Category Archives: contract management

Who can audit?

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I posted the question on Twitter the other day: “How does the SPA have the authority to audit software license use?  In thousands of licenses I’ve never given them that right.”

I was looking for some insight that I might have missed.  In the world of contracts, your license actually will specifically state who has the ability to audit your license usage (if they have the right at all).  And in the world of law, the term “standing” is used to show who actually is allowed to raise a particular issue (via the courts, etc).  So the SPA/BSA/SIIA (SIIA is their current incarnation) (or any other third-party “enforcer”) wouldn’t have the legal right to ever come in and audit your software license use unless there’s language in the license that allows for such audit.

Even general audit language is probably safe to prevent the SIIA from knocking on your door one day.  Typical audit provisions include:

  • explanation of who can come to audit (it usually says that the vendor has the right to audit)
  • time-frame of any audits (I typically am very clear to limit audits to 1 time per calendar year)
  • notice for audits (even bad audit language usually says that the vendor has to notify the licensee of the intent for an audit)
  • who besides the vendor can come audit (if 3rd parties are allowed, I limit to a “big-four” accounting firm and have NEVER been challenged on this limit)

The result is that even with not-so-favorable audit language, I simply don’t see how the SIIA has any right to come and perform an audit, let alone try to sue a licensee for license violations (again, any license that has “no third-party beneficiary” language in it could be used to very clearly show that the SIIA doesn’t have any rights with respects to the license).

Additionally, it’s been suggested that there are two other routes to allow such an audit: the “source” (the licensee’s employee who reports a violation) and the potential for an assignment of audit rights.  As for the source person, unless they’re also the person in the company who can allow someone to come in, that individual probably doesn’t have internal authorization to allow the audit to happen – so I find this unlikely.  The assignment of audit rights potential does exist, and contracts that have poor assignment language could potentially allow the vendor to assign their rights to someone else (and, in fact, it appears that the SIIA attempts to use an assignment of rights in this manner).  So it’s conceivable, but I’ve never seen the language used in that way.

At the end of the day, the lesson is this:

  1. Have strong audit language which clearly states who can perform the audit, on what time basis they can audit and what the results would mean (ie: usually you don’t have to pay any form of penalty unless usage exceeds 10% of the licensed quantity – but you’ll always have to pay for the difference in usage).  Include notice provisions and be very clear about whether the vendor can outsource their auditing… many will use large auditors, which is fine, but you don’t want Andy’s Audit Shack to be performing the audit.  Lastly, if you’re maintaining any kind of uber-confidential information (like SSN’s, bank account numbers, etc), then I would also be clear about what kinds of auditing tools can be used to complete the audit, as many vendors like to install their own auditing software onto your network.
  2. Have clear assignment language which prevents EITHER party from assigning the agreement without the other party’s consent (not to be unreasonably withheld, if you so choose): “Neither party may assign or otherwise transfer this Agreement or any of the rights hereunder, without the prior written consent of the other, which consent will not be unreasonably withheld or delayed.”.

OK – so you’ve done the prior two things and the SIIA comes knocking (physically or with a letter requesting/demanding an audit).  What do you do?  Simple.  Deny them access – in writing.  They’ll threaten, similar to the Big Bad Wolf, to huff and puff and to blow your house down.  But if you’ve got things properly documented, the SIIA simply doesn’t have the legal right to audit.  It doesn’t matter whether the vendor they’re supposedly auditing for is a SIIA member.  It doesn’t matter if they claim to have permission.  (Oh, and interestingly enough, if they name names and tell you which vendor sent them to you, I would check your license agreement with that vendor because many vendors like to include confidentiality restrictions which prohibit either party from even identifying the other.)

Now, regardless of everything I’ve just told you, I also firmly believe that you should always be 100% compliant with your contractual obligations.  So use some form of license management tool to know that you’re only using what you’re licensed to use.

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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.  Follow me on Twitter if you want up-to-the-minute information on contracting, licensing, negotiation and the law.

This Week on The Web 2009-10-11

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These are the discussions that happened around the web this week – maybe you already read about them, maybe you need to again.  Come join the party on twitter (follow me here and you’ll participate in the conversation live.)

I also realized that many of you might have no idea what you’re seeing below.  Sorry.  These are “tweets”, 140 maximum character messages sent via Twitter.  Within the Twitterverse individual users follow others and have followers (think of it like overlapping Venn diagram circles).  To read a tweet, you have to wade through a bit of jargon used to make the most of the 140 character limitation.  “RT” for example, is shorthand for “Re-tweet” and the @____ is the username of some other individual on Twitter.  Combined together, then, “RT @_____” means that someone else wrote a tweet that I found important and I now want to forward along to my followers.  The URL’s are then also shortened by shortening services like bit.ly to make the most of the character limitation, too.  Lastly, you might see “hash” identifiers “#______” which are ways to tag tweets of a particular flavor for easy searching later and “<” which means that I am commenting on what came before it.

