2012 Winston & Strawn LLP

Transcription

1 2012 Winston & Strawn LLP

2 Top 5 Negotiation Points for Software, SaaS, and Outsourcing Agreements Brought to you by Winston & Strawn s Advertising, Marketing, and Entertainment Law Group 2012 Winston & Strawn LLP

3 Today s elunch Presenters Glynna Christian Intellectual Property New York gchristian@winston.com Brian Fergemann Advertising, Marketing, and Entertainment Chicago bfergemann@winston.com Becky Troutman Intellectual Property San Francisco btroutman@winston.com 2012 Winston & Strawn LLP 3

4 Top 5 Negotiation Points Defining your goals and measurable performance requirements Conducting due diligence Determining the pricing model Identifying key issues and potential resolutions Exiting the relationship 2012 Winston & Strawn LLP 4

5 Sourcing Strategy Adding Value Any project must have a clearly articulated value proposition to the business Value is measured in more than bottom-line results Enabling the company to work at peak performance while respecting its culture and values Leveraging service providers capabilities Maximizing value for both the company and the service provider If it does not add value, then STOP 2012 Winston & Strawn LLP 5

6 Defining Your Goals and Performance Criteria There should be a business need that can be solved by sourcing To understand the scope of that business need, the company must examine its needs, such as: Areas within the business that have divergent interests Technical, implementation, and project management requirements Project budget then translate those needs into measurable requirements 2012 Winston & Strawn LLP 6

7 Business Case Why? Provide background Explain the business need and potential solution Common examples too many legacy applications, will not sustain future business requirements, proprietary software and process not conforming to industry standards, technology-driven rather than process-driven Quantify the impact of transformation Obtain approval to move forward 2012 Winston & Strawn LLP 7

8 Business Case What is it? Documentation of current technology or process as is Review and consideration of the desired to be state Gap analysis between as is and to be Cost analysis of getting to to be and cost of not changing the process Establish a baseline for cost management and future benefit tracking Estimate the costs, benefits, and other financial metrics of the potential solution Establish measurable success criteria (e.g., cost, added value considerations, or both) Define a phase-based implementation plan 2012 Winston & Strawn LLP 8

9 Specifying the Business Requirements Detailed requirements and defined deliverables Capable of being measured, and The results analyzed and reported Any process flows to be changed or implemented? Data issues Any new data to be collected or converted? Who will have access to data and how will it be used, stored, and transmitted? Implementation planning Will the services be phased in? Will a pilot test be conducted? Integration planning what is the potential impact on other areas or processes? 2012 Winston & Strawn LLP 9

10 Performance Requirements Service Level Agreements (SLAs) Mechanism for ensuring quality service Measures the vendor s performance of certain requirements Objective and measurable Review SLAs against published standards Avoid too many SLAs prioritize by impact if the SLA is not met Service Level Credits Vendor pays credits for failure to meet performance Should credits be sole and exclusive remedy? Key Performance Indicators (KPIs) Measurements that indicate success for the project No financial penalty to the vendor 2012 Winston & Strawn LLP 10

11 Due Diligence Who is your partner? Corporate structure Location red flag! Where will services be performed? Where will data be transferred, processed, or stored? Key subcontractors Reputation, lawsuits, investigations Financial stability 2012 Winston & Strawn LLP 11

12 Due Diligence What is provided? Intellectual property patents trademarks/brands copyrights trade secrets, confidential information, data Software, database, Software as a Service Other Services 2012 Winston & Strawn LLP 12

13 Due Diligence Intellectual Property Is the IP registered in the relevant jurisdictions? Does the vendor own or have the right to sublicense IP and services in all relevant jurisdictions? Are there any restrictions on the vendor s ownership or license rights in any jurisdiction? Are there any lawsuits relating to the IP or services? 2012 Winston & Strawn LLP 13

14 Due Diligence Other Issues Policies and procedures for protecting confidential information Data security measures, ISO certifications Disaster recovery plans Insurance Import/export restrictions 2012 Winston & Strawn LLP 14

15 CLE Presentation Code 2012 Winston & Strawn LLP 15

16 Pricing Models SaaS For software or pay-as-you-go services, you should know: How you will use the software, system, or services # of users who must access the software or services Transaction volumes for each application Transaction costs for each application Growth rates for revenue, costs, volumes, and users Consumption-based pricing models Per-user Per-transaction Percentage-of-revenue Fixed-fee model Additional fees 2012 Winston & Strawn LLP 16

17 Pricing Models Outsourcing Usually a monthly or annual service charge Incremental fee based on consumption Fee based on the number of users Fixed price and price caps Time and materials Cost-plus Alternative models Gain-sharing Incentive-sharing Shared risk-reward Revenue-sharing 2012 Winston & Strawn LLP 17

18 Pricing Models Outsourcing cont d Gain-sharing Based on the value delivered by vendor Gains are difficult to agree upon and measure Reluctance to fund without guaranteed payback Incentive-based Earn-back or bonus payments made to the vendor for achieving performance levels above SLAs Vendors may be paid for performance they already should be meeting 2012 Winston & Strawn LLP 18

19 Pricing Models Outsourcing cont d Shared risk-reward Jointly funded development of new products, solutions or services Vendor shares in rewards for a period of time Difficult to measure results or quantify rewards Issues around ownership, investments Revenue-sharing Vendor shares in your revenues from activities supported by the outsourced services 2012 Winston & Strawn LLP 19

