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TWoTW for July 12, 2009

2009-07-12T13:55:59Z

This Week on The Web. Interesting articles, stories and thoughts from around the web this past week that are related to contracts, licensing, negotiation or law:

AdamsDrafting

Corporate Insurance Blog

Insurance Coverage for Cyberattacks and Denial-of-Service Incidents

E-Sourcing Forum

Firstdrafter

Federal government is increasingly wanting unlimited rights in data, say commentators
State law peculiarities – things to keep in mind in negotiating a choice-of-law clause
Vendor sends its standard T&Cs after the deal is struck by e-mail – and later finds the T&C protections aren’t part of the contract
An early-neutral-evaluation clause can help keep contract disputes out of court and protect business relationships

Madisonian

Settle It Now Negotiation Blog

The (non)billable Hour

The Licensing Handbook Blog is the companion site to the Software Licensing Handbook. Covering licensing topics on a regular basis, Jeffrey Gordon attempts to offer advice, add humor and sometimes even a bit of wit to a practice that most people find abhorrent – namely, reading a contract from start to finish.

What You See is NOT Always What You Get

2009-07-09T02:19:38Z

Several months ago, I posted the backwards paragraph to demonstrate the immense power of the brain to fill in gaps or to make sense out of the nonsensical. Understanding this brain functionality is important when you’re trying to communicate with others because of this difference between reality and perception.

But it’s not just words (the parietal lobe) but also the occipital lobe (colors and shapes) that can create this distortion.

So, what does all of this really have to do with contracts? Well, besides communicating with others, the problem I’ve seen in the recent past has been an increase in the number of missing words in contract templates. Now, I’m not talking about significant words – “liability” isn’t absent, for example. It’s an article of speech – an “an”, “a”, “the”, etc – that’s forgotten… or a word improperly capitalized. And your brain simply fills in the gap(s).

Of course, it might not be a big deal. But can you see that there is a difference between “the Services” (with a defined term), a service, or a Service? The Services could mean a group of behaviors, “a service” could simply be a single service component of the Services… or it could be a service separate and apart from any of the services. Which means that “a Service” could be one of several behaviors, but not all of them. The key here is learning to read in a different mode. Similar to the difference in reading a contract compared to reading a fiction novel, copy editing is a completely different style designed to produce a different result. Mastery of these different styles will help you become a better contract drafter and reviewer.

California Presumes Liquidated Damages OK

2009-07-07T21:39:51Z

Yet another reason to NOT choose California as your governing law selection. [Thanks to D.C. for the link.]

Delivering Perfection

2009-07-06T13:36:00Z

In thousands of meetings over the years, I’ve been privvy to a very common conversation. It’s a discussion of deliverables – what is needed, what is wanted, how much money is available to pay for the needs/wants, who can create the best solution, etcetera. Regardless of the actual nature of the deliverable, the basics are always the same: We want what we want, when we want it, at the least total cost. The end result, however, varies widely on a huge number of factors. One of them is the quality of the “spec” – the document describing what’s being created; and another is the quality of the group performing the work.

The deliverable is never perfect. At some point in the process, either the vendor makes errors or the buyer doesn’t adequately describe what they want (or consider all of the various contingencies). The net result is payment for something that doesn’t do what you hoped it would do – or going over budget for the fix. So how do you deliver perfection?

Well, the folks who write the software that runs NASA’s Space Shuttle have it about right. It’s a four-part process that keeps their code running virtually bug free for the last 20 years, and like the Five Fundamental Skills for Effective Negotiation, it’s not (pardon the pun) rocket science:

The product is only as good as the plan for the product.
The best teamwork is a healthy rivalry.
The database is the software base.
Don’t just fix mistakes – fix whatever permitted the mistake in the first place.

This is a fascinating story about a group of 260 people working normal hours and achieving extraordinary results (the last 11 versions of the software have only had a total of 17 errors). Equaly important from a stats perspective are the specs. For the current application (420,000 lines of code – for comparison’s sake: WindowsXP has 40,000,000 and MacOSX has 86,000,000), the current spec is 40,000 pages long.

Now, granted, many of the projects your teams are working on aren’t operating systems. But how many of you have seen a spec document that’s even more than 100 pages? How about 50? Very few. In fact, I am used to seeing spec documents of less than 5 pages – 10 at most. It’s no wonder that there are errors.

I also don’t believe that many of us will be effective in getting our development teams to change, either. But if they only got a little better, the cost savings would be immense. So share the article with them from a human interest perspective (ie: don’t push an agenda). The worst that happens is you start a dialog.

Trust Revisited

2009-07-06T17:23:22Z

Two months ago, I wrote that you can’t write trust into an agreement. I explained why, but I didn’t go on to discuss how you could create trust between the parties.

