When a company signs a cloud SuiteSuccess ERP agreement with
Oracle America, Inc. and NetSuite, Inc. (collectively
"Oracle"), it is important to understand the legal
framework behind the deal. Oracle's June 1, 2024 Subscription
Services Agreement (SSA) for its cloud ERP solutions is instructive
and contains several provisions that benefit Oracle by either
drastically limiting liability or escaping liability all together.
In this blog post, we will explore these provisions and explain why
such agreements should never be hidden in hyperlinks buried within
a document described as an "Estimate Form".
Prospective Oracle customers need to be alert and understand how
Oracle often presents its contractual documents to its customers in
the ERP cloud solution space. This may sound like a familiar story
if you have dealt with Oracle. Whether the customer initially
reaches out to Oracle, or whether Oracle locates the potential
prospect, the playbook is the same.
Oracle deploys an aggressive sales team, which sets up multiple
Zoom meetings ostensibly to gather the customer's requirements
for the ERP solution. Oracle devotes a good deal of resources to
these initial meetings giving the customer the impression that
Oracle will devote lots of resources to the implementation. Oracle
customers in litigation allege that oral promises are made during
these meetings, which are often not documented properly or at all
in the final contract documents. Instead, customers allege that
Oracle simply uses its standard paper promising only a NetSuite
standard solution rather than the functionality that was agreed to
on the Zoom calls.
Oracle's aggressive sales team often does not present the
contractual documents ahead of time. But even if they do, normally
they do not include a PDF of the SSA, with the other PDFs provided.
We believe that this is intentionally done as it is our opinion
that Oracle hopes that the prospect will miss the onerous terms of
the SSA altogether, which are buried in a disguised hyperlink. And
even if the prospect does click on the grayed out and barely
discernable hyperlink, the link does not take the reader right to
the document. Instead, the prospect is forced to click through
several confusing pages on Oracle's website to locate the
SSA.
The documents that Oracle eventually presents via a DocuSign do
not include a PDF of the SSA. Instead, the documents are often
presented to the customer in a pressured environment where the
Oracle sales team says that if the documents are not executed
immediately, the steep discounts will go away.
Many NetSuite SuiteSuccess customers do not have legal counsel to
review and advise them on the contract. Instead, they succumb to
the highly orchestrated pressure campaign and sign the documents
without proper vetting. At that point Oracle has them, because
Oracle now has the many protections of the lopsided agreement,
which we explain in more detail below.
1. Disclaimer of Warranties
The SSA includes a section that disclaims many types of
warranties, including those involving third-party applications and
services. Oracle does not guarantee that its services will be
error-free or uninterrupted and explicitly states that it is not
responsible for issues caused by third-party applications. (SSA
¶9).
This limits Oracle's liability, especially in complex cloud
environments where multiple third-party vendors are involved. For
example, if a third-party contractor recommended by Oracle causes
issues with the service, Oracle can claim it bears no
responsibility.
2. Limitation of Liability
Oracle limits its liability significantly in the SSA.( SSA
¶10) According to the agreement, Oracle will not be liable for
indirect, consequential, or special damages, and the total
liability is capped at the amount paid by the customer in the last
twelve months. This means that even in the event of a major issue,
the customer cannot recover losses beyond the value of their most
recent subscription fees.
This provision is a major risk for customers, especially if they
experience business interruptions or data breaches caused by
Oracle's services. Limiting damages to the subscription fee
amount offers minimal financial recourse for the customer.
The limitation of liability is one of the most favorable
provisions for Oracle, which caps Oracle's responsibility at
the amount of fees paid by the customer within the past 12 months.
For a large corporation like Oracle, this minimal liability offers
substantial protection, even in cases of significant service
failure. In contrast, customers are exposed to greater risk,
particularly in cases where service failures lead to business
losses far exceeding the capped liability.
3. Responsibility for Third-Party Applications
Oracle disclaims any responsibility for third-party applications
or implementation partners, even where these were recommended by
Oracle. SSA ¶¶ 6.5, 14.2.3. The agreement emphasizes that
Oracle is not liable for data loss, errors, or interruptions caused
by third-party applications, even if they are listed in the
SuiteApp marketplace or are recommended by Oracle. Likewise, the
SSA provides that Oracle is not liable for deficient work of Oracle
implementation partners, even where Oracle recommended them in the
first place.
This limits Oracle's exposure to liability when issues arise
from third-party software or services, even if these services are
crucial for the ERP solution to function. Customers are left
responsible for the risks associated with such third-party tools or
third party Oracle partners.
4. Termination and Suspension Provisions
Oracle reserves the right to suspend services if the
customer's account becomes delinquent or if it believes there
is a significant threat to the functionality, security, or
integrity of the services. SSA ¶7. This provision gives Oracle
broad discretion to suspend services without bearing liability for
interruptions caused by these suspensions.
While this protects Oracle's interests in maintaining secure
services, it leaves customers vulnerable to sudden service
interruptions that could impact their business operations. This
provision lacks balance in protecting the customer's need for
operational continuity.
A close analysis of the termination provision in Oracle's SSA
reveals that the agreement can only be terminated by the customer
for cause, not for convenience. This means that a customer can only
end the agreement if Oracle materially breaches the contract and
fails to remedy the breach within 30 days after receiving written
notice. (SSA ¶7.3). While this provision might appear
bilateral at first glance, since both parties have the right to
terminate for cause, it actually benefits Oracle more. The reason
is that customers are locked into the contract for its full term,
regardless of changes in their business needs or satisfaction with
Oracle's services. Oracle, however, can terminate the contract
if the customer breaches any material term, such as payment
delinquency, which gives Oracle more leverage in enforcing the
contract. And as mentioned above, it has the power to suspend the
services.