Announcing the Software Licensing Education Series on DVD

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The saying goes that you don’t appreciate someone else until you’ve walked a mile in their shoes. The same can be said for appreciating process. While it is still extremely easy to create new digital works in almost any medium, converting them – especially for sale – is still challenging.

So it gives me great pleasure to announce the availability of the Software Licensing Education Series on DVD.  While previously offered here as a digital download, I wanted to make these videos available to a much broader audience.  Teaming with CreateSpace has given me that opportunity.

The Software Licensing Education Series is video-based software licensing training.  Designed with even a novice in mind, the Series progressively moves from basic topics to those requiring more experience and background.  Built around a college-courseware format (100, 200, 300, 400 and 500 levels are available), the Software Licensing Education Series provides instruction in bite size pieces for optimal learning.

Pricing for the DVD set is $750 – significantly cheaper than the cost of most software licensing-related conferences and packed with way more instructional time (551 minutes… more than 9 hours of material).  The DVDs may be used in a business setting, too… and are re-usable over and over as needed.

Buy the Software Licensing Education Series now via DVD or digital download and start saving money and reducing risk today!  Oh, and get a 10% discount through the month of October on the DVD using discount code: 89YYH47X

Response to 50 Tips

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James Martin, an attorney in St. Petersburg, Florida has an article on his website regarding 50 tips for writing contracts that stay out of court.  Most of the suggestions are good… a few are a little dated.  This is my response to the dated things on his list:

3.  Ask your client for a similar contract. Huh?  If your client has a similar contract, they probably don’t really need you.  Now, I’m not advocating reinvention of the wheel.  If there’s a pre-existing solution to the problem, by all means, use it.  But I’m guessing that someone’s coming to you to draft the agreement because you have the skills.  More importantly, however, is that their template/sample probably contains a LOT of issues.  So it’s usually 110% easier to start from scratch (or from your form) and customize it to your client’s specific needs.

4.  Check the form books and treatises for a contract form. and  5.  Buy forms on disk or CD-ROM. I don’t know who first created form books, but they’re not as good as one might think… and they’re not necessarily battle tested, either.  You’d be better off getting a template from someone else you know if you don’t know where to start.  There are exceptions, of course, but still – be careful (see the second part of my advice for #3 above).

6.  Don’t let your client sign a letter of intent without this wording. Actually, my advice is to NEVER sign a letter of intent, regardless of the wording.  As I’ve said before, a Letter of Intent is usually just a poorly written contract.  Don’t get caught up in that mess.

9.  Identify the parties by nicknames. This isn’t a hard-and-fast rule.  Use nicknames only if it actually makes things easier to draft AND read.  Be careful about using descriptive terms as nicknames (customer, vendor, consultant, etc) because other forms of that word could appear in the agreement.  Use the “Find” feature of your word processor to discover if this is true.

12.  Include recitals to provide background. I know a lot of people love these.  But I hate them.  I hate reading them and I hate writing them.  On the other hand, for complex deals where the agreement could apply to many different things and you want to be clear on what the contract is really covering, this is the place.  But for a standard software agreement, the place to list the products is in a product schedule… that way you can use the same license and only add additional product schedules w/o having to amend the agreement itself to modify some “Now therefore, the parties agree to license Word Processing application.” type of language.

17.  Title it “Contract.” Actually, the better advice is to simply make sure that it doesn’t say “proposal” or some other transient contract type (like “letter”).  Granted, I like document titles “Software Licensing Agreement” or “Amendment to Master Services Agreement”.  But putting “Contract” in bold at the top of the first page is silly and WAY outdated.

24.  Write number as both words and numerals: ten (10). I agree with Ken Adams on this one.  Use the standard rules for numbers: words for zero through ten and numerals for 11 on up.

25.  When you write “including” consider adding “but not limited to.” Not worth adding.  Ever.

26.  Don’t rely on rules of grammar. WHAT!?!?! OK.  Look.  Use plain English wherever possible.  Write clearly.  Using superior grammatical skills.  If you don’t have such skills, don’t draft contracts.

29.  Be consistent in grammar and punctuation. Well, at least Mr. Martin shows consistency in his inconsistency regarding grammar.

30.  Consider including choice of law, venue selection, and attorneys fee clauses. Consider?  Absolutely include choice of law and attorney’s fee clauses (though in some cases attorney’s fees won’t ever be granted… but it doesn’t hurt to ask).  On the other hand, you’ll almost NEVER get venue if the other side understands it well enough to ask for a different location.  But if you’re both in the same location, it never hurts to add it in to make sure you won’t be dragged out of state.