Today, the folks over at E-Sourcing Forum provide a few good ideas. Learn them well, grasshopper.

Recovering from a Disaster

2009-07-06T22:08:25Z

I love to play a simple, yet addictive game called Bejeweled on my Palm Treo. Recently, Pop Cap Games – maker of Bejeweled – released it on Facebook, too. It’s free to play and hey, they even award prizes based on collective team scores earned every week. So not only would I normally play because I love the game, I play to perhaps win a prize, too. What’s important to note, though, is that I don’t pay anything to play. I don’t pay to access Facebook (at least not yet) and I don’t pay to play Bejeweled.

Yesterday, there was a fire at the Seattle-based hosting facility which Pop Cap uses to host their games. It apparently brought several organizations to their collective knees – hopefully no one was hurt in the blaze. Bejeweled, though, was down. Pop Cap owed no explanation to anyone – there were no paid users, no SLAs, no force majeure. But their response to the user community was exactly what I would expect from large corporate vendors, yet never receive.

First, Pop Cap posted a notice on the Bejeweled page stating: 1) an apology for the outage! (remember, they didn’t cause it); 2) what happened to cause the outage; 3) reassurance that each users’ data was safely backed up and would be restored when the servers were back online; and 4) an estimated time when the game would be available again. Second, today the game is back online. You still see a notice about what happened and why things will look a little funny with your friends’ scores for a little while. And they apologized again.

Generally speaking, discussion of force majeure in the commercial contracting world (the suspension of contractual obligations as a result of an unforeseeable event) is usually fairly quick and pretty painless once you know the basics. Both sides usually only spend a maximum of 30 seconds discussing this section of the contract and thus if anything actually does happen that would require invocation of the provision, many are flummoxed about how to handle it. In fact, some even forget to invoke – they simply look to Service Level Agreements to see if there’s anything that can be done to recover from the other side.

Part of this could be easily solved if enterprise software vendors would follow Pop Cap’s lead in terms of how they handled downtime. But again, generally speaking, they don’t. They want the customer to have to report a problem; the customer to have to call in for status updates on fixes; and almost never explain why there was a problem in the first place. Oh, and I’ve never heard a vendor apologize, either – which, as any psychologist will tell you, is really easy and goes a long way to assuaging feelings.

So, take it from Pop Cap – who with millions of probable users (I don’t have an exact count, of course) and none of them paying a cent, managed to just make me want to go buy something from them simply because of how they handled a problem with a free game and without having any contract tell them how to behave, either.

Repetition

2009-07-03T22:46:27Z

In a strange twist of irony, I’m going to tell you that repeating something doesn’t make it true by pointing you to a 2006 post I wrote about Repetition.

It also appears that I think about this topic around holidays, too… but that’s irrelevant. The real reason I find this important is the recent internet slowdown caused by the massive use of social media tools to report Michael Jackson’s death about 30 minutes before he actually died. It wasn’t important that he was dead or alive, it was important for someone to be the first to report it (this happened again in New Zealand later that day with respects to Jeff Goldblum – thankfully, he’s alive). And while Jackson eventually did die, it wasn’t because the messengers made it true. The actual result was that people copied the message over and over, spreading false information. Like most rumors, it traveled like wildfire. Facebook, Twitter, MySpace, the blogosphere, Google, Yahoo!, etc… each experienced massive delays.

Moral of the story: remove repetitious language from your agreements. Oh, and don’t twitter as truth what you don’t really know to be true.

Have a Happy Fourth of July (whether it’s your Independence Day or not)!

WhichDraft.com Document Assembly Tool

2009-06-30T11:30:47Z

I’ve recently been focused on the wealth of new contract management tools that have been released since January 2009. We started with a tool to help you manage the finished product, then a tool to help you redline your documents. The missing product for this trinity is one for document assembly. WhichDraft makes a huge step to closing this gaping hole.

The WhichDraft tool is based on the concept that templates, while useful as a starting point, need to be modified based on a situational analysis of the deal. They have created several forms (almost 80 of them!) to start from, and then use the wizard concept to guide the end-user through the customization of the form for the particular deal at issue. If they don’t have the form you need or want, you can even create a free account and develop your own forms and wizard-ize them, too. If you’re familiar with the old DealManager tool from CMSI and/or Procuri, WhichDraft will be 100% intuitive – but this isn’t your parent’s DealManager too, either.

The simple elegance (combined with its $0.00 cost) of this solution makes it an obviously useful tool to add to your contract management aresenal, especially for those folks who don’t have easy access to someone skilled in contract drafting. I also see great potential for a contract or legal department’s creation of their own repository of custom templates with options built-in for the various legal-language swap-outs that are already legal-department approved.

