Category Archives: transfer

This Week on The Web 2009-10-04

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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 2009-08-16

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

Amazon’s Orwellian Behavior

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As many are reporting, Amazon.com “recalled” an e-book remotely in response to a request by a publisher.  This is all kinds of scary and most folks are centered on the purely tangible nature of the problem.  I’m also concerned about the precent it sets, but I’m more concerned about the sapping of intellectual property rights that seems to be yet unexplored by these articles.

When you buy a book, you’re actually completing two transactions.  You’re purchasing the paper – the tangible product.  But you’re also buying a copy of the story itself – the intellectual property.  Each of these has distinct legal implications and over the years, laws have been developed to help protect not only the customer/consumer, but also the author and publisher.  The physical aspect protecting the consumer is that you have the ability to change your mind about your purchase (ie: you can return the book assuming you don’t damage it and that the transaction wasn’t noted as “all sales final” (though this isn’t an absolute bar to return)).  Retailers are likewise allowed to return what is returned to them – they have even more flexible return policies with their distributors.  And, as we’ve seen in the prior articles, folks are in an uproar about the idea that a retailer would come to your house to automatically take-back things you’ve purchased simply because their distributors wanted them to do so.

The other transaction – the one for the intellectual property – is much more interesting (IMHO).

Copyright is the protection most books are afforded.  When you buy a book, you have the right to read the story, burn/destroy the book, talk about the story with anyone, and heck, you can even resell the book (this is all part of what is known as the “first sale doctrine”.  What you can’t do is make copies of the book.  If you sell it to someone else, you can’t keep a copy for yourself, too (this is the issue with software, music, movies, etc being “shared” online).  But short of sale, the ownership in the copy is yours.  Therefore, it’s my argument that Amazon.com’s behavior amounts to theft – both of the tangible item AND the intellectual property.

The usual problem with pursuing this claim is that a service provider is smart enough to make device owners agree to some form of Terms of Service.  I would’ve thought that the Kindle ToS would have even been so bold as to allow Amazon an unrestricted right to do what they did.  But it doesn’t (Amazon Kindle ToS as of 2/9/2009):

Use of Digital Content. Upon your payment of the applicable fees set by Amazon, Amazon grants you the non-exclusive right to keep a permanent copy of the applicable Digital Content and to view, use, and display such Digital Content an unlimited number of times, solely on the Device or as authorized by Amazon as part of the Service and solely for your personal, non-commercial use. Digital Content will be deemed licensed to you by Amazon under this Agreement unless otherwise expressly provided by Amazon. [Emphasis added.]

I have other problems with this document, of course (such as the restrictions on resale).  But on its surface, Amazon grants a perpetual license to the purchased content.  So through their behavior, following their own Terms of Service, they’re in breach.  But we won’t hear about any suits as the ToS restricts claims to confidential arbitration and limits damages to the price of the device.

For its part, Amazon says that “We are changing our systems so that in the future we will not remove books from customers’ devices in these circumstances.”

[Update:  Amazon’s Herdener (the source of the above quote) actually said more:

These books were added to our catalog using our self-service platform by a third-party who did not have the rights to the books. When we were notified of this by the rights holder, we removed the illegal copies from our systems and from customers’ devices, and refunded customers. We are changing our systems so that in the future we will not remove books from customers’ devices in these circumstances.

This doesn’t really change anything.  Even if an unauthorized party sells you something they don’t own, so long as you don’t know that the item wasn’t theirs to sell, you retain ownership as a “bonafide purchaser.”  I’m glad to see that Amazon won’t remove books in the future, seeing that they weren’t supposed to do it in the first place.]

License Resale

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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.

 

Assigning Software Licenses

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Last week, we discussed Assignment, primarily as it relates to services-type work and the issues that come up in that particular arena. This time, we’ll add additional complexity by dealing with software license assignment.

[Note: the term “assignment” is used with respects to rights and the term “delegate” is used with respects to obligations. I will use the term “assign” or “assignment” through this post for both, but when drafting actual contract language, keep both terms in mind.]

