Enterprise Software Agreements: How to Design Yours!

This is an issue near and dear to me, as I have spent a large part of my career drafting and negotiating enterprise software agreements. However, what I have found is that many growing software companies are trying to figure out how to design their enterprise software agreement, so some thoughts on it (from a software attorney) would/should be helpful.

1) What is Enterprise Licensing? Essentially, most software companies have a licensing model wherein they provide their software to their customers based on some licensing metric (user, computer, device, division of a company, revenue, etc.). This often works well for small and medium size customers, but not necessarily for large customers (enterprise customers). If you think about it, enterprise customers want something more: flexibility, discount/predictable pricing, and ease of administration if they are going to commit to a large license purchase of your software. So long story short, an enterprise software license can mean many different things to different software companies and enterprise customers, but you need to define what it means to your company and to your large customers. By the way, some customers call an enterprise agreement an agreement under which they can purchase software at a discount company wide for a certain period of time. I am not saying they are wrong (I think that is simply a pricing agreement though), but the key here is to figure out what your enterprise customers need or want.

2) Factors to Consider in Designing Your Enterprise License. The first thing I want you to think about is what does your enterprise customer need/want with your software (compared to your smaller customers). As I mentioned above most enterprise customers want (a) flexibility (the licenses are easy to manage from a password or security perspective), (b) discount and predictable pricing (if they commit to your solution company wide, they don't want you to arbitrarily increase their price), and (c) ease of administration (the agreement is easy to administer), but try to figure out if there are other or different needs/wants of your enterprise customer, as every software product's value proposition is unique. Once you have figured out what your customer is looking for, you need to figure out how to price the enterprise software license. This is not easy, but I suggest you try to ensure that you are being adequately compensated for doing these deals.

3) Example. Let's say you license your software per computer, and customers typically purchase 1-5 licenses at a time. Let's also assume that your licenses are tied to each computer via a unique password, and the licenses cannot be moved around. If a large customer wants to make a purchase and asks for an enterprise software agreement or license, what should you do? I recommend you look at the 3 factors above (flexibility, discount/predictability and ease of admin) and then make sure you are being adequately compensated for the deal.  So maybe an enterprise agreement could look like this: 50 computer licenses with open passwords (to use within their company), higher discount per copy  and fixed price for 5 years for additional copies, annual usage reporting (i.e. if they exceed their 50 licenses), and in 5 years the deal dies and reverts back to fixed computer licenses. This is simply one example, but as you can see there are several levers to pull to ensure that their needs are met but you are not being taken advantage of. I think the key here is that you don't need 5 different types of enterprise agreements, as once you figure out what it should look like you can lead with that model (of course you should consider making changes at the request of an enterprise customer and don't forget to keep improving the model as you learn more about the needs of your enterprise customer).

4) What Not to Do. I have seen some software companies simply provide a site or unlimited license as their enterprise software agreement and call it a day. Now maybe this is the right answer for your company, but I suggest you are not being adequately compensated for this type license. The problem I have with unlimited or site licenses, is how do you define the company or site? What happens when the customer is  acquired or merges with another company? You can get into some really complex drafting  what are called 'change of control clauses' to avoid this issue, but I don't think you want that level of complexity (unless the deal is really large). By the way, most large software vendors rarely license on a site or unlimited basis, and if they do it is often a term license. Here is an example of one.

So remember that when you are designing your enterprise software license agreement, you should think about the needs/wants of the customer and only then you can ensure you are being compensated for it. These enterprise agreements are really not that complex, but they do take some time to design (if you want to get them right). I really can't do this subject justice in such a short blog post, but hopefully you got the main thoughts behind designing your enterprise software agreement.

Legal Disclaimer: This post is not legal advice, and is provided for general informational and educational purposes only.

What Does Your Software EULA or Software as a Service Agreement Say About Your Company?

Interesting question. When a software, software as a service or other IT company sends its written software EULA or software as a service agreement to the customer as part of closing a deal, it is really telegraphing a message about the company and its sophistication. As a software copyright attorney, I actually think about this stuff.

The wrong message/impression would be:

1. Is this company for real?
2. This contract seems too complex?
3. I don't understand what they are providing and what we are responsible for?
4. I need to send this to the legal department or to outside counsel?
5. I will read this later; maybe on Friday.
6. It looks like they bought this on the web for $29.
7. I think they wrote it themselves.
8. I am not sure this company knows what they are doing?
9. Is this their first sale?

None of those messages/impressions would be a good thing or help the agreement move through the process.

 

Here is what your EULA,  SAAS contract should be telegraphing about your company.

