* The Business of Software

A community discussing the business of software, from the smallest shareware operation to Microsoft. A part of Joel on Software.

This community works best when people use their real names. Please register for a free account.

Links:

» Business of Software FAQ
» The Business of Software Conference (held every fall, usually in Boston)
» Forum guidelines (Please read before posting!)

Movie:

"Make Better Software" is a 6 movie course designed to help you as you grow from a micro-ISV to a large software company.
Part 1: Recruiting
Part 2: Team Members
Part 3: Environment
Part 4: Schedules
Part 5: Lifecycle
Part 6: Design

Moderators:

Andy Brice
Successful Software

Doug Nebeker ("Doug")

Jonathan Matthews
Creator of DeepTrawl, CloudTrawl, and LeapDoc

Nicholas Hebb
BreezeTree Software

Bob Walsh
host, Startup Success Podcast author of The Web Startup Success Guide and Micro-ISV: From Vision To Reality

Patrick McKenzie
Bingo Card Creator

company wants to buy software but with two-way disclaimer

I sell low cost software and at the moment am getting sales about 3 days a week, sometimes with up to 4 - 5 sales a day.

Most companies pay be debit/credit card and get their registration keys straight away.

My software license is a standard one and says we can't be held liable is the software causes problems, doesn't work etc.

However one company asked us to sign a small modification of our license agreement which says we can't sue them for their usage of our product.

I signed that agreement and sent it off to them.

My attitude was that maybe they had been sued in the past by a small software developer and don't want it happening again.

It is just sensible. I want to get on writing sofware without hassle and I think it reasonable other companys want to get on with their business without the small threat out of being sued if they install the software on 5 computers instead of 4 or whatever.

Anyway after I returned the agreement the company said they want to pay via purchase order and invoice for just 3 licenses.

I told them standard payment methods i.e. debit/credit card only apply for small orders.

The thought did cross my mind that they wanted to get the registration keys, use the software and then end up not paying ever.
SmallISV
Thursday, January 15, 2009
 
 
I have a feeling it's more like they plan to buy 3 licenses and use 100... and you can't sue them.  Probably not a good idea to sign anything like this unless it's a huge order.

Thursday, January 15, 2009
 
 
Well my software has built-in protection to stop that.

Actually my software can accept 3 different types of registration keys and each one has different levels of protection.
SmallISV
Thursday, January 15, 2009
 
 
I don't think its a big deal. I get that from time to time.

I generally say, "no" if the opportunity is less than $5k.

But the bigger companies have interns or "specialists" who do nothing but look at software EULA's.

When this comes up, I find that nearly all of them want to be indemnified if they get sued because of patent infrigement, etc.  I'm usually success in limiting liability to the cost of the software.

In reality, 99.999% chance that nothing will happen.
And if it did, I'd probably be out of business anyway.

But believe it or not, you can very often times negotiate when they want to make a change to the EULA.  Afterall, they want to use your software.

I have walked away from deals where they try to insert clauses that say, "unlimited support" and "you will take care of our issues immediately..."  bla bla.  I fell like I'm being set up for a bad day with language like that.
Darren L. Send private email
Thursday, January 15, 2009
 
 
Do you really have the legal resources to stay on top of all the little variations you agree to along the way?

Unless the money at stake is substantial just walk away. And by substantial, I mean like a year's worth of revenue or more.

Thursday, January 15, 2009
 
 
"a small modification of our license agreement which says we can't sue them for their usage of our product."

Please excuse my paranoia... :-)

Here's what I think they wanted to do:

- get 3 (three) licenses and use them on 100,000,000+ machines.
This is not a problem if you software is locked to a machine and the code protection (particularly, its licensing-related part) is hard to break.

and/or:

- they want to distribute your libraries and/or your whole app without paying any royalty to you.
In that case, [and IANAL], depending on how exactly that contract clause was worded:
* either you can still sue them for stealing your stuff;
* or, you are f***ed.

--------

I think that signing this kind of agreement is like: "in case I am being robbed/raped/killed, and a cop happens to be passing by, I do --NOT-- want him to protect me."