20 Negotiating the Best Price Seek competitive bids Best practice is an RFP process focused on accomplishing the value proposition outlined in the business case Risks in a sub-standard RFP Gaps in internal business processes Increasing costs and partially met expectations due to: Disorganized, non-customized RFP process Inadequate planning and understanding of solution complexities Poorly structured contract not based on outcomes Poorly defined metrics and success criteria Vendor deficiencies in delivering against expectations Obtain comparative pricing Understand vendor s financial position 2012 Winston & Strawn LLP 20

21 Key Issues Intellectual Property Scope of license/access rights Who needs to have use rights? What use rights are required? What restrictions are imposed, and are third-party materials licensed under additional terms? Does vendor need license to customer IP? Ownership of developed IP red flag! Work for hire Joint ownership 2012 Winston & Strawn LLP 21

22 Key Issues Confidentiality Scope: Mutual? How is confidential information defined? Is data privacy and security addressed? What are the restrictions? Disclosure, use, reverse engineering Employees, contractors, representatives 2012 Winston & Strawn LLP 22

23 Key Issues Confidentiality What are the exceptions? Written authorization Made public through no fault of recipient Provided by third party without restriction Independently developed Compelled disclosure Disclosure to potential investors or buyers under a confidentiality obligation How long does the obligation survive? 2012 Winston & Strawn LLP 23

24 Key Issues Warranties Ownership Noninfringement Performance of software/saas Performance of services Third-party software Malware Open source software DISCLAIMERS 2012 Winston & Strawn LLP 24

25 Key Issues Indemnity Scope Allocation of risk What can go wrong that results in a third-party claim? Who should be responsible for the claim? Scope: Defend, indemnify, and hold harmless Who is indemnified? Officers, directors, employees, contractors, agents Affiliates, customers 2012 Winston & Strawn LLP 25

26 Key Issues Indemnity Scope Requirements Prompt notice Sole control over defense and settlement No acts/omissions that affect defense or settlement All amounts paid Selection of counsel Right to participate in defense 2012 Winston & Strawn LLP 26

27 Key Issues Indemnity Infringement Exceptions Self-help remedies Bad acts Breach of warranty, breach of agreement Acts, omissions Violation of law Fraud, gross negligence, willful misconduct Exceptions 2012 Winston & Strawn LLP 27

28 Key Issues Indemnity Sample Vendor-Favorable Indemnity: X.1 Infringement Claims. If an action is brought against Licensee claiming that the Software infringes any United States patent, copyright or trade secret rights of a third party, Licensor shall defend Licensee at Licensor s expense and shall pay the damages and costs finally awarded against Licensee in the action, but only if (a) Licensee notifies Licensor promptly upon learning that the claim might be asserted, (b) Licensor has sole control over the defense of the claim and any negotiation for its settlement or compromise, and (c) Licensee takes no action that, in Licensor s judgment, materially impairs Licensor s defense of the claim. This indemnity 1 will not apply if and to the extent that the infringement claim results from a correction or modification of the Software not provided by Licensor, a failure to promptly install an update, or the combination of the Software with other software, hardware or systems not provided by Licensor Winston & Strawn LLP 28

29 Key Issues Liability Cap Does the cap apply to both parties? What is the cap? Fees/multiple of fees paid during a certain period Flat cap Are there exceptions? Indemnity Breach of confidentiality/privacy Fraud, gross negligence, willful misconduct 2012 Winston & Strawn LLP 29

30 Key Issues Disclaimer of Damages Does the disclaimer apply to both parties? What is disclaimed? Consequential & incidental damages Indirect, special, punitive damages All damages/all liability red flag! Are there exceptions? Indemnity Breach of confidentiality/privacy Fraud, gross negligence, willful misconduct 2012 Winston & Strawn LLP 30

31 Key Issues Disclaimer of Damages Sample Vendor-Favorable Damages Disclaimer: LIMITED LIABILITY. THE MAXIMUM LIABILITY OF LICENSOR AND ITS AFFILIATED ENTITIES AND ITS AND THEIR LICENSORS AND SUPPLIERS TO LICENSEE FOR DAMAGES ARISING OUT OF THIS AGREEMENT IS LIMITED TO THE AMOUNT PAID TO LICENSOR BY LICENSEE DURING THE THREE (3) MONTH PERIOD PRIOR TO THE DATE A CLAIM ARISES. UNDER NO CIRCUMSTANCES SHALL LICENSOR (OR ITS AFFILIATED ENTITIES OR ITS OR THEIR LICENSORS AND SUPPLIERS) BE LIABLE TO LICENSEE OR TO ANY OTHER PARTY FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT, SPECIAL, OR PUNITIVE DAMAGES, HOWEVER CAUSED, INCLUDING, WITHOUT LIMITATION, LOSS OF PROFITS AND COSTS OF PROCUREMENT OF SUBSTITUTE GOODS Winston & Strawn LLP 31

32 Key Issues Assignment Can each party assign to a third party? Is a change of control an assignment? Common limitations on assignment Prior written consent Consent not unreasonably withheld Exceptions for affiliates, merger, asset sale Assignee agrees to be bound Ability to terminate 2012 Winston & Strawn LLP 32

33 Exiting the Relationship Termination for convenience Customer should have the right after a specified period of time for vendor to recover sunk costs Customer may have to pay early termination charge Vendor should NOT have right to T for C Termination for breach Generally limit vendor s right to terminate only for material nonpayment of undisputed amounts Consider termination rights for vendor breaches that may cause significant impact to the customer Examples: Safety and soundness of financial institutions, data breaches Termination assistance, effect of termination 2012 Winston & Strawn LLP 33

34 CLE Presentation Code 2012 Winston & Strawn LLP 34

35 2012 Winston & Strawn LLP Questions?

36 2012 Winston & Strawn LLP Thank You.