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Is Your Software Agreement Airtight?

I find that most clients believe that they have an airtight software agreement and their liability is limited to the contract value. Well, from the perspective of a software copyright attorney, as a general matter they are right, but of course there are exceptions (at least from the perspective of a software licensing attorney). Once of the exceptions is fraud claims.

Fraud Claims: While there are many different flavors of fraud, essentially all of them are based on some type of ‘misrepresentation.’ Under certain strong legal theories no fraud claim/damages should be allowed when there is an underlying contract, but needless to say these claims are made to try to get around the contractual limitation on liability.

SAP is learning a lot more about this issue, as they are facing a fraud claim for over $500 million arising from a $30 million software deal with Waste Management (the contractual price)…yes the claim is more than 10 times the contract value. So even though SAP negotiated their contract well and had it reviewed by their lawyers, they are facing a claim for more than 10 times the contract value. Read more here.

Q: So what can a company do to avoid these claims?

1) Get Involved Early in Customer Problems. What I mean by this, is have someone in senior management work closely with the people on the ground to ensure that this gets worked out.

2) Use your Best People. This is not the time to use junior employees or less experienced sales teams, as by their nature these type of disputes need custom solutions and out of the box thinking.

I bet you that someone high enough at SAP did not get involved early enough in this dispute, as this case could have been avoided and the customer relationship rescued. So remember, your software agreement can’t protect you from every claim, and take care of customer problems early on with your best people.