Thursday, January 15, 2009
 
 
Unless the amount is large, I would just say "no thanks".  You don't need the potential liability that comes with this kind of waiver.

IANAL.
BillAtHRST
Thursday, January 15, 2009
 
 
Wow.  Non-lawyers + paranoia = infinite possibilities.

OK.  So they wanted you to agree not to sue them for their use of the software.  It has NOTHING to do with the number of licenses - nor do I think they're going to steal your software.

Rather, they're probably USING your software in a way that is either morally ambiguous or potentially fraught with litigation, for example, to run a porn site.

What's funny is that absent language in your agreement that gives you permission to control how they use your product, you don't have the right to control it.  But perhaps they were worried about the provision of support or the later need to purchase more licenses - and they didn't want you refusing on some sort of moral grounds.

Now, just to be thorough, there IS the possibility that they want to not have to live to the terms of the license agreement and are trying to use the language saying that you can't sue them for their use of the software - but hopefully you've got other language in your license agreement that says that use is conditional on the customer's adherence to the terms of the agreement.  If they ever then tried to argue that the "no sue based on use" language got them around that restriction, I would imagine no court that wouldn't laugh them out of town.

~Jeff (I am a lawyer... just not yours, and nothing I've said here is legal advice - for that, you have to find someone in your area and pay them for such)  :)
Jeff Gordon Send private email
Thursday, January 15, 2009
 
 
Just have to say one thing about this...first you should never bend for such a small order..hell even big orders.

Second...I would never, ever, agree not to sue someone. Not that I want to sue anyone...but what if they sue *you*. Can you counter-sue now? I don't know...not a lawyer

That is why if you are ever going to sign your rights away like that you need to have a lawyer look it over.

If it is too expensive to have a lawyer look it over, then your answer should be: Sorry I can't sign this.

We have had customers like this in the past. We just tell them they need to purchase the software the way it is, or look somewhere else (In a nice way of course). Every_Single_Time they purchased anyway.

On another note - you should look for a way to handle purchase orders...probably via a 60 day key...or you may lose some large sales over it.
Steve Wiseman Send private email
Thursday, January 15, 2009
 
 
My license agreement says it can be terminated for non-compliance.

So if they do manage to use it on 30 computers even though they have only purchased 3 licenses, I can cancel the whole thing.

I should have been more precise in my original email. My original license says my maximum liability is 10 USD.

They wanted this extended to their maximum liability is 10 USD.

This is effectively the same as not suing in my mind and so I said that. But on paper both our maximum liabilities are said to be 10 USD.

I have handled many purchase orders in the past and can issue 60 day temporary registration keys. However the last time I didn't bother with temporary keys and the company in question took 5 - 6 months to pay. Usually I chase up purchase orders, but on this occassion I didn't because I was occupied with something else which was far more important at the time.

Anyway even though they liability is now a maximum of 10 USD, my software still has reasonably good software protection. I can see how many computers it is installed upon as I use Internet activation.

So I think I'll be OK on this one.

But in future I will just refuse to sign these sort of things.
SmallISV
Friday, January 16, 2009
 
 
General rule - no custom legal agreements for software orders under $20,000.

I would not have signed the specified clause. Look what it got this guy. Afterwards, then they come in with a bunch of other stuff. They'll be nickel and diming him to death on these exceptions and clauses until he gives up, and which point they've gotten what they wanted for free.
Scott
Saturday, January 17, 2009
 
 
Hm, in reference to one of the above posts, "I'm a lawyer. You should sign the clause, giving up your rights, while receiving nothing in return. You are just paranoid. They aren't going to do anything bad. Sign the clause."

Translation: "I am the attorney for the other party. Sign the clause."
Scott
Saturday, January 17, 2009
 
 
A lot of large companies habitually try to renegotiate your standard agreement.

Usually it's just bureaucracy... they have a policy that all contracts are to be reviewed by a lawyer, which seems like a sensible policy. And then they decide that this should include EULAs, which is usually just a bid by the lawyers to review more contracts so they can make more money; they charge by the hour for this, of course. This is probably NOT a sensible policy, but if the lawyers can convince management, it's done.