32.  Define a word by capitalizing it and putting it in quotes. and 33.  Define words when first used. No and No.  Define words in a definitions section up front.  Unless you only have an average of one defined term per section.  Then you can define “in line”.  Otherwise it just gets too ornery to try to make sure you define the term the FIRST time you use it.  This is especially true when definitions end up getting used in the definition of other defined terms.

34.  Explain technical terms and concepts. If you’re using terms that laypeople can understand, the only technical terms that should appear should be in a statement of work or other descriptive document regarding the work.  As such, it should be written so as to be understandable by the people that have to abide by the contract.  Judges and lawyers can find technical people to explain technical terms.  The only time you should explain technical terms is if there’s a reasonable disagreement in the technically-educated community as to the usage of the term.

35.  All contracts should come with a cover letter. Not necessary.  If your contract is so difficult as to not be able to understand how to sign it, you’ve got a problem.  The best thing I’ve seen so far?  “Sign Here” tape flags that you put on the side of the document they’re supposed to sign for each signature line.  Then paperclip your business card to the front with a post-it note attached thanking them for their help and asking them to sign and return one of the two originals.

38.  Use your word processor’s spelling and grammar checker. Yes, but don’t rely on it.  Two, to, too, toe.  Their, there, they’re.  Through, thorough.  Notice anything?  They are all real words and spelled correctly.  Spell checker isn’t going to flag any of these.  Grammar checker is no better: “A parakeet is not a bluebird.” is grammatically correct.  But if you intended to say that a parakeet isn’t blue, the prior sentence is not correct but won’t be flagged.

42.  Save the drafts as multiple files on your computer. Yes, but not how it was recommended.  Unfortunately, using periods in your filename is still problematic for some operating systems.  Weird abbreviations for drafts, comparisons, etc are also hard to decipher.  Instead, try this:  “filename vX date initials.doc”.  So if you have a file called MasterService and it’s the 4th iteration being saved on September 29, 2009 by Jeffrey I. Gordon, the filename would be:  “MasterService v4 092909jig.doc”  Why do I do it this way?  Well: a) it keeps the files in draft order in virtually all file systems (Windows, Mac, Linux); b) it notes which version it is (saves on confusion about which document is the latest); c) notes the date it was created; d) notes who created the draft.  Sometimes I’ll substitute my company’s TLA instead of my name… but usually, I like my initials better to let me know that I was the author of that version of the document.  When I get the last version that becomes the final, I change my initials to FINAL – so the name would now be: “MasterService v10 101509FINAL.doc”.  This lets me know that v10 was the final and which version was signed.

44.  Print the contract on 24 pound bond paper instead of 20 pound copier paper. Not worth the cost of paper.  Especially if you want the other side to sign first – ask them to print two originals, sign both and send to you… you can’t control the paper it’s printed on.  Besides, if you’re using a contract management system, you’re going to scan and forever more look only at the digital version, so the paper is irrelevant and not worth the added expense.

47.  Initial every page of the contract. Wholly unnecessary unless you don’t trust the other side and you’re signing first.  But as I’ve said before, if you don’t trust the other side, you shouldn’t be doing the deal in the first place.

48.  Identify the parties and witnesses who sign by providing blank lines below their signature lines for their printed names and addresses. and 50.  Add a notary clause that complies with the notary law. Witnesses and notaries aren’t necessary unless required by law for the specific type of contract you’re closing (usually for real property, but I’m not sure it’s required for any other type… anyone know for sure?).  Many businesses have a notary on staff, but unless the document is required to be signed “under seal”, this also is usually not a requirement and is an added expense to some (and added time/effort for everyone).

This Week on The Web 2009-09-20

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These are the discussions that happened around the web this week – maybe you already read about them, maybe you need to again.  Come join the party on twitter (follow me here and you’ll participate in the conversation live.)

I also realized that many of you might have no idea what you’re seeing below.  Sorry.  These are “tweets”, 140 maximum character messages sent via Twitter.  Within the Twitterverse individual users follow others and have followers (think of it like overlapping Venn diagram circles).  To read a tweet, you have to wade through a bit of jargon used to make the most of the 140 character limitation.  “RT” for example, is shorthand for “Re-tweet” and the @____ is the username of some other individual on Twitter.  Combined together, then, “RT @_____” means that someone else wrote a tweet that I found important and I now want to forward along to my followers.  The URL’s are then also shortened by shortening services like bit.ly to make the most of the character limitation, too.  Lastly, you might see “hash” identifiers “#______” which are ways to tag tweets of a particular flavor for easy searching later and “<” which means that I am commenting on what came before it.

This Week on The Web 2009-09-13 (my birthday edition)

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It happens to be my birthday weekend and between eating some great food, playing Guitar Hero with my wife and hanging with the family, these are the things that happened around the web this week – maybe you already read about them, maybe you need to again – there were some REALLY great discussions going on.  Come join the party on twitter (follow me here and you’ll join the conversation live.)