Of course there are some weaknesses – the most important (and one common to any document assembly tool) being that templates used with this system have to be written in a way that makes language-swap possible. The limitation of the current WhichDraft wizard process appears to be that a single question is tied only to a single paragraph/section of the contract. So if you want to pull out ALL of the services-related language in the deal, you’d actually have to create a services-less template because a single question in the wizard couldn’t remove all of the associated language throughout the contract. This isn’t a tool-killer, as some people love having clean templates in a variety of formats – and WhichDraft’s templates are already built in this manner. But this could limit people intending to upload their own templates into the tool.

I also advise caution in using WhichDraft’s template language as a default starting point for any deal. They’ve structured dozens of basic templates, but again, your contracts or legal department might have drastically different language interpretations, desires or phrasing. So if you already have template documents, make sure that you log-in to the system to create your own WhichDraft templates. Additionally, in talking with WhichDraft’s co-founder, Jason Mark Anderman, he fully supports WhichDraft’s use as a productivity enhancer, not as lawyer-replacement, recognizing the inherent risk of using any template as a one-size-fits-all solution (even with wizard capabilities).

Overall, WhichDraft makes a great leap forward in terms of usability, availability and flexibility. I expect future versions of this tool will simply add onto its existing strengths and gradually wear down its weaknesses, too. Thanks to WhichDraft for providing the contracting community with such a wonderful tool!

Clear to Sell User Data

2009-06-29T23:56:31Z

When Clear announced their intent to terminate operations, the big question was: “What’s going to happen to each users’ private data (things like, um, fingerprints and background checks)?”

Now we know. They intend to SELL IT! This is why I harp on making sure that you have the proper provisions in your contract(s) for confidentiality, indemnification, information security and limitation of liability

To Clear’s credit, they are saying that they’re going to continue to comply with their pre-existing privacy policy – and that the data can only be sold to another TSA-approved traveler program. But what if that program is run by an organization you wouldn’t want to have your personal details?*

Interestingly enough, however, this violates the terms of that agreement (as it existed when I pulled it from flyclear.com on June 29, 2009) – boldings are mine:

3. ADDITIONAL LIMITATIONS ON APPLICANT AND MEMBER PERSONAL INFORMATION
A. We do not sell or give lists or compilations of the personal information of our members or applicants to any business or non-profit organization. We do not provide member or applicant personal information to any affiliated or non-affiliated organizations for marketing.
B. None of the information that we collect may be used for any purpose outside the operation and maintenance of the Clear Services.
C. We would only disclose personal information about members or applicants if required to do so by law or legal process.

The termination of operation might be considered a “legal process” – but the way the language is written, 3.C. would not be valid as a result of the company’s dissolution. Thus, they’re limited to 3.A. – which clearly states that they won’t sell the information to “any business.” I wonder what the chance is now that they’ll only sell it to someone who’s TSA-approved.

*Not that the government doesn’t now already have your information as a result of the background check. I’m just sayin’.

Warranty Elephant

2009-06-28T02:48:17Z

Even if you have the Novatus Contracts system, warranties for your one-off hardware purchases (software, too) are not easy to remember. Typically, you don’t even get more than the warranty card that comes in the box. When your hardware breaks, do you know what the warranty will cover? Probably not.

Neither did the creators of Warranty Elephant. This simple (and free) service allows you to record your purchases along with their associated warranties. No more forgotten warranties, no more misplaced warranty documentation. Granted, this system was developed for personal use, but here are a few commercial uses I’d find valuable:

fleet warranty management (ie: if you have a bunch of vehicles, reminders about when the transmission is about to come off warranty is helpful)
one-off hardware or volume hardware that doesn’t come with a more robust specific warranty (such as TVs/monitors, laptops, Aeron chairs)
items you used to think were cheaper to simply replace than to monkey around with warranty info (keyboards and mice)

Insulting Opening Offers

2009-06-26T22:47:16Z

Thanks to Victoria Pynchon for the link!

Pricing Issues

2009-06-23T01:29:12Z

In the contracting duality of terms and pricing, I spend the bulk of my time here talking about terms. The reason is generally simple – terms are fairly common across contracts. Pricing, on the other hand, appears deal-specific and too different to really discuss in detail. I simply can’t tell you that a 30% discount is what you should be looking for all the time. Sometimes 10% is good (for certain vendors) and sometimes 80% is good (for other vendors). Without violating various confidentiality provisions – and without knowing other specifics about a particular deal (such as its size, duration, etc) – I’m a little boxed in. But I did realize that there are a few things you can learn about pricing which will help you, regardless of which side of the fence you’re on.