The lawyers need to show that they're doing good work for their money, so they read the license, apply all their law-school brains,
and propose a bunch of changes.

For small customers (at Fog Creek small means under $10,000) we just tell them that we can't do custom contracts, sorry. Usually they buy our software anyway.

For large customers, we check if their proposed revisions are reasonable... they almost always are... and then sign.

The various paranoid theories expressed above, that they just want you to sign so that they can pirate your software, are ridiculous. Lawyer-infested companies that are obsessive-compulsive about contracts do not pirate software and they CERTAINLY don't try to trick you into signing a contract "allowing" them to pirate your software. This theory is laughable.

One more comment... about purchase orders... we, personally, like money, here at Fog Creek, and will accept payment in just about any reasonable form customers would like to pay. Credit card, debit card, check, purchase order, cheques drawn on a foreign bank, small coins taped to an index card and mailed to us, Kruggerands, big stones from Yap, as long as it's not friggin' CATTLE we'll accept it in payment. It's money. Money is why you do this. In the entire history of Fog Creek the number of companies who paid with a purchase order and then stiffed us is, I think, zero, although there might be one I don't know about. It is literally not even worth the cost of doing a credit check.
Joel Spolsky Send private email
Saturday, January 17, 2009
 
 
A license for commerical software should include a clause about payment.

So, if the OP was never actually paid, then the license never applied, and he is welcome to sue.

Seems like you can ask your lawyer to write a nice letter explaining this and offer to report them to the Better Business Bureau (or equivalent).
Robby Slaughter Send private email
Saturday, January 17, 2009
 
 
>>I should have been more precise in my original email. My original license says my maximum liability is 10 USD.
>>They wanted this extended to their maximum liability is 10 USD.

OK -- not necessarily unreasonable.  They may just figure what's sauce for the goose is sauce for the gander.

The issue is not about payment, I think, but about liability.
This is what indemnification clauses are all about.  They are important, because they define the limits of each party's liability arising out of the transaction.  If you enter into a transaction where you assume a large amount of potential liability for a small amount of money, that may not be a good idea.

You need a good IP lawyer to draft an agreement that limits your liability.  If you already have that, then allowing the other party to limit their liability is not necessarily a bad thing.  But assuming that liability is a potential issue, someone has to be on the hook (e.g., if they agree to assume all liability, you're off the hook, and vice versa).

At least in my experience, indemnification clauses can potentially bite you in the backside if you're not careful.  It's best to be careful.
BillAtHRST Send private email
Saturday, January 17, 2009
 
 
Joel:  I'm with you on just about everything... except the point about why.  Lawyers for large companies are internal employees and are thus not billing by the hour - they don't review EULAs out of a desire to rack up the hours, rather because EULAs are filled with inequities.  And in companies bigger than 1,000 people, contracts professionals aren't usually in the legal department - there's a whole separate contracts and/or procurement group responsible for this type of stuff.

Case in point is the OPs language (and their misstatement of what it means to agree not to sue).  Their EULA has a $10 Limitation of Liability (and they say that it also disclaims liability for all reasons, including software that doesn't work).  This is the type of stuff that I'm paid to find and remove - or identify in a way that we at least consider the implications of paying for something that doesn't work and then not even have the ability to recover the price paid.

So we actually only have a few options:
1.  Remove all of the "offending language".  This isn't usually good for either party, but it's the only option in about 5% of the deals.

2.  Modify the language to be more favorable to the licensee (which has the effect of making it less favorable to licensor).  I can do this about 70% of the time because I've got a large deal pending and they want it more than I do.

3.  Make the language mutual (ie: the same for both parties).  This is what it sounds like your customer wanted to do.  I have to go with this about 25% of the time because I have a smaller deal, or because my business owner is willing to take the added risk.

But overall, if I encounter a vendor who has a very unreasonable contract and also not willing to negotiate it - my ultimate job is to protect the company.... so I write a CYA memo to go into the file saying that I asked for changes to the agreement, wasn't able to get them, and thus suggested to walk away from the deal.  If the business owner goes forward, I've still done my job.
Jeff Gordon Send private email
Saturday, January 17, 2009
 
 
I don't know if it quite matches the same situation but I can say that as an employee of a small group within a large, standardized-processes company, I wanted to get a license for a $60 development tool from a small company. I made my case, got other people on my team to say that yes, they've used it in the past, it's a good tool, and with licenses they'd like to use it too. My manager asked how much it was, I told him, and he laughed. He was expecting it to be several hundred at least.

