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Q & A
In EULA negotiations, software provider will not agree to include word "indemnify" in connection with how provider will handle any claims of copyright infringement against us (customer/licensee) by a third-party. Instead, software provider wants to agree that it will "defend" any claim or cause of action and will "pay damages finally awarded or agreed to in settlement." Software provider is claiming that "defend and pay" is the same as "indemnify." I'd appreciate any suggestions regarding negotiation strategy.
The best negotiating strategy here is to ask the other side why it needs the change and, specifically, what costs it is seeking to avoid reimbursing you for, and then push back where appropriate. You shouldn’t let the other party just stonewall you on this and not give you a straight answer. But just so you know, what they are likely to tell you is that they don’t want you to seek any other types of cost recoveries, such as reimbursements for the costs you incurred in investigating or notifying them of the claim, or seeking and acquiring new software as a result of needing to move in another direction (and perhaps even the costs you incurred in assisting them in defending the claim if they asked for your cooperation, although they are less likely to be trying to avoid that set of costs). Also, the language you quoted above is imprecise at best because if there is a settlement, there will be no payment of “damages” under such settlement so at a minimum, even if you otherwise consent to what they want, you should revise that sentence. But the key here is for you to decide what other costs and expense you are looking to recover if you get sued because of their infringement and push for those.
I'm working on implementing an eSignature solution and am in the contract negotiation stage with an eSignature provider. The one area of concern I have is the provider's contract limits their liability for breach of warranties relating to the enforceability and validity of the eSignatures. Their liability for such claims is capped at amounts paid (a few thousand dollars a year). My concern is that if the eSignature software performs in a manner that creates enforceability/validity of signature issues, my company's damages could greatly exceed what we're paying in licensing fees.
Am I missing something -- should I not be concerned?
I think you should speak to someone in this field, and I am happy to give you some thoughts over a phone call at no charge, in connection with how this will likely play out in practice. If this is a concern for you, I would make sure that you include in all of your agreements going forward language with third-parties that will minimize your concerns (i.e. make it far more difficult for anyone to claim that its agreement with you was not enforceable as a result of the eSignature software). You should also ensure that your clients verify with respect to all of your agreements that use this software that you receive confirmation that the other party did execute the document electronically.
We are negotiating a deal with a party that is located in a jurisdiction that is notorious for not always providing a fair trial for entities located outside the jurisdiction. The other party is – not surprisingly -- insisting that any action be brought in its home jurisdiction. What compromise can we offer besides insisting that any action be brought in a neutral territory, which compromise they have already rejected. The other side has also refused including an arbitration clause.
Another compromise you can offer on choice of forum that often works is that the suit must be brought in the jurisdiction where the defendant is located. That way at least you won’t have to litigate in the other party’s jurisdiction unless you decide to initiate the litigation, and are therefore the plaintiff.
I'm currently negotiating a consulting agreement that contains a limitation of liability clause tied to fees paid. The consultant will have intimate access to our client info and intellectual property, so I attempted to carve out an exception as it related to a breach of confidential information and IP. The potential damages resulting from a breach in these areas would far exceed the amount of fees paid to the consultant. The consulting company says it cannot have a unlimited liability in any area and we are at a stalemate. I can add the ability to obtain an injunction but that only potentially mitigates the damage, it doesn't compensate us. The consulting company's insurance does not provide coverage. Do you have any ideas of how to break the stalemate so we can move forward? I cannot get my head around the idea that allowing this provision is tantamount to permitting a third party to purchase our confidential info and IP for a song.
It is very common for breach of confidentiality obligations and violation of IP to be exceptions to the direct damages cap. Where a party refuses to have unlimited liability for direct damages with respect to such matters, in some agreements the parties agree to have the liability for breach of confidentiality obligations and violation of IP capped at an amount that is a multiple of the general cap (such as three, five, or ten times the amount of the general cap). Another approach that some parties take is to make it clear that the cap does not apply where the violation involves gross negligence or willful misconduct. Also, breach of confidentiality obligations and violation of IP are sometimes exceptions to the consequential damages limitation as well.
My company has software license agreements with different vendors across multiple business lines (travel, banking, insurance, entertainment, etc.). Many, if not most, of them are evidenced by written agreements between my company and the software company. A few require the end user (the employees using the software) to agree (click through) the EULA. We try to limit those situations to software vendors that are large well known companies that refuse to negotiate otherwise. My IT department says that as a rule if you're not customizing the software then the standard is for the EULA to be agreed to by each individual user. However, we would prefer that our employees not have to agree to the terms and conditions in the EULA. I currently have a situation where a software vendor is insisting that each end user agree to the EULA so I'm trying to determine what's standard and customary to determine how hard to push on this issue. Does you have any insight on this topic? Do you think we are able to negotiate software license agreements (for multiple end users) with vendors?