First, you need to go read Joel Spolsky’s excellent article: “Camels and Rubber Duckies“. This will give you the starting point for understanding how pricing should be created. Eric Sink uses a similar breakdown to understand the economics of how software is priced. Next, you need to understand the four basic ways software is licensed. This article by Erik Keller from 2007 in Manufacturing Business Technology is a bit dated, but hits the fundamentals. And even within the SaaS model (and, in fact, the traditional model), there are different metrics upon which the licenses can be measured. Check out this optional article by Jason Rothbart from January 17, 2009’s ReadWriteWeb.

So armed with an understanding of how software is priced, we then need to move onto maintenance and support. Let’s start with the basics from this 2006 Information Week article (still relevant data). What we’ve got these days is a system in which we expect to pay a base fee for the license plus an annual support fee… or we pay the leasing/SaaS model of “license renewals” for each year of use. Regardless of how you slice it, there’s an annual fee component to the deal.

Forgetting about the tax implications of mandatory maintenance in many jurisdictions, I instead want to focus on a very specific pricing issue – the increase. Yup, all of this build-up and what I really want to talk about is the language in your various license agreements and maintenance documents that allow for increases in license and/or maintenance fees year after year (you need to understand how license fees are created to really dive into increase language). This is a hidden gem for vendors and is often overlooked by licensees, simply because people don’t think about its effect on price (because it’s an increase on future pricing and not today’s pricing, it’s sometimes not deemed relevant or worrisome). I believe that license and maintenance fee increase language is dangerous at best and disastrous at worst. Here’s why.

Assume for the moment that you’ve paid $1,000,000 for your license and that you have a 20% annual maintenance fee. There’s no more “warranty grace period” so, interestingly enough, the vendor actually wants $1,200,000 that first year. Well, to start, Vinnie Mirchandani over at deal architect will tell you that maintenance is overpriced. I agree. For $200,000, I would expect at least 1/5th the value of the license to come back to me that first year in maintenance and support. In other words, is the software SO BAD that it requires 4,000 hours of support by a $50/hour technician for that year? I hope not. Or, alternatively, are you getting a 20% increase in features and functionality in the next release of the software that year? My guess is that the answer to both questions is “no”.

So 20%, on its face, seems pretty unreasonable from the get-go (you can also just think about it in terms of re-licensing costs… do you want to have effectively paid to re-license the software in 5 years?). Now let’s factor in the increase. These range from 3-15% in most license templates today. Even at 3%, that would equal a $6,000 increase in the $200,000 fee from Year 1 to Year 2 (at 15%, that increase would be $30,000). The most common rationale given for increases is a cost-of-living (economic) excuse for the support people. The second most common is the same argument, only this time, it’s the cost of goods and/or materials. (My personal favorite counter argument is to agree that pricing should be tied to the economy, and then re-write the language so that “the pricing changes based on the CPI-U All-Items percentage for the prior year”. This allows it to actually go down. A savvy vendor won’t ever allow this. But then their excuse evaporates, too.) Thus, I’ve had to concede increases in many cases. I’ve even said before that for 3-5 year deals, I try to get increases removed for the term of the agreement (it’s the trade-off for a long-term deal).

But what about increases not tied to the economy, rather the simple cost of doing business? Should customers be saddled with the expenses related to having to change a product because the vendor’s industry is regulated by the government? Should the end-user, mid-term on a contract, be expected to pay for changes resulting from something completely outside of the customer’s control? I’m thinking specifically in the telecom industry (and others) – where federal regulations that result in fees typically find themselves trickled down to the customer. I’ve said it before and I’ll say it again… the telecom vendors don’t have to pass along the fees. They could pay them themselves. But they don’t. If you’ve ever seen a line-item for cost-recovery fees, that’s what we’re talking about.

So the question is – should you accept these pass-through fees? Or, more specifically, should you accept increases in these pass-through fees? I can understand that there is an economic argument (as above)… that it’s an increase in cost for something you thought was fixed or sunk before the contract was signed. But isn’t it just a risk of doing business in any particular industry? Don’t we, as automobile owners, for example, take the risk that gas prices are going to increase or that we may lose our jobs tomorrow? And that if we decide to buy a car today, we accept those risks and have to deal with the consequences if the situations change? Why should I have to protect not only myself, but also my vendors, from the risks (and costs) of doing business in their industry?

License Resale

2009-06-23T01:30:59Z

Vinnie Mirchandani at deal architect pointed out a Ray Wang article on the resale of unused licenses. My thoughts are in the comments on Ray’s article. But generally speaking, regardless of what Ray suggests, you can’t do it in the US (or the rest of the Berne Convention countries) under most licenses which have express prohibitions against it (you can almost always contract away your rights).