So he tells me to coordinate with IT to get 5 licenses. Which starts this whole process where they have to research it, look at the licensing and get a purchase order because my company won't purchase software licenses without an official contract with the developer or a 3rd party. So we ended up getting a purchase order with /another/ company who paid the $300 up front and acted as our legal intermediary. This took several weeks.

Then I went home and spent $60 on a credit card to get a personal license. The transaction lasted about 3 minutes.
Jon Eisenstein Send private email
Saturday, January 17, 2009
 
 
"My license agreement says it can be terminated for non-compliance."

Why?  If your license states it is good for three systems, and they install it on four, then they've probably breached the contract.

I understand why a you would not want to modify your contract for every customer, but have you done the work and had an attorney who specializes in contract law review your contract?  It sounds like you re-purposed it from somewhere.  Once you get a contract you are sure is equitable to both parties, you can feel a lot better about refusing those requests in the future.
Charles Vaughn Send private email
Sunday, January 18, 2009
 
 
So, say a big company wants to register a domain name - $7 a year - do they still get the lawyers involved?

Just wondering what price-point would make a big company consider software or IT service as being consumables.
Sean Hogan Send private email
Sunday, January 18, 2009
 
 
Jon: Happened to me too. I work at an international (non-US) branch of a Fortune500 company. I used some software which worked really well, and thought that the guy deserved the $25 he wanted for a license. Official IT wanted to talk to the software's local reps, although it's just one guy in Dallas with a website. I ended us charging my personal credit card, and filing it for an expense report.
Jonathan
Sunday, January 18, 2009
 
 
I think we ISVs spend too much time worrying about people using our software without paying up, whereas the bigger challenge to focus on is to have people use our software in the first place.
Think about it this way: it doesn't actually cost you anything if a client has 100 users of your software and only pays for 3. There's no material, assembly, shipping & handling etc. involved. You're actually making money on 3 licenses. Walk away from the deal and you lost that money as well.
Actually having many people in some organization use your product without paying is a good problem to have. At some point they may want support, upgrades etc. Users also move between organizations and tell potentially new clients about your product.
It's not that you shouldn't try to make sure you get paid what you're owed, but you should balance that against the benefits mentioned above.
Elad Kehat Send private email
Sunday, January 18, 2009
 
 
One point about purchase orders - they are NOT the same as accepting payment after delivery. We accept purchase orders all the time, but you can't activate our product without paying first (probably easier for us to do because we're SAAS).

Purchase orders are used by companies to provide internal accountability i.e. requiring someone to document  and sign off on  a decision to purchase. Same for invoicing - they want a paper trail beyond what's on a credit card statement.
Derek Scruggs Send private email
Sunday, January 18, 2009
 
 
You need to hire a lawyer. As soon as a large company asks you for a custom change in your license agreement, your first response should be "we can discuss it, but it will be your lawyer talking to my lawyer, and you'll be responsible for all my legal fees". You are not qualified to debate legal points and (unless you're actually talking to their lawyer - doubtful) neither is the requester. If you don't do this, it'll essentially be their small army of in-house lawyers against you, and you will lose.

If your lawyer then saw the request that you're talking about here, he would tell you that you could NEVER accept it.

I agree with the posters above, and have a similar position in my company: no custom license agreements unless a fee of at least $15k accompanies it.
Tim Dawson Send private email
Sunday, January 18, 2009
 
 
Many of you are correct that there is a dollar value cut-off point for the purchasing side of things, too.  Depends on the company, of course, but generally speaking, software purchases under about $1,000 (doesn't matter how many licenses) can sometimes get slipped by the contracts folks directly to the purchasing folks (who don't review contracts).

