OOPS! Know What Your Licenses Say!

            Lots of activity on the legal front over the past several weeks.  Recent court decisions effect how you might look at use of licensed software by third parties.

            [First the disclaimers:  I’m not an attorney and these comments do not constitute legal advice.  Consult your attorneys; for your convenience and theirs, links to the court decisions are provided below.]

            Autodesk provides its AutoCAD software under a Software License Agreement that all customers must agree to before installing the software.  The SLA states that: 1) Autodesk retains title to all copies of the software; 2) the customer has a nonexclusive and nontransferable license to use the software; 3) customers are prohibited from renting, leasing or transferring the software without Autodesk’s prior consent. In addition, there are other significant license restrictions including requiring the destruction of all copies of previous versions after an upgrade.

            Timothy Vernor purchased several unopened used copies of AutoCAD from one of Autodesk’s direct customers and resold the copies on eBay.  The District Court held that the sales were lawful and did not infringe on Autodesk’s copyright, because two of the Copyright act’s affirmative defenses apply to owners of copies of copyrighted works, the first sale doctrine and the essential step defense. 

            The Ninth District Court of Appeals in Vernor v. Autodesk, Inc., No. 09-35969, 9/10/10 overturned the lower court decision finding that Autodesk’s direct customers are licensees of their copies of the software rather than owners.  Because Vernor did not purchase the copies of the software from an owner, the first sale doctrine cannot be invoked and an essential step defense cannot be asserted.

            Because Vernor purchased the software from a licensee and not an owner, the sale did not constitute a transfer of ownership.  As a result, copyright infringement liability may be imposed upon Vernor and subsequent users of the software, because its subsequent use is in contravention of the original software license agreement. 

            What’s the lesson here for us?  Know your seller. Understand the terms of the license agreement before you buy.  And, begin with the end in mind.  Determine up front what your likely plan will be at the end of your use of the software.  Don’t expect to be able to sell, donate or transfer it unless the license specifically allows it. 

            Compliance Source develops, licenses and sells mortgage-financing forms to residential lenders.  Digital Docs develops, licenses and supports computer software that prepares residential-mortgage loan documents.  Jointly they developed technology that allows mortgagees to merge their own transaction-specific information with Compliance Source and Digital Docs proprietary forms and prepare customized loan documents. 

            GreenPoint Mortgage Funding signed a licensing agreement to use the technology to streamline its loan packaging process.  The licensing agreement allowed GreenPoint and its Originating Lenders access to closing documents.  It specifically prohibited GreenPoint from copying, selling or sublicensing the forms database.  The licensing agreement also included a specific license to “use the Software Products in a Production Environment at the Customer Site Locations.”  It specifically prohibited sub-licensing to third parties.  GreenPoint allowed its attorneys access to the technology to prepare loan documents. 

            Compliance Source and Digital Docs sued GreenPoint for breach of the license agreement, and the District Court found in favor of GreenPoint on the basis that use of the licensed property by a third-party solely on behalf of and for the benefit of the licensee is not a transfer or sublicense.

            In Compliance Source, Inc. and Digital Docs, Inc. v. GreenPoint Mortgage Funding, Inc. No. 09-10726, 10/18/10, the Fifth District Court of Appeals stated that because the license agreement expressly prohibited any use not explicitly permitted by the agreement itself, and because the attorney’s use was not explicitly permitted in the agreement, the District Court’s decision was in error, reversed and remanded for reconsideration.

            What’s the lesson here for us?  Simply granting any third party access to licensed technology may be considered a breach of your license agreement. Seek permission first, or better yet, negotiate up front your ability to grant attorneys or service providers access to or use of the technology in the normal course of business.

            Bottom Line:  Know what your licenses say!

Our guest blogger is Dan Wallace, a staff member at ICN and Caucus-The Association of Technology Acquisition Professionals. For advice on software license agreements, contact ICN. 

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Technology Acquisition Professionals to Convene in Chicago

(Orlando, FL – 07/28/10) CAUCUS, The Association of Technology Acquisition Professionals, announced it is holding its 2010 IT Procurement Summit (ITPS) in Chicago on September 20-21.  This is the 15th year Caucus will hold this significant industry event.  “Our members have been working hard to organize this event,” said Sarepta Ridgeway of CenterPoint Energy and Conference Chair.  Professionals, both members and nonmembers, will attend to learn the very latest best practices for putting together cloud computing and SaaS deals, software license agreements, telecom transactions and service level agreements.  Risk management , supplier relationship management and CTPE / CTPS Certification classes with exam  will be among the other subjects or areas to participate in.

