Software OEM Agreement

Software OEM Agreement

Here are 3 things every software company can learn from SAP being sued under a software OEM agreement. Without going into the nitty gritty of the details of the case, here is a summary of the facts:

  • SAP distributed and sublicensed certain AMC Technology software embedded with a SAP product.
  • When the software OEM agreement expired, SAP tried to provide ‘specific instructions to its customers’ on how to use the AMC software with the new version of the SAP product, when the customers actually could not do this (the OEM agreement specifically stated that post termination SAP could only sublicense the AMC software with the ‘then current version of the SAP software’).
  • SAP tried to argue that its customers could use the AMC software with the new version of the SAP software, but the court correctly said no way.

Ok, here is what you can get out of this case.

1) You Can’t Grant More Rights Than You Have. This is a fundamental part of property law, and actually dates back hundreds of years to when people tried to grant more rights to buyers of real estate than what they (the seller) had (it is kind of common sense too). This is the first example I have seen where this legal concept was applied in the software OEM agreement world, so it is good to see that it is still true (at least in this context).  So remember, you can’t grant more rights than you have, and as the recipient you can’t get more rights than the grantor has.

2) Plain English Matters. This agreement was clear as can be, but SAP missed it. . .  thankfully the judge didn’t.

oem agreement termination rights

SAP tried to argue that the customer had a perpetual license to the software and that this restriction did not apply to them. The court correctly disregarded this argument, and said the agreement is clear on this point… “the then current version of the SAP Software.”   Remember, try to be clear on post termination rights in your software OEM agreements, as judges will read the agreement closely to figure out what you meant.

3) Take Ownership of Your Agreements. When you are negotiating a software OEM agreement (no matter which side you are on), dig in and don’t simply outsource it to your attorneys. The details really matter, and things like what rights are being granted during term of the agreement and what rights remain after termination should be clearly described in the agreement (just like this one).   Remember to take ownership of the negotiations, as the terms of the agreement will matter . . . especially upon termination.

So next time you are on the receiving end of an software OEM agreement or the granting end, remember this blog post and don’t forget to use common sense, as even in the intangible world of software you can’t give someone something that you don’t have!

Here is the actual court order, for you detailed oriented people.

Legal Disclaimer: This is for informational and educational purposes only, and does not constitute legal advice. Contact your attorney for legal advice, which should be provided after review of the facts and applicable law.

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