I was recently asked whether I would ever allow a customer to audit my contracts. The simple answer is No!
Of course, the original question wasn’t this simple. The person asking the question had some interesting constraints. Specifically, they were licensing software on an exclusive basis, with exclusivity carved out by geographic region. So a prospective customer wanted to review the vendor’s contracts to make sure that they weren’t getting into an overlap situation. My answer was still No!
First, contracts are, even at a fundamental level, based on trust and honesty, and not based on a lack thereof. If you don’t trust the person you’re contracting with, the contract isn’t going to help you too much. In other words, you can’t contract trust. It just doesn’t work that way. So if the vendor in this situation was going to be dishonest in overlapping exclusivities, what would make the customer think that they would allow the customer to actually audit all of the agreements? A dishonest vendor would simply hide a portion of the contracts that they didn’t want discovered.
Second, with minor exception (such as during due diligence in a M&A transaction), I would never allow anyone to review my contract files. There’s too much confidential information – and general poking around to see what’s in them isn’t a narrow enough reason to go looking. In fact, even if the looking was just at license grant language, I still think you’re potentially revealing too much information (exclusivities for geographic regions aren’t the only way to restrict licenses and perhaps you also license based on user counts – allowing others to see the full license grant can give them a sense of pricing, perhaps).
Third, there’s a better way to handle the situation: provide a warranty and a specific remedy for breach of this particular warranty. Warrant that you are providing an exclusive license in exchange for specific consideration (probably money, but perhaps something else). If you (vendor) breach this warranty, the sole and exclusive remedy could be the repayment of the specific amount of consideration provided for the exclusivity. So, imagine a situation where you license exclusively by country (perhaps your product handles some sort of sales-related transactions). In exchange for an exclusive license, the customer pays you an extra $1,000,000 in license fees and that this also adds into the annual maintenance costs. If you later decide to break a previously-licensed country into smaller bits, you simply would have to pay back the $1M plus the accrued/paid maintenance fees for the breach.
Now, this sounds like it may provide you with license to later break the agreement – no, I’m not suggesting that, I am however suggesting that you promise not to and a specific penalty for doing so.