But at the same time, you're missing the point as to WHY we want to negotiate the license.  It's not about the value of the software - it's about the quality of the software.  And frankly, software from mISV's has a great chance of being an incredible product... and just as great a chance of being a product that has sloppy programming that would allow for it to become a problem on the company's network.

Now, before you all flame me for saying this... these are the types of things that I have to worry about.  I'm not saying you're bad programmers, but there's at least one bad one in the bunch somewhere - so I have to treat you all with a somewhat suspect mindset.  I have to insert contract language that will hold you accountable in the event that your product brings us to our knees (expectedly or unexpectedly).

But I don't do this indiscriminately.  In fact, in a yet-to-be-published post about knowing the technology you're negotiating, I talk about how contracts people need to understand what they're buying to be able to successfully negotiate the deal.  Which means talking with you and our internal business owners to see that perhaps your product is a desktop product, without network access, etc.  If so, then I can change the way I review your EULA and change the modifications needed to be acceptable.

To the person who suggested that I pay your legal fees:  not gonna' happen (except in REALLY rare situations).  Legal expenses are part of the cost of "doing business".  This is sorta' like WaiterRant's blogging about diner's who can't afford to tip - if you can't afford to tip properly, you can't afford to eat at that restaurant.  Likewise, f you can't afford your own legal fees, you shouldn't be selling to customers like me.

Which brings us to the person who pointed out that the long-term value of a balanced contract UP FRONT makes up for it's initial cost by not requiring as many negotiated changes later.  If you take the time to work with a contracts person (I don't always recommend talking with an attorney - if people are interested to know why, just ask) to get a BALANCED and mutually acceptable contract, you'll find that people like me will recognize that it's balanced and we'll try harder not to make any changes.  But a completely one-sided contract indicates to me that I shouldn't start the negotiations with a very trusting attitude.
Jeff Gordon Send private email
Sunday, January 18, 2009
 
 
Regarding small mISV software somehow "bringing a company to it's knees" due to some unknown risk to an internal network, my opinion is that I would never agree to contract language like that. 

If a large company with the resources to pay an attorney to come up with language like that does not have the resources to secure their own internal networks against some potential unknown bug that could severely damage a company, then they should re-evaluate how they spend money.  The responsibility there for security lies with the large company, and that would include the due diligence to investigate the product they are buying for things of that nature. 

Balanced contracts need to be reasonable and not attempt to place the responsibilty for reasonable risk on your side to the other side.
Dave Milner Send private email
Sunday, January 18, 2009
 
 
I'm doing work for a very large company where we recommended a web based software package that had a TOS that legal had to review.  Here's my perspective from the inside of such a company:

Legal had to review to make sure that we weren't exposed to any data sharing.  And we needed a way to claim our data once we were done (CSV export was just fine with them).  And we needed to make sure that there weren't any hidden charges that we'd be slammed by and that security was tight.

Legal posed ~10 questions to me to pass to the vendor.  We discussed them and agreed that existing language covered 8 of them - it was really clarification of what 'reasonable' means.  We then asked about 2 more additions and they accepted one.  It was related to data access - we absolutely must have this data be private so we needed a clause that said so.

Took a week all around. The lawyers were internal so they weren't billing by the hour. They were just trying to protect the company from future problems.  Fortunately they were very reasonable.

Your friendly corporate apologist,
Lou Send private email
Sunday, January 18, 2009
 
 
First of all, never sign a contract, or accept changes to your standard contract, without having your own lawyer review it.  Making a mistake could cost you your business, if the other party really wants to screw you and has an army of lawyers to do it with.

Second, if the cost of having your own lawyer review the contract/changes exceeds the incremental revenue/profit from the deal, walk away.  It just doesn't make sense.

Third, if this happens to you frequently, make a list of complaints (you're asking them WHY they want a change, right?) and talk to your lawyer about making your standard contract more balanced so that folks won't be as motivated to ask for changes.  For most, the natural tendency is to slant everything as much in your favor as possible, and there are times that's appropriate, but they can overcome that if you explain that you have different priorities (i.e. maximizing revenue).

Sunday, January 18, 2009
 
 
"Lawyer-infested companies that are obsessive-compulsive about contracts do not pirate software and they CERTAINLY don't try to trick you into signing a contract "allowing" them to pirate your software. This theory is laughable."