I also realized that many of you might have no idea what you’re seeing below.  Sorry.  These are “tweets”, 140 maximum character messages sent via Twitter.  Within the Twitterverse individual users follow others and have followers (think of it like overlapping Venn diagram circles).  To read a tweet, you have to wade through a bit of jargon used to make the most of the 140 character limitation.  “RT” for example, is shorthand for “Re-tweet” and the @____ is the username of some other individual on Twitter.  Combined together, then, “RT @_____” means that someone else wrote a tweet that I found important and I now want to forward along to my followers.  The URL’s are then also shortened by shortening services like bit.ly to make the most of the character limitation, too.  Lastly, you might see “hash” identifiers “#______” which are ways to tag tweets of a particular flavor for easy searching later and “<” which means that I am commenting on what came before it.

This Week on The Web 2009-09-06

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The things that happened around the web this week – maybe you already read about them, maybe you need to again.

I also realized that many of you might have no idea what you’re seeing below.  Sorry.  These are “tweets”, 140 maximum character messages sent via Twitter.  Within the Twitterverse individual users follow others and have followers (think of it like overlapping Venn diagram circles).  To read a tweet, you have to wade through a bit of jargon used to make the most of the 140 character limitation.  “RT” for example, is shorthand for “Re-tweet” and the @____ is the username of some other individual on Twitter.  Combined together, then, “RT @_____” means that someone else wrote a tweet that I found important and I now want to forward along to my followers.  The URL’s are then also shortened by shortening services like bit.ly to make the most of the character limitation, too.  Lastly, you might see “hash” identifiers “#______” which are ways to tag tweets of a particular flavor for easy searching later and “<” which means that I am commenting on what came before it.

Brittle Contracts

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David Dobrin (of The Applicator fame) wrote recently on the topic of brittle applications.  He defines a brittle application as “one that doesn’t work unless a lot of disparate conditions are met.”  In thinking about his description of MS-Word, I was struck by the concept that many contracts I encounter are brittle as well.

To illustrate my point, think about the last contract you reviewed.  Did it have a definition section?  How about references to external documents (a spec list, a set of documentation, a “missing” Exhibit or Appendix)?  Was it full of cross-references or have noticeable gaps (such as missing language for standard terms)?  Was the contract obviously written for a different type of product or service?  In all of these situations, I believe you have a brittle contract.

Contracts are “incorporated” documents.  This means that all of the various sections have to work and play together to form a cohesive end-product.  When you’ve identified gaps, errors or problems, these mistakes can cause cascading failures throughout the entire agreement.  A poorly-defined term, for example, could ripple through the contract, causing errors in judgment regarding expectations, or could even create legal problems with regards to intellectual property.  In other words, the poorly-defined term doesn’t hurt itself, it hurts the entire document.

The same is true for commonly overlooked sections on subjects such as term, termination and scope.  When a lack of attention results in an incomplete picture of the relationship, the net impact can be extremely detrimental (ever had a perpetually-renewing contract for poor services that was hard to get out of because termination was only for breach, yet the services weren’t defined well enough to hold the vendor to performance standards? I have.).

You can also look at brittle contracts from another perspective, one my friend D.C. Toedt might appreciate.  D.C. seems to love language portability – drafting contract sections that can be used in a plug-and-play format to craft the appropriate document (you should check out some of his work in his clause library).  This type of drafting is a part of the holy grail of contracting – the complete automation of the contract creation process based on a wizard-style interface which asks questions and assembles an appropriate finished product from such a library of contract clauses.

The inherent problem with document assembly is brittleness – that you insert a clause into the agreement that has to properly “work” with all of the other sections.  If the clause has a faulty cross-reference, for example, the contract breaks.  On the flip-side, however, document assembly fixes one of the aforementioned brittleness issue with current contracts – having a completely appropriate document for the specific product or service being offered under the agreement.

So… how brittle are your contracts (especially your templates)?

This Week on The Web 2009-08-30

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The things that happened around the web this week – maybe you already read about them, maybe you need to again.

I also realized that many of you might have no idea what you’re seeing below.  Sorry.  These are “tweets”, 140 maximum character messages sent via Twitter.  Within the Twitterverse individual users follow others and have followers (think of it like overlapping Venn diagram circles).  To read a tweet, you have to wade through a bit of jargon used to make the most of the 140 character limitation.  “RT” for example, is shorthand for “Re-tweet” and the @____ is the username of some other individual on Twitter.  Combined together, then, “RT @_____” means that someone else wrote a tweet that I found important and I now want to forward along to my followers.  The URL’s are then also shortened by shortening services like bit.ly to make the most of the character limitation, too.  Lastly, you might see “hash” identifiers “#______” which are ways to tag tweets of a particular flavor for easy searching later.