Which Form of Software Distribution Agreement Do You Need?

I often get the question of which type of software distribution agreement do I need (i.e. software reseller agreement, software distribution agreement, software referral agreement or software oem agreement). While these agreements could be structured differently, here are some good general rules (i.e. 80% true). By the way, this is generally assuming the software is distributed electronically, and not in a box/package.

Q) Who is Paying the Software Vendor?

A1) End User – Yes for Referral Agreement

A2) Partner – Yes for OEM, Distribution and Reseller Agreements

Q) Who is Entering into the License Agreement with the End User?

A1) Software Vendor – Yes for Distribution, Reseller and Referral Agreements (i.e. license resale

A2) Partner – Yes for OEM Agreement (i.e. sublicensing the software)

Q) Who is Distributing the Software to the End User?

A1) Software Vendor – Yes for Distributor, Reseller and Referral Agreements

A2) Partner – Yes for OEM Agreement (some Distributors do this)

Q) Who is Providing the License Keys to the End User?

A1) Software Vendor - Yes for Distributor, Reseller and Referral Agreements

A2) Partner – Yes for OEM Agreement (some Distributors do this)

This is just a simple quick checklist when you are deciding which agreement to start from.

Disclaimer: This is provided for educational and informational purposes only, and is not legal advice. Talk to your attorney for legal advice, as they should consider the pertinent facts and applicable law before providing any advice.

3 Things To Consider In Your Software Referral Agreement

While there are many different issues to include in a software or software services referral agreement (SAAS referral agreement), here are a few practical things to consider:

1) What is In and Out. What types of referrals will  you pay on, and what types won't you? Don't forget excluding transactions that are already in flight or that don't close within x amount of time. What about extensions of the transaction? Be super clear on all these issues, as this is the key part of the agreement (quite frankly most of the disputes I see are related to these issue).

2) Payment/Reporting.  Do you want to pay after each transaction, or on a monthly/quarterly basis under a report? Also, don't forget to address credits and returns, and that you have to be paid first (before you pay them).

3) Simplicity/Plain English. Keep this agreement simple, and short, as you want to make sure (a) your partner understands the agreement, and (b) your internal sales/channel teams understand it too. Any confusion between these two groups on referrals could create a lot of disagreements.

Just a few thoughts from a software attorney.

Disclaimer: This is provided for educational and informational purposes only, and is not legal advice. Talk to your attorney for legal advice, as they should consider the pertinent facts and applicable law before providing any advice.

Did You Know the US Supreme Court Changed Software and SAAS Distributor – Reseller Law in 2007?

I bet you missed it, but I always look for the software  law perspective of these cases (how does this apply to software/SAAS reseller agreement, software/SAAS distribution agreements and software/SAAS oem agreements). The law used to be that when someone resells your product you could not tell them that they could not resell the product below a certain price (i.e. a floor). You could  suggest that they hold to a certain price but you  could not mandate the floor price. Violating this rule used to be a big no, no. By the way, this explains why you often see 'Suggested Retail Price' on merchandise tags. In legal jargon, this is called 'Resale Price Maintenance.' To cut a long story short (and it is a long story), 96 years of law was changed by the US Supreme Court in the 2007 decision in the Leegin case.

Essentially, manufacturers can now influence resale prices in certain situations. So what are those situations? Well the legal standard changed to what is called a 'Rule of Reason' from a 'Per Se Rule.' Without boring you to tears, what this means is it depends on the facts and circumstances, effect on competition, competition within the channel, etc, etc.

Bringing this down to reality and specifically to the software world, I have often heard about software resellers free loading and not providing the value-added services they are required/supposed to provide. Then at the last minute one of these resellers underbids a project that one of your other resellers has been working on for months (of course this is the one that does not free ride and provides lots of value). Prior to this decision, there was not much a software vendor could do; but that has now changed.  As a general matter, if you are selling software that requires significant services or well trained value add resellers, etc. then I suggest there would be a compelling reason to say that under the change in the law you could mandate that the free riding resellers could not bid below a certain price.

This area of the law is pretty (actually very) tricky, so I would not institute any kind of pricing plan or change in pricing action without talking to an attorney that specializes in antitrust matters first. If you are a software based company, you may want to see if they can take advantage of this change in the law as part of your channel strategy. It often amazes me how often changes in the law don't trickle down to the software world, so don't let that happen to you.

If you want more details, read these articles:   Article 1 Article 2