TEN TIPS FOR NEGOTIATING SOFTWARE LICENSE AGREEMENTS

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1 TEN TIPS FOR NEGOTIATING SOFTWARE LICENSE AGREEMENTS November 18, 2015 Benjamin G. Lombard Adam J. Spector North Water Street, Suite 1700, Milwaukee, WI Webinar Housekeeping Viewing the Slides Today's slide presentation will advance automatically in synch with the live presentation. Handouts If you would like a hard copy of the slide presentation, a printable version was ed to you yesterday. Adjusting Your Volume Volume can be adjusted using the volume control on your computer or phone. Asking Questions Throughout the webinar, type your questions using the "QUESTIONS" section in the webinar panel. We will answer as many questions as possible during our Q & A session at the end of the presentation. Information This webinar provides general information about legal issues. It should not be construed as legal advice or a legal opinion. Attendees should seek legal counsel concerning specific factual situations confronting them. 1

2 Initial Observations Triage the agreement Factors to consider: Impact to the business Cost Sensitivity Type of software (direct license vs. SaaS) Licensor and degree of bargaining leverage 2 Tip #1 Expanding Scope of the License

3 Expanding Scope of the License Who is the "Licensee"? Understand the magic words of the license grant Carefully consider "internal" business use limitations in light of the nature of the software Expand definition of "Licensed Software" Use by "affiliates" and "consultants" Other limits e.g., number of users, geographic limits, etc. 4 Tip #2 Testing and Acceptance

4 Testing and Acceptance Especially important for custom software Avoid deemed acceptance Tie acceptance to broader "specifications" Hold back some or all of payment until acceptance Specify remedies if acceptance tests are not passed (e.g., termination and refund rights) Ensure new releases must also go through testing process and be accepted 6 Tip #3 Indemnification and Limitation on Liability

5 Traps in Indemnification and Limitation on Liability Adequate indemnification for infringement Additional indemnification for services component (if applicable) Common limits on liability and what to look for Cap on damages No consequential damages Make reciprocal if possible Limitation on liability should include carve out for Licensor's confidentiality and indemnification obligations 8 Tip #4 Insurance

6 Insurance Requirement and Waiver of Subrogation Especially important if party will be performing services for licensee General liability, workers' compensation, umbrella, and errors and omissions Note: Cyber-liability coverage is generally separate Include licensee as additional insured on policy Obtain waiver of subrogation from carrier 10 Tip #5 Confidentiality

7 Confidentiality Definition of "Confidential Information" should be broad No limit on period of confidentiality Especially for trade secrets If possible, tie confidentiality to previously executed NDA Consider vendor's use of "customer data" Special industry concerns (e.g., HIPAA, banking) 12 Tip #6 Data Security and Disaster Recovery

8 Data Security and Disaster Recovery Look for disaster recovery plan to be provided by licensor Especially if it holds licensee's data or provides access to critical software Licensee should also ensure it takes certain actions (e.g., backup generators, daily data backup) Notices and remedies for breach Security audit rights 14 Tip #7 Service Levels

9 Availability and Performance Service Levels More common in outsourcing/saas agreements Incentivize licensor to meet agreed upon standards by assigning penalties for failure to do so Service level credits (i.e., against future payments) Determine appropriate availability level 16 Tip #8 Termination Rights

10 Termination Rights Avoid "evergreen" contracts Termination upon material breach Termination for convenience Issues if pay upfront for a "perpetual" license 18 Tip #9 Force Majeure

11 Force Majeure Excuse party's performance due to inability to perform as a result of unforeseen events (i.e., acts of God, war, etc.) Often used as a way to expand a party's ability to limit its risk and avoid performance outside of what should be force majeure Add clarifying language that force majeure applies only after party has used its skill, diligence and good faith to perform Consider carving out SLA 20 Tip #10 Cloud Computing

12 Cloud Computing Different from standard license of software Use of Internet to access software, applications and/or data Multiple service models (e.g., SaaS) End user is generally not the licensee lack of privity with licensor Greater concern with data privacy and security Service levels are essential Ways to reduce risks (e.g., due diligence) 22 Contact Information Benjamin G. Lombard (414) Adam J. Spector (414)