The annual summit provides acquisition professionals with the latest information on all facets of the acquisition process.  “Networking opportunities abound, many of the interactions initiated at the conference develop into long-term business relationships,” said association founder Joe Auer. “If you do any type of technology acquisition, this is where you need to be on September 20-21.  The presenters are the very people that do these types of deals…everyday!”

Attendees come from a variety of disciplines including procurement, finance, legal, IT and contract management and represent organizations of all sizes from all sectors of the economy, including large global corporations;  small and medium sized businesses; not-for-profits, government agencies, states and municipalities.

The 2010 ITPS will be at the InterContinental Hotel on Michigan in Chicago and the early-bird has a deadline of August 12th.

Caucus – Established in 1994, Caucus is the only association serving the specialized needs of technology acquisition professionals. Members come from a variety of disciplines including procurement, finance, legal, information technology and contract management.  Membership gives them an invaluable edge – the Caucus Advantage. Caucus also provides certification in this field as a CTPE or CTPS.

Contacts:

ICN
407-740-0700
Ja4@dobettdeals.com
http://caucusnet.com

Are You Acquiring Results or Resources?

 by Joe Auer

Are you acquiring results or resources? The answer to that question will yield a fifth important, essential “truth” whenever you negotiate a technology deal. About six months ago, I mentioned 10 of these truths, and detailed four of them.

The answer to this “results or resources” question establishes which side will bear responsibility for the results you’re expecting from a deal, and you need that answer before your acquisition process begins. In a “results deal,” the vendor is responsible, while in a “resource deal,” it’s the customer.

For more than 20 years, I have testified as an expert witness in court cases involving customer-vendor disputes, and almost every one revolves around the question of who’s responsible. In most of these cases, contractual responsibility for the success of the deal is unclear or mutual, or the vendor’s form contract has disclaimed any responsibility. The bottom line: If you, as a customer, fall short in a contract of clearly and completely assigning full responsibility for final results to the vendor, you’re responsible.

A results deal. In a results deal, you, the customer, effectively get the supplier to fully accept the risk of failing to produce the solution, or the expected outcomes or results. If the vendor’s representatives talk about “solutions” to your executives or end users, the vendor is held accountable for producing them.

This sounds good, but you can shoot yourself in the foot if you’re not careful putting the deal together. You might say, “OK, we have them committed to results. But we’re going to manage the deal. After all, it’s our money and our project.” Don’t do it! That shifts some responsibility for results to you, and the vendor is off the hook. The vendor must have complete authority to have complete accountability.

Another thing you might say is, “We have them committed to results, but we’re going to tell them the policies, equipment and staffing levels they must use.“ This also ruins a results deal. I’ve seen countless vendors avoid accountability because they were “forced” to do things according to their customers’ dictates. The customers got too proscriptive and shared responsibility for the outcomes.

Another important point about a results deal: Make sure your obligation to pay a vendor is triggered only by its producing the agreed-upon results, whether by reaching certain milestones or upon project completion.

If it’s a results deal, why should a vendor’s invoice force you to pay? Why should a set monthly date, the signing of a contract, accepting delivery or anything short of contracted-for results require you to pay? Make sure your money is tied directly to the vendor’s performance. The satisfaction of having a good contract is exceeded only by holding payment until the vendor produces.

A resource deal. In certain instances, there’s nothing wrong with a resource deal, especially if you don’t expect the vendor to produce the final results or outcomes. Maybe you just need some equipment, software or support to help you produce the results. Actually, sometimes you can’t predefine the results, or you may just need some tools to distribute — like 3,000 desktop PCs. Or maybe you need help on a general software development team or ongoing maintenance work and the results aren’t predetermined. These are resource deals. In these deals, you must pay attention and manage the resources, tasks, time frames and progress, because you’re responsible for the results.

The first thing I do when I’m asked to help on a deal gone bad is try to determine whether it’s a results or resource deal. Who has the responsibility for the outcomes? In most deals I look at, the answer is unclear. If that’s the case, you’ll never win a dispute that goes to mediation or court, where you’re trying to blame the vendor for not producing the results or solutions that it so eagerly promised verbally during its sales pitch.

