as agreed, and provide ways to avoid or resolve disputes. If a business encounters contracts where there is a perceived leverage imbalance, overly simple contracts, or the standard boilerplate contract form for technology, engaging the services of an experienced technology lawyer can help put the company in a more favorable position by identifying unfavorable or missing terms, drafting alternative clauses, or describing the risks involved with the contract.Businesses, such as Managed Service Providers (MSP) should avoid the contract types mentioned above and may even be able to improve customer on-boarding by using customized master service agreements that proactively provide protections for its clients as well as mitigating its own legal risks.

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.

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