Moreover, the agreement includes automatic renewal provisions,
where the subscription will renew for an additional year unless the
customer provides written notice of non-renewal at least 30 days
before the expiration of the current term. (SSA 4.A). This ensures
Oracle retains long-term contractual commitments, as customers must
actively manage the renewal process to avoid being automatically
bound by another term.
The provision primarily benefits Oracle by locking customers into
the agreement unless there's a breach, while also ensuring
automatic renewals unless the customer is proactive
in canceling.
5. Confidentiality and Security
Although Oracle claims to protect Customer Data with reasonable
safeguards, the agreement places the burden on customers to ensure
the accuracy, legality, and reliability of their data. This leaves
the customer responsible for many aspects of data integrity and
security, which is crucial in cloud environments where sensitive
information is stored. (SSA ¶8).
While Oracle commits to basic security measures, this provision
helps shield Oracle from liability if the customer's data is
compromised. (SSA ¶6.10)
6. No Warranties for Performance
The SSA provides that Oracle does not guarantee that all service
issues will be fixed or that its services will meet customer
expectations. (SSA ¶9(b)).
This is particularly risky for businesses that depend on
Oracle's services for mission-critical operations. If the cloud
ERP solution underperforms or causes delays, Oracle's limited
warranties and liability protection leave customers with little
recourse.
7. Integration Clause Seeks to Bar Oral Discussions
Pre-Contract
The integration clause in Oracle's SSA could be used against
the customer by limiting the customer's ability to rely on any
promises, statements, or agreements that are not explicitly
included in the contract. This clause typically states that the
agreement constitutes the entire understanding between the parties
and supersedes all prior discussions, negotiations, or other
agreements, whether written or oral (SSA ¶14.1).
Oracle could use this clause to its advantage in several
ways:
1. Prevents reliance on prior representations: If Oracle's
sales team made specific promises about the performance,
capabilities, or features of the service that are not expressly
included in the SSA, Oracle will argue that the customer cannot
later claim these promises as part of the contract. For instance,
if Oracle's representatives verbally assured the customer of
certain included functionality, but those terms are not in the
written agreement, Oracle can argue that such assurances are not
enforceable.
2. Limits modifications to written amendments: The clause
stipulates that any changes to the agreement must be made in
writing and signed by both parties. This means that even if
Oracle's representatives agree to make certain accommodations
or offer concessions during the course of service, those will not
be binding unless they are formally documented.
3. Nullifies external documents: Oracle could reject any attempt
by the customer to rely on external materials such as marketing
brochures, proposals, or emails as part of the contractual
obligations, arguing that the integration clause bars the inclusion
of any terms or representations outside the SSA.
In essence, Oracle could use the integration clause to solidify
that only the specific terms written in the contract are binding,
eliminating the possibility of the customer introducing external
agreements or promises in case of a dispute. This can work strongly
in Oracle's favor, especially if the customer was led to
believe certain non-contractual assurances would apply.
8. Why the SSA Should Never Be Hidden in Hyperlinks
An agreement like the SSA should never be hidden behind a
disguised hyperlink in an estimate form for several reasons:
1. Transparency and Fairness: Hiding critical legal terms makes it
difficult for customers to fully understand the terms they are
agreeing to. This undermines transparency and could lead to
customers unknowingly accepting provisions that are not in their
best interest.
2. Informed Decision Making: The SSA contains clauses that
significantly affect the customer's legal rights and
liabilities. If these terms are hidden, it prevents customers from
making informed decisions based on the true scope of their risk. In
other words, the customer will be taking on risk but it won't
even know of the risk. This flies in the face of the requirement
that there must be a "meeting of the minds" in order for
a binding contract to be formed.
3. Potential for Disputes: A hidden SSA can lead to future legal
disputes, as customers may claim they were unaware of the
provisions. Making such a critical document accessible only through
obscure hypelinks could be seen as an attempt to downplay or
obfuscate important terms. For example, if Oracle customers
don't know of the SSA then they don't know about the
requirement for a written notice of breach and a mandatory cure
period of 30-days. That is why when the customer approaches Oracle
it usually asks to "cancel" the contract, not
understanding that there are certain requirements that must be met
to terminate. Oracle usually responds that the contract cannot be
"cancelled", neglecting to provide the customer with a
copy of the SSA and the termination provision, which allows for
termination for material breach and a failure to cure.
4. Industry Best Practices: It is a best practice to present all
critical agreements directly to customers for review before they
sign any contractual forms. This builds trust and ensures that all
parties are clear on the terms from the outset.
In conclusion, Oracle's Subscription Services Agreement is
designed to limit its liability and protect its interests, often at
the expense of the customer. From disclaimers about third-party
applications to limitations on termination rights and automatic
renewals, the contract places significant responsibility on the
customer while minimizing Oracle's exposure. Provisions like
the integration clause further strengthen Oracle's position by
ensuring only the written terms are enforceable, leaving customers
with little recourse for any external promises unless they can meet
the heavy burden of proving fraud in the inducement. This
highlights the importance of thoroughly understanding the terms of
such agreements and ensuring they are presented transparently, not
hidden behind hyperlinks.
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.