A number of vendors find it acceptable to (i) have the EULA be part of the agreement with the customer (or to include in the agreement with the customer those terms from the EULA that they deem necessary to include), and then (ii) waive any right to sue an individual employee for violation of the EULA, as all such claims would only be brought against the company itself.
I'd be interested in arguments for and against including indemnification clauses in NDAs (specifically mutual NDAs but of note often one party ends up sharing more information, including sensitive proprietary technology). My standard approach has been that there are suffi
With this issue, I would usually first seek to determine, with our client’s help, the following four pieces of information: (1) the likelihood that the other party will breach its confidentiality obligations, (2) the likelihood that our client will be sued by a third party if the other party breaches its confidentiality obligations, (3) the likelihood that our client will breach its confidentiality obligations, and (4) the likelihood that the other party will be sued by a third party if our client breaches its confidentiality obligations. The reason for this is simple. If one party breaches its confidentiality obligations and the other party is sued by a third-party as a result, the other party is not fully protected in connection with such lawsuit (and may hardly be protected at all in connection with such lawsuit, depending on what other provisions the agreement includes), unless there is an indemnification clause covering this. Many clients may want to perform the above type of analysis, which in effect will help them determine whether they are more likely to be helped or harmed by including such an indemnification clause, and thereafter advocating in whatever direction that analysis points them. One exception would be that some clients either generally prefer greatly limiting indemnification obligations (even if that means doing so in both directions) or greatly expanding them (even if that means doing so in both directions), and those clients may decide whether or not they want such a clause based on their predisposition on that front.
My client is a service provider and the prospective customer wants a most-favored nation clause with respect to pricing. We want to do this deal but do not want to give a blanket MFN clause. We are willing to compromise on the issue by giving an MFN with some reasonable exceptions. What compromises should we consider?
If you are willing to give some form of MFN to the prospective customer, which decision itself has certain business and legal risks, you may wish to consider, among other things, raising the following compromises in a negotiation:
Carve outs to the MFN clause - such as for promotional offerings, offerings of a larger quantity than the prospective customer is receiving, or offerings in connection with governmental contracts;
Clarifications that (i) the MFN doesn't apply to any set of services other than the same set of services you are providing to the prospective customer (and that includes the MFN doesn't apply to bundled services that include in part the services you are offering to the prospective customer, nor does the MFN apply where you are offering only some, but not all of the same services, to the prospective customer); (ii) the MFN only applies to all of the services you are providing to the prospective customer considered collectively and not to each service considered individually; (iii) the MFN doesn't apply to any existing customers you have, including with respect to extensions or renewals of their agreements; and (iv) the MFN doesn't apply to resellers of your services;
Limit on the location of the MFN (e.g., it only applies to offerings in the US);
Time limit on the MFN (perhaps a year); or
Your violation of the MFN is not a breach of the Agreement, but instead only gives the customer a right to terminate if you don't agree to lower the customer's price to match the price you offered the other customer.
The other party insists that the agreement must provide that its affiliates can also provide us with some of the services, but those affiliates will not be a party to the agreement. Does that raise any concerns?
Yes. You always need to view issues both from an offensive and defensive standpoint. Offensively, if an affiliate harms you, you have to ensure that the party with whom you are in privity (the “Contracting Party”) will be responsible to the same degree as if it caused the harm. Defensively, you should seek to ensure that the Contracting Party will indemnify you if one of its affiliates brings an action against you arising from the services under the agreement.
The other party insists they can change their support policies at any time, and we are concerned that they will make changes that are unacceptable to us. Is our concern justified?
Yes. At a bare minimum, you should have a right to terminate the agreement and receive any prepaid amounts back if that occurs. In addition, you should try to persuade them to agree that any change in their policies will not be effective as to your company during the term of your agreement, or at the very least during the period of time for which you have already paid for support. If they will not agree to that, then you should seek to have them represent that any changes they make will not materially adversely impact your client.
The other party is asking that we agree to unlimited consequential damages if we breach the agreement. We really want to do this deal and haven’t been able to get them to change their position no matter what we say. Do you have one line of reasoning that has really worked well in this situation. By the way, they are willing to agree to make the clause reciprocal.
The reasoning that has worked best for me over the years on this issue is to say something to the effect of, “we can’t risk going into bankruptcy over one agreement – and that is exactly what could happen if we agree to unlimited consequential damages if we breach this agreement”. This line of reasoning provides the other party with some needed perspective.