And, even if you could, your organization probably doesn’t have tracking enough to make it possible – just remember that if you overuse your permitted license count, chances are there’s another provision in your license that allows the vendor to charge you (perhaps at non-discounted pricing) for the overage.

What I DO like about Ray’s suggestion is that idea that you should try to negotiate for a recapture of maintenance fees on unused licenses. If you can’t resell them, the least you can do is take an annual count and only pay maintenance on the ones you’re using. There is, of course, trouble with this thought, too – as there are some vendors that used to allow this (the last one I remember was Autodesk). But the trouble is that you can get into a situation where you only upgrade SOME of your licenses to the current version because not all of them are currently covered by maintenance and the upgrades provided under such program.

Caulfield on Copyright

2009-06-23T01:32:37Z

Madisonian pointed me towards a recent decision by the US District Court in Manhattan regarding a potential satire/parody of JD Salinger’s Catcher in the Rye.

Granted, this has nothing to do with software… but it has everything to do with copyright. So it’s still applicable.

On the Fastrack, June 19, 2009

2009-06-19T15:18:43Z

I’ve mentioned before that there are a lot of great comics out today that, every once and awhile, touch on contracts and/or negotiation topics. On the Fastrack is another:

(Click on it to see it full-sized.)

The current economic situation is encouraging many organizations to reconsider their current contractual relationships. Contact me before your opponent does to find out how to make the most of your renegotiations. The Licensing Handbook Blog is the companion site to the Software Licensing Handbook. Covering licensing topics on a regular basis, Jeffrey Gordon attempts to offer advice, add humor and sometimes even a bit of wit to a practice that most people find abhorrent – namely, reading a contract from start to finish.

ALI Approves the Principles of the Law of Software Contracts

2009-06-20T02:29:58Z

As I mentioned a few weeks ago and now recently reported by Concurring Opinions, the American Law Institute recently approved the final version of the Principles of the Law of Software Contracts.

If any particular state adopts these rules, I will probably recommend what commenter Sean Hogle recommended – the addition of yet another disclaimer.

Interesting Tidbits

2009-06-19T12:20:36Z

I’ve not done this before, but given that I just got off vacation and have an inbox that would scare most people, I thought a few tidbits of things passing my desk might be of interest to you:

The Ideological History of the Supreme Court of the United States

A White Paper on Insurance Coverage for Cyber Security Losses (e-mail required)

The Applicator on “Chiseling on Demand”

Thirty Interview Questions You Can’t Ask and Thirty Sneaky, Legal Alternatives to Get the Same Info (hat tip to D.C. Toedt)

Keeping Track of Your Stuff is Easy with a Good CMS

2009-06-10T22:02:04Z

D.C. Toedt over at On Technology Contracts posted a recent article about keeping track of Insurance Certificates. He relays a great story about the importance of asking for them, but more importantly, being able to produce them when needed.

This is such a simple thing to do when you have a good Contract Management System. It’s merely another document you’d upload and track. Heck, Novatus Contracts even allows you to create event notifications for certificate renewals. Need to remember to ask that it’s expiring? No problem – the system will automatically send the alert to the vendor (you can get cc’d if you wish) asking for a new one. It’ll even take it one step further. If you don’t “close out” the event after a certain date (such as when you receive the new certificate), you can re-route the alert to you (or whomever is in charge of managing that vendor) for handling.

Of course, this is also available for any other supporting documents you want to include or for any other trackable metrics (milestone due dates, payment dates, etc).

But you have to have a system that can handle it. What would you rather have: the mild expense of a good contract management system? Or the exhorbitant expense of an unexpected and uncovered personal injury claim? Yeah, I thought so. Tell Novatus I sent you or request information here.

Web TOS Amendments

2009-06-11T12:01:27Z

Eric Goldman on “Amending this Agreement whenever we want” (the Harris v. Blockbuster case from earlier this year). Dead on, as usual, so I’ll repeat his mantra here: “STOP PUTTING CLAUSES INTO YOUR CONTRACTS THAT SAY YOU CAN AMEND THE CONTRACT AT ANY TIME IN YOUR SOLE DISCRETION BY POSTING THE REIVSED TERMS TO THE WEBSITE.”

Audit Surcharge

2009-06-09T12:31:44Z

Sherry Gordon (no relation) over at Spend Matters wrote yesterday on the topic of suppliers charging customers for the privilege of auditing. No, we’re not talking about just covering the costs of the audit itself, we’re talking about a surcharge on top of the auditing costs – a fee to the supplier for the burden of auditing. Ms. Gordon’s article was focused around a survey in the biotech/pharma industry which provided some interesting (but barely statistically significant) insights into auditing and whether customers would entertain the thought of paying a surcharge.