NETBULA vs. SYMANTEC ?
Martin Send private email
Monday, January 19, 2009
 
 
Microsoft PARTNER MS101

Q - Custom SLA?

A - NO, don't bother to ask
cliveb Send private email
Monday, January 19, 2009
 
 
Um ... This is an American conversation, isn't it?  I can tell by the number of comments about lawyers; not to mention the frequent use of the $ sign.

(Don't get upset -- discussions of this type can equally well get biased in a French context, and certainly in an English context.  Anyway, I love Americans.  And dollars.  I'm even prepared to concede that lawyers are, at least, not investment bankers.)

Jeff Gordon seems to have the most balanced/nuanced view on this.  Basically, from an English point of view (ie mine), it comes down to:

(a) Don't sign anything you're not comfortable with.  There's a gray area where you should consult a lawyer.  But the simplest thing is, don't sign.
(b) Don't waste time on things that are nothing to do with your business model.  Beyond barrack-room lawyering, this extends to weird deals involving futures contracts in Kryptonite; setting up one-off payment systems; getting a license from the DoD to export naughty-type WoMD software; and so on.
(c) Don't fret that you're being paid for three licenses and potentially getting screwed for 97 unpaid piracies.  Geez.  There's six billion more marks out there.  Not all of them live in the smelly bilges of a boat off the coast of Somalia.
(d) If the customer has a request, think about it.  If it makes sense, do it.  If it doesn't, then don't.

Or, you could take the attitude of my Kenyan Asian friend, who has obviously been corrupted by living in this miserable country since the age of four:

"If they want something, like running your software on their own server, that you don't already offer -- then screw them."

(How to win customers and influence bottom lines...)

One further, quintessentially English, point:

Have you considered talking to your potential customer? Like, say, on the telephone? All this stuff about lawyers and EULAs makes my head spin.  Actually talking to the guy might get an instant resolution.  And if not, you'll probably learn something useful about your business model in any case.
Pete Doubleday Send private email
Tuesday, January 20, 2009
 
 
I'm not sure I would have signed it.

The EULA says what it says for a reason. If one wants to change the EULA, the company making the software (You) would probably want to have your own lawyer look at the original and the altered EULA to see if the alterations are reasonable. Since you probably don't have a lawyer on staff you'll have to find one and pay his hourly rate. There is a certain price point where this is a reasonable cost of doing business.

3 * (Whatever a cheap software license costs) is not that price point. That's probaby the cost of an hour of a lawyer's time.
Wells
Wednesday, January 21, 2009
 
 
Obviously, if you have a cheap product, the next step is to have an "enterprise" version, massively overpriced, that has financial cover for doing lawyer work. The $60 sale is now going to be a $30k "enterprise" deal! Have a schedule for full time support - now it's a $80k deal, on signed contract go hire your support guy!
royalblue_tom
Thursday, January 22, 2009
 
 
Just wanted to comment on Joel's statement that lawyers at big corporations look at these things because they want to look busy and then need to show some results.  I work at a large company as a divisional CFO and helped draft the internal rules that say lawyers need to review non-standard contracts.  The intent is actually to reduce favoritism/fraud i.e. purchaser directs benefits to a favorite vendor by making alterations to our standard contracts.  It also helps in supply chain cost reduction.  Boring stuff, but important in a big company.  It is not to look at software licensing. 

When our guys ask for a change in your EULA, it is occasionally an IP issue but more often an end-user simply asking for something and blaming the lawyers.

Our lawyers hate this stuff.  They want to do real work just as your programmers want to do real programming.  I spend a significant amount of time trying to show why a lawyer does not need to get involved in these issues.  Unfortunately, at a large company, contract review policies are required to be audited and violations reported up the chain.  Not the best use of resources.

Enjoy your site and discussions, but felt obligated to suggest that not all large companies Dilbertesque.

Andrew Good
Andrew Good Send private email
Saturday, January 24, 2009
 
 

This topic is archived. No further replies will be accepted.

Other recent topics Other recent topics
 
Powered by FogBugz