1. They are serious about this!
2. I understand their pricing/licensing/services model. It is very simple.
3. They seem to be transparent about the way they work and their revenue model.
4. Looks like they know what they are doing.
5. I bet they sell a lot of this stuff.
6. Looks like they have vetted this agreement, and will stand behind it.
7. This looks fair, and I am going to approve/sign it.
8. I don't see any tricks in here.

So, what does your agreement say about your company?

 

Read your agreement and find out, at least before your customer does.

TAKE THIS QUICK TEST: Read this 2 page IBM NDA agreement and see what it telegraphs about IBM. IBM NDA.

Why aren't your customer facing agreements this simple?

SAAS Agreement vs. Software EULA. Which One Do I need?

As a SAAS lawyer, I sometimes run into the issue of "Do I need a Software as a Service Subscription Services Agreement (SAAS Agreement) or Software EULA?"  In other words, what should I start with (EULA sample or template, or SAAS agreement sample or template). It is pretty easy, as it all depends on the primary item provided. Let me explain.

If a company is trying to define their model in their end user agreement and are unsure of the form agreement to start with, they should figure out if there is any software downloaded by the users, or if they are only providing software-as-a-service through a browser. While many companies have hybrids (some services and some downloaded software) I think it should be viewed as what is the company primarily providing.

• If they are primarily providing software through a browser, but there is some software downloaded (think Go-to-Meeting or Webex), then they would need a Subscription Services Agreement, as they really are in the SAAS business.
• However, if they are primarily providing software which will be downloaded, but there are some services provided (maybe support/maintenance/training/some services through the web), then they would need an EULA, as they are licensing their software.
• Also, some models may be more of a true hybrid, with a SAAS agreement for their online subscription service, and then a EULA for the software that will be downloaded and used with the subscription service..

Every software based company should figure out which form of end user agreement they need, as their customers will be asked about it, and they need to have it right!    A few thoughts, from a SAAS attorney on SAAS agreements and Software EULAs.

Have Software Agreements or SAAS Agreements Become Commoditized?

As a software attorney, I actually think about these kind of issues in relation to software agreement templates (EULA templates etc) and SAAS agreements (SAAS contract templates). My short answer is in some ways yes, and other ways no. Let me explain.

There are many websites that provide simple contracts for less than $100, and they could be a great place for a small company to start from. Of course, as an attorney, I would recommend they talk to an attorney before using the contract (to make sure it works for them, is enforceable, etc.). Some would argue that these contracts have been commoditized, and if so, perhaps this is a good thing.

However, I think there is another set of contracts which have not been commoditized and maybe this is a good thing too (complex agreements, agreements which are not self-explanatory or easily understood, and software/IT contracts). While the first few categories are easily understood, I think that software and IT contracts are very unique, and every software and IT company should remember this. In the software and IT world, the contract serves an additional purpose; it further explains what the customer will be receiving (as no tangible item is provided). These contracts play a much more important role (arguably more than any other industry) as they must also communicate, explain and describe what the seller will be providing and what the buyer should expect. For example, I propose that a license agreement for one company should not be used (without a detailed review) by another company as their licensing models may not match (license grant and metrics, warranty terms, support and renewal terms, restrictions, transferability, other unique attributes of their licensing model).

I suggest that in the software and IT world contracts have not become commoditized. I am not saying don't buy one from a site that sells them for $49, but I am saying if you do, have it reviewed by a SAAS attorney who is very familiar with contracts of that type.

Disclaimer: This is for informational and educational purposes only, and is not legal advice. Consult an attorney before making any legal decisions.

End User Agreements are Too Important to Leave to the Lawyers!

Seth Godin did a great job with this perspective on marketing (‘why marketing is too important to leave to the marketing department’) but it triggered something in me (at least from the perspective of a software copyright attorney): Written software and IT agreements are too important to be left to the lawyers. Let me explain.

As a software licensing attorney, I have found that most IT companies or companies have end user agreements provided from their outside lawyers. These agreements look like a corporate type agreement (pretty formal) and are long/way too complex. On the other hand, IBM and Oracle had non-lawyer consultants help their legal departments to simplify and streamline their end user agreements, as they realized early on that their agreements were an impediment to closing a sale (not a good thing). I doubt most IT companies can afford to hire a bunch of consultants to help them with their agreements the way IBM and Oracle did, but what they can do is  not accept such complexity and length in their written end user agreements. They should challenge their lawyers to simplify and shorten these agreements. Remember that lawyers are paid by the hour, so the longer the agreement the better. Do you think a longer agreement is easier to explain to a jury?  I don’t think so.

More to come on this topic, but I want to plant the seed  that you don’t want to put a complex written end user agreement in front of your customer and expect them to sign it!

You can watch Seth’s video here, as it explains this concept a little more.  Link to Video