Once again, however, a lot of this issue can come down to a well-worded contract that spells out the costs, frequency and burden of the audit. My template language typically says that the party requesting the audit has to pay for it (unless a major discrepancy is found – especially around license usage), and that the audit has to be performed after prior written notice (usually more than 10-15 business days in advance) and at a time that’s mutually convenient. I suppose the “mutually convenient” language could allow for some wiggle room – some of the survey respondents said that they had received push back to audits in the form of delays, with suppliers saying that all slots for the year had been taken. But generally speaking, this overall language should prevent the supplier from charging you for the privilege.

Another interesting wrinkle noted by Ms. Gordon’s other referenced article is the practice of a supplier offering an existing audit up at a cost to the other party. Actually, this is probably not such a bad idea – again, as long as you discuss the practice beforehand and work out a few points for clarification. These points would include the cost of the purchased audit, the name/quality level of the auditing firm, and responsibility for failures of audited processes/procedures/etc because the selected auditor wasn’t as good as hoped. In other words, paying a fee to have access to an audit already completed isn’t a bad idea. It saves time and should be EXTREMELY cost effective (ie: I would ask them how many customers they have that will get the audit report – ‘x’ … and then offer them 1/x of the actual cost of the audit). But my real concern is that they would use Joe’s Auditing Shack to perform the audit – and that the quality wouldn’t even be worth the 1/x cost.

Oh, and just in case you were wondering… I would still want to know what any customer was going to do with an audit finding. In many more cases than I would like, it ends up being treated like source code escrow or annual financial reports – an insurance policy that has no actual value and isn’t even reviewed by anyone on the requesting side.

EFF Announces the Terms of Service Tracker

2009-06-05T01:08:31Z

This is perfect and absolutely wonderful. Too bad they’re not tracking more.

Interesting Contract Terms

2009-06-04T21:43:35Z

If you’ve ever talked with me for more than a few minutes, you’ll discover that I’m a huge Disney geek. I love the movies, of course… but the Parks are my favorite. I’d live at Disney World if I could… and apparently, I’m not the only one. While doing an online early checkin today, here is an excerpt of the terms I got back from the Disney Company:

Neither I nor any member of my party occupying any resort accommodation have/has any intention of making, and will never make, this resort accommodation a legal domicile or principal dwelling. My/our legal domicile is and shall forever be outside the Walt Disney World Resort.

Too funny.

UCITA redux

2009-06-03T14:05:29Z

Ever wonder why you spend the bulk of your time inserting contract language for this warranty or that limitation of liability… only to get to the end of the agreement and then disclaim a few large bodies of law, such as the UCC or UCITA? If you’ve not had the pleasure of attending law school, do you know what the UCC really is – how it came to be the guiding force behind commercial transactions? Would you be shocked to learn that UCITA is deemed by some states to be so awful that they’ve enacted so-called “bomb shelter” legislation so as to prevent its application within its borders?

I won’t bore you on the whole history of the UCC, or UCITA for that matter. What you need to know is the basics. These two bodies of law are “models” – written by extremely gifted legal professionals and designed to “harmonize” behavior between the states. This is important because where Federal law doesn’t tread, each state can act independently. When commercial transactions are involved, Federal law perks up and starts to notice, as the Commerce Clause of the US Constitution tries to keep commerce flowing between and among states. The Commerce Clause is the reason why UPS or FedEx can ship from one end of the country to the other… and why you don’t have UPS-Indiana competing with a UPS-Illinois. But states don’t like the Federal government leveraging the Commerce Clause on them – so they try to work out basic rules that can apply to transactions uniformily. Hence the “U” in each of the above two models. It stands for “Uniform” – with the intent that each state (perhaps with slight modification) will enact a form of the model laws so as to create a smooth playing field when dealing with issues that involve more than one state.

Commerce isn’t the only playing field of course (criminal law, for example, is another area where folks attempt harmonization). But it’s a biggie. And commercial transactions involving software have somehow seemed to be confounding for quite some time. As better explained here, the UCC was modified in the 90’s to try to include software (the UCC was originally written for hard goods). That really didn’t work out so well, and they tried again with UCITA. For a variety of reasons (most notably, the feeling by buyers that UCITA was severly biased towards software publishers), lobbying efforts were successful in blocking the passage of UCITA in almost every state – and, as noted previously, several states even passed laws which prohibited UCITA’s application in their state. It was seen as one of the largest failures of its kind.