IF YOU WANT TO SEE MORE ABOUT THIS, there is a SLA Lab at the AMA in Chicago May 27-28 produced by ICN.

JOE AUER is president of International Computer Negotiations, Inc. (www.dobetterdeals.com), a Winter Park, Fla., consultancy that educates Professionals on IT Procurement, Sourcing, and Vendor Management. ICN sponsors CAUCUS: The Association of Technology Procurement Professionals. Contact him at joea@dobetterdeals.com.

Negotiations Pioneer Announces New Course

(Orlando, FL – 04/08/10)  Today, procurement and technology negotiations pioneer International Computer Negotiations (ICN) announced the addition of a new advanced course to its curriculum.  For 35 years, ICN has been training Global 1000 companies in how to Do Better Deals, and its new SLA Lab: Results-Based Contracting was developed to teach best practices in the use of service level agreements with suppliers.

CEO Joe Auer states, “Early in the acquisition process, effective negotiating teams must agree upon the concept of which contractual approach they will use to drive the deal. ICN’s advanced training course SLA Lab: Results-Based Contracting helps you understand the difference between contracting for resources and contracting for results and shows you how to implement a ‘results deal’.”

This “results versus resources” decision establishes which side of the bargaining table will bear the responsibility for the outcome you’re expecting from the deal. In a “results deal,” the vendor is responsible, while in a “resource deal,” it’s the customer.

Auer continues, “In SLA Lab, you’ll gain an understanding of critical elements that can help you shift risk and responsibilities to the vendor and monitor ongoing compliance.”

The training classes are open to the public and are available privately all over the world. The first class will be conducted in Chicago (May 27-28, 2010) at the AMA. Registration information along with a detailed outline is available at http://www.dobetterdeals.com or 407-740-0700.

Since 1975, Winter Park, FL based ICN has provided critical training and consulting in IT procurement, vendor management, and negotiations, establishing a reputation that sets it apart from the competition.  Internationally, ICN has presented both public and customized on-site seminars in countries around the world including the United Kingdom, the Netherlands, Malaysia, Canada, Australia, New Zealand, Hong Kong and Singapore.

###

Tyrus Cooper

ICN PR

1133 Louisiana Ave

Suite 100

Winter Park, Fl 32789

1.407.740.0700

Work out details later? No! Now!

By Joe Auer

Suppliers often skillfully avoid tougher service-level guarantees by convincing the customer that service-level agreements (SLA) should be negotiated after a 90-day transition period. The supplier convincingly argued that service levels could be better determined once it understood the customer’s operations.

Suppliers suggest that the two sides work together to identify service levels during the transition. The customer many times falls for this, believing that information gathered during the transition period would produce more favorable SLAs. The customer signs a contract with no specific SLAs, no “out” clause if the two parties failed to agree on service levels and no recourse if the supplier failed to perform.

And guess what usually happens! At the end of the transition period, the supplier is willing to sign only a few weak SLAs with no remedies. For example, the supplier agrees to make applications “generally available” and that help desk calls would be answered “as soon as practical.” As you might suspect, the supplier escapes accountability with these “commitments” because no one could agree on what those terms really meant. As a result, the customer ends up with a multiyear contract that heavily favors the supplier.

To avoid this kind of mess, start with specific SLAs and remedies in your request for proposals. Let a qualified supplier perform due diligence of your operating environment under a nondisclosure clause as part of its preparation before making its proposal. A supplier’s bid should be based on your required SLAs, which should at least match the service you are currently receiving. In most cases, the SLA should exceed the current levels because you’re considering services provided by “experts.” The key is to specify desired service levels up front, early in the supplier evaluation process.

The critical error is signing a long-term contract without agreement on a fundamental issue – service quality. With a signed contract and no SLAs, a supplier won’t be motivated to guarantee exemplary service, only a minimal quality commitment that would leave the customer without meaningful recourse for unsatisfactory service.

JOE AUER is president of International Computer Negotiations, Inc. (www.dobetterdeals.com), a Winter Park, Fla., consultancy that educates Professionals on IT Procurement, Sourcing, and Vendor Management. ICN sponsors CAUCUS: The Association of Technology Procurement Professionals. Contact him at joea@dobetterdeals.com.