What You Don’t Know About “Naked Licensing” Can Hurt You!

Ok, ok this is a legal blog, so I am actually talking about naked trademark licensing issues here — a few nuggets for every software or SAAS executive to think about for their software or SAAS partner agreement, SAAS OEM agreement, etc.

"Naked Licensing" is in essence a legal defense to a trademark infringement claim, and you absolutely should be aware of it as the consequences of not knowing can be really grave (aka a big deal).

Ok did you get that part about 'abandonment of the trademark.'

Now that I got your attention, here are 3 things to remember to help avoid this.

1) Don't Let Anyone Use Your Trademarks Without a License Agreement. Hopefully I said that clearly enough, but that is the best way to avoid this bad outcome. The trademark license agreement should (at a minimum) expressly state that any use of your trademarks are subject to your trademark guidelines (i.e. supervise their use of your mark), and make sure you take steps to ensure that your trademarks are used in an appropriate manner with the associated goods or services. You can embed this language in any software or SAAS partner agreement.

2) Remember What is At Risk Here! Think about it, you develop your trademark (maybe your company name or logo) and people associate your business with that name or logo. However, if you don't take certain protective measures when allowing third-parties to use your trademarks you could abandon the mark ( = you lose it).

3) Don't Scare Me With This. Does it Really Happen? Absolutely. Here is a case from November 2010. Long story short, the owner of the trademark rights to "Freecycle" (see above) let other affiliated groups (are you seeing a connection to your business?) use their trademark without a written trademark license agreement, without exerting control over the mark and associated services, and simply said in an email " . . . just don't use it for commercial purposes." That was it. The court found that there was no written contractual control over the mark and no actual control, so the result was that the Freecycle mark has been abandoned (because of naked licensing). What that means is they could not stop a Freecycle affiliate from using the mark in any way they wanted. It does not get any more real, relevant and recent than this folks!

So every software or SAAS company out there should sit up and take notice of this issue, as I know you have trademarks (you need to review your processes for allowing partners, resellers, etc. to use your trademarks). You can easily avoid this outcome, if you understand naked licensing and take measures to avoid it (even if it is not as sexy as it sounds)!

Here is a copy of the court opinion (if you want to read the nitty gritty details).

Resources: Example of Really Good Trademark Guidelines.

Microsoft Trademark Guidelines.

Symantec Trademark Guidelines.

Legal Disclaimer: This does not constitute legal advice, as it is for educational and informational purposes only.

Indemnities: 4 Things You Should Know.

While this may not be one of the most exciting topics, if you work with any type of Software EULA or SAAS contract (or SAAS Distribution Agreement) you will (or have) run into indemnity issues. I thought I would break this down into 4 basic issues you should know when your customer/partner asks you to indemnity them.

Before we get started, as you probably know indemnities are those pesky paragraphs (near the end of the contract) that the lawyers seem to get caught up with.

They usually have wording similar to:

“…x will indemnity, defend and hold-harmless y from all claims, demands….”

So let’s get started.

1) Indemnity = Insurance. As a general matter, an indemnity is the same as an insurance policy, so that indemnity clause in your agreement is as if you are writing an insurance policy for your customer/partner. You are really providing software or a software service, so why are you writing an insurance policy on top of that? Exactly. That is the way you should think about it, as you are providing technology, not selling insurance.

Here is few words from the ‘Insurance Liability Wiki.’

2) Infringement Indemnity. On the other hand, what is typical in the IT industry is to provide an ‘infringement type indemnity’ (i.e. protects your customer/partner if you don’t have the necessary rights under copyright, patent, or trade secret law) to provide the license or access to your technology (that seems fair). I realize that this may make you queazy, but this is pretty much a best practice as the technology vendor should make sure they have the necessary rights to the technology before they provide it to the market place. In all other situations, you need to think a lot harder about this issue.

3) There is No One Size Fits All. Read each indemnity closely, as it could be very broad (e.g. you see words like ‘arising out or related to‘) or very narrow. Remember to talk to your attorney, as most indemnities are specifically tailored/drafted, and there are very few standard ways of drafting them.

4) Two Ways to Pay. I think there are generally two types of payment obligations as part of an indemnity (I am trying to simplify this):

(a) An indemnity where the Indemnitor (company taking the risk) hires the attorney to defend the claim, and
(b) an indemnity where the Indemnitee (company being protected) hires the attorney to defend them against the claim.

The first one is a little more fair as the party that will be footing the bill will hire the attorney after they are informed of the claim. The second one is a lot tougher as if the other party thinks they have a claim covered by the indemnity they could hire their own attorney and send you the bill.

So long story short, each indemnity is really unique and you need to read them closely, and at least understand the basics about them. Oh yea, it is always better/advisable to have your lawyer read them, as this is one of the most complex (maybe the most complex) legal contracting issues out there.

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.

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.

What is Up with Signing Contracts Online?

So what is up with signing contracts online? Well, what is up is that it is becoming mainstream really fast, and is a great way to speed up the process of having written contracts signed (whether a written SAAS reseller agreement or written software EULA). You can now skip the faxes going back and forth, mailing of contracts for signature in duplicate, etc.

So here are some thoughts:

1) Give it a Try. Maybe try it first for NDAs/Confidentiality Agreements, Reseller Agreements, EULA, Employment Agreements, and other more routine contracts (probably not the right thing for your signature when you sell your company).

2) Different from Clickwrap Agreements. These type of electronic or online signatures are fundamentally different from the online or electronic clickwrap type agreements (you know, the click to agree agreements we all agree to). These online signatures are supposed to take the place of your written signature on a written contract.

3) All the Vendors Seem the Same. It looks like there are 3 main vendors, EchoSign, DocuSign and RightSignature. They all look the same to me, so maybe pick the one with the right: (a) workflow process, (b) price point, (c) features, and (d) easiest interface.

So give it a try, as it could help your employees become more productive while ensuring you get your contracts signed. Just a thought from a software attorney.

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

Google Recently Changed Its Trademark Use Policy for Software Reseller Sites. Did You See It?

Whether you resell your technology using a software reseller or SAAS reseller agreement, take a read. Until recently, if you were a reseller or an informational website you could not use the trademarks of the manufacturers you represent in the ad text of your Google ads. This kind of made sense, as it is not your trademarks. However, Google did a little more thinking about the issue, and revised their Trademark Policy  (probably as a result of the fair use doctrine).

There are still a few rules though (summary below), before anyone can take advantage of this new policy:

1. you have to be either a:

• reseller,
• informational site,
• maker or reseller of components parts, or
• seller of compatible components or parts related to the trademark.

2. the product or service from resellers must be on the:

• ad's landing page, and
• clearly available for purchase

So if you are an ISV don't be surprised if your resellers show up in Google ads with your trademarks; and if you are a reseller or informational site you may be able to use the trademarks of the manufacturers you represent in your Google ads. Remember to talk to your trademark lawyer with any questions though.

 

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