But the American Law Institute doesn’t seem to know how to call it quits. They’re trying again with the release of the Principles of the Law of Software Contracts. As I understand it, Principles are less than models (ie: no “U”). However, I’m just not sure that they’re even needed now. Software licensee’s and licensor’s have been chomping at the contractual issues now for almost 40 years. I don’t believe that the Principles are necessary – and by the time they’d even gain traction, some new software licensing model will invariably come out and introduce some wrinkle not previously covered by the existing Principles.

So while I applaud the ALI for working on this effort, I just don’t know that it’s worth their time. Because remember, even if these Principles are followed by someone, they don’t have to be (they’re not designed to be enacted into law, merely serve as guideposts). But even if they WERE law, they can be completely disclaimed. Which means that panicky articles like this are also not really true.

Data Breach Suit Targets Auditor

2009-06-02T15:29:38Z

Oh boy. This is gonna’ be really interesting. If auditors are held liable for their audits (method and/or results), the rules of the game are about to change.

Don’t Pay for Enterprise App Maintenance

2009-06-01T12:58:33Z

I completely agree with David Dobrin. It’s hard to convince people to do it, of course. But read his logic. 1/200th. I think that is about the right threshold – it might even be a little low (my life insurance policy is about 1/500th… my car is about 1/166th – but doesn’t take personal injury into account… my home is about 1/1600th).

Hmmm… the more I think about this, the more I think it would be really easy to convince my clients of this. Anyone have a counter argument?

My life… in real world situations

2009-05-29T19:59:22Z

You’d think this wouldn’t be how it sounds… but they’re pretty dead on.

Baseline Partnership Announced

2009-05-28T23:28:49Z

As others have been, I’m very interested in technologies which can improve the lives of contract negotiators, purchasing managers and other folks engaged in the process of contract review. Dozens of software packages have been released in the last few years which purport to help ease that process. I’ve played with many of them – most end up being focused on document assembly. What I’ve been looking for is a tool that helps when I’ve got a non-standard agreement and want to quickly compare it to my standard preferred language.

This is usually a highly choreographed event. I start with needing a 22″ monitor so I can see two documents side-by-side at 100%+ size (my eyes are getting old). Then, with the proposed agreement on the left and my template language on the right, I systematically move through the proposed agreement and bounce around my template to find the matching sections. I read the proposed language, consider its phrasing, see what can be kept and how I can make my preferred language work without appearing to bloody up the proposed agreement too badly. I redline the proposed agreement accordingly and then turn it back around to the other side. Depending on the length of the agreement, font size and other issues, I typically move at a pace of about 4-8 pages per hour for the complete process.

When I first heard about Baseline, I was skeptical. Baseline Solutions advertises it as a document review and knowledge management tool. You upload your preferred language (the baseline information) and then you can bounce any other proposed agreement off your preferences. The software uses proprietary algorithms to review the wording and match the sections. It looks for common phrasing but also appears to recognize intent. Frankly, I’m not sure how it works, but it does.

After a few seconds, the system returns to me a Word document with track changes turned on showing changes to the document corresponding to my preferred language. The result is that the first review of my prior two-documents-on-the-screen-at-the-same-time exercise is accomplished in a few seconds. The basic review is complete – now I can spend my valuable time reviewing the unique contract issues. I’ve just saved time and produced a better document.

In the first iteration, Baseline was focused exclusively on NDAs, as they’re seen to be the most static of standard agreements. But the newly released Baseline product tackles software licenses and services agreements as well. Added into the product now are two new features, both of which Licensinghandbook is proud to participate. Several sections of the Software Licensing Handbook are available as a Knowledgebase within Baseline. This is like Pop-Up Video for your contract. See a section you’ve never heard of or don’t know why it’s there? The Knowledgebase is there to explain.

Over the years, many folks have asked for my template software license agreement. I’m reluctant to hand it out – it’s not only the product of a decade of refinement, but it’s also detailed enough that failure to use it properly could result in problems. Baseline uses template language as the reference point for comparison, so in a first for Licensinghandbook, I have agreed to allow Baseline to use my template software license language as a template against which customers can bounce their proposed agreements.

Please join me in welcoming Baseline Solutions to the contract management marketplace!

[Disclaimer: My partnership with Baseline provides me revenue based on the use of the Software Licensing Handbook Knowledgebase or the Licensinghandbook Software License Agreement.]

Novatus Contracts Summer 2009 Promotion

2009-05-27T22:16:46Z

I just received notice that Novatus has created a promotional pricing offer valid from June 1 to September 30, 2009, which includes low-cost licensing options, rapid deployment and pay-as-you-go licensing – no commitments required. Released in light of the current global economic condition and Novatus’ desire to address prospective client’s budgetary requirements, the best contract management system just became easier to adopt. To learn more, contact me here (select Novatus from the drop-down menu).

About Novatus, Inc.
Novatus delivers contract, compliance and supplier management software via On-Demand SaaS delivery and On-Premises installation. With a focus on customer driven requirements, mobility and integration, Novatus provides the right fit for companies seeking a proven provider with superior technology who offers cost efficient applications and rapid deployment. Novatus was founded in 2008 by well-respected and globally recognized contract and supply chain industry leaders and is comprised of domain experts who have been top tier software and services providers since the contract management space formed and evolved into a recognized software category and formal discipline throughout the last decade.

Mutuality, or, What’s Good for the Goose is Good for the Gander

2009-05-27T12:21:04Z

In several recent deals I’ve had the very unpleasant tasks of redlining virtually every section of the agreement because I felt that the terms weren’t mutual. In other words, the language was completely one-sided so that only the document drafter received any benefits under the agreement. If you’ve never encountered this scenario, these documents are nightmares to go through. You never really relax and feel like the agreement was written to be fair to both sides, so you start to get jumpy about every little misplaced comma.

Mutuality is a key concern for me. If a contract is supposed to be an apportionment of risk – a meeting of the minds as well – how would it be interpreted in the event that we had some sort of disagreement? Would the courts find that we actually had an agreement at all? Or, using the severability clause, would the court excise much of the agreement and leave only a few basic operable paragraphs? However you might imagine it playing out, I simply don’t like the feeling that an agreement is all obligation for one side, and all benefits for the other. So, in almost every clause, I look to make things mutual as much as I can.

This is especially important (and unfortunately starting to be more commonly seen) for Limitation of Liability language. Make absolutely sure that your party is protected by LoL language. There are, of course, exclusions to LoL, and those too should apply to both parties. But do not let an agreement get signed that only caps the liability of the other party. (This happens to be one of the few areas where I’ll use every ounce of control I have to block a deal.)

On the flip side, each parties obligations (and thus, warranties) are at least slightly (and sometimes significantly) different. Here, mutuality in spirit is what I’m looking for – not an exact duplication in language or deed. For example a software provider might warrant that their product is four-digit-year compliant (yes, I still ask for this). But the customer doesn’t have any control over this. So I wouldn’t want it to be a mutual warranty. However, the customer can warrant that any information provided to the vendor is accurate and reliable.

Overall, I just watch for balance. When I don’t see it, I add it. When I don’t ever feel it, I warn my business owner(s). When I don’t get it, I suggest looking elsewhere. Everyone should take this opportunity to review your template agreements. Are they balanced? Why wouldn’t they be? I haven’t said this yet in this forum, but it seems to be turning into my favorite phrase of 2009: “In negotiations, you can screw someone else. Once.” The cost for finding new customers, however, significantly outweighs the cost of keeping old ones. Write your deals for the long-run (such as by being mutual) and you’ll both be happier.

A Few Licensing Issues with Amazon

2009-05-21T01:14:07Z

Many of the technologies we use every day come with a license agreement of some sort. You might not even realize that it’s so because of where you are in the transaction chain – either as a buyer or as a seller. Content, for instance, is created, licensed/sold, packaged, re-licensed/re-sold, bundled, re-licensed/re-sold, and on and on so many times that you can hardly figure out who actually created much of what you read online. This is important, especially insofar as you want to be sure of who is providing the information that you use to make decisions, but also because as information is licensed/bundled/re-licensed over and over, it’s possible that the content creator isn’t getting what they earned as part of the transaction (namely, credit/attribution and/or payment).

Several services have popped up recently that are allowing content to move from one format to another – especially on Amazon-related products and platforms (ie: the Kindle). More specifically, Amazon is now allowing blog authors to license content for packaging and distribution on the Kindle, with the blog author receiving about 30% of the revenue generated from the license price. So, if I were to want this blog to be available as a Kindle subscription for say, $1.99, I would get $.31 for every subscription. But there’s a problem, Amazon has a license agreement that I would have to accept in order to make this happen. And this license agreement also gives Amazon the right to bundle and resell my content in other forms, too, without paying me for it at all. [For a full conversation on this, see this great post by Edward Champion.]

Additionally, Amazon’s current system doesn’t actually even check to see if I’m the owner of the blog I’m submitting into the Kindle Blog service! So I could create an account, submit any of your blogs as my own, and in just a few clicks, create Amazon entries for your blog’s content – even competing with the “real” listing (if you so happened to have agreed to the terms as well and started using the service).

So, for the record, while I love Amazon for a bunch of reasons, this blog is NOT being made available as a Kindle subscription. It is, however, being posted ON Amazon as part of Amazon’s author services… so you can read the individual postings if you go to the Software Licensing Handbook page at Amazon. But if you happen to see it on your Kindle device, you’re paying someone else for stolen content.