Recall that assignment is the redirection of all or some contractual right(s). Template language in most agreements prevents unilateral assignment, usually requiring the permission of the non-acting party to complete the act. For services-type work, it’s fairly common for subcontractors to do bits and pieces of larger agreements… and prime contractors do have a tendency to disappear sometimes. But when you deal with software assignments, the game changes. A lot.

Assignments with respects to software manifest normally in ASP and SaaS relationships. As discussed in this blog before, a service provider relationship for software works by allowing the service provider to have some sort of right to host the software. In some cases, this is done with assignment language, allowing the licensee to grant a service provider the right to host the software on behalf of the licensee during the ASP relationship. With SaaS vendors, however, this right is part of the license itself, as the vendor is the service provider.

Assignments of all rights, however, get a bit more sticky. Software vendors price and license their products based on the perceived customer value that the software brings to that particular customer. The vendors, however, can’t know this value explicitly, so they guess and create a price they feel is reasonable and one that will be paid by the licensee. Again, as discussed previously, we’ve seen that licensing metrics are used as a way to calculate that value.

A customer who assigns all of their rights to another party can mess up this calculation, especially where site-based or enterprise-type licenses are involved. The problem can most easily be illustrated by imagining a licensee with 1000 employees in a single geographic location obtaining an “enterprise license” to a particular software product. They’re charged a fee, created by the vendor, based on the number of employees at the time of the initial license grant – and based on an estimate of how large the company will grow over time. This wasn’t usually a problem. Until companies began merging like wildfire.

Today, that same 1000 person company could be acquired by a 10,000 person company. If the assignment language isn’t written appropriately with this in mind, the software vendor may have unwittingly granted an enterprise license that is now for 11,000 people rather than 1,000. As a result, language in software licensing is now adjusted by software vendors to remove the ability to assign (and fewer enterprise licensing schemes are used, too).

But customers do sometimes need the relatively-automatic ability to assign a contract as a result of a merger, acquisition or other transfer of ownership of the organization. Most contract boilerplate language allows for this. Software vendors who are granting site or enterprise licenses, however, should continue to remember that this could lead to the example situation above. Therefore, take the time to perhaps create a “carve-out” whereby an assignment due to this type of transfer would convert the license to a set number of users… or to a very specific geographic location. This still allows for the assignment, but doesn’t open the software usage floodgates.

Assignment and Transferability

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Assignment is the ability to redirect an agreement (or a portion of an agreement) to another party for some purpose. In many situations, it’s a way to allow a third party the ability to perform some subset of contractual responsibilities (ie: a subcontracted electrician or programmer). In the case of say, a credit card cardholder agreement, it allows the issuing bank to act in your shoes to receive money, sue, etc. In other words, it allows rights and responsibilities to be “assigned” to another party.

Transferability, on the other hand, is the complete hand-off of an agreement from one party to another.

Language on assignment and transfer typically prevents an agreement from either type of movement, as both parties usually want the original party to perform all of their obligations (otherwise, wouldn’t you go contract with someone else if this partner couldn’t do what you wanted?). But just as typically, language is also present that allows either assignment or transfer with permission from the side not seeking the action.

Assignment and/or Transfer isn’t necessarily a bad thing. As per the examples above, there might be a great reason for a subcontractor’s performance of the work. Specialty skills, speed and cost all play into the selection and use of subs. What’s important, therefore, is an understanding of how, if you’re NOT the one seeking the action, to protect yourself and maintain the contract you originally had.

First, remember that your initial language is key. If you unilaterally allow for assignment or transfer in the contract, you won’t have the ability to prevent it later. This is one instance where it’s better to have to ask permission later, as situations can change over time.

Second, assuming that you have to grant permission, remember that you do not have to actually grant it, even if asked. Sometimes extra language is inserted to make it appear that you do, phrased as “such consent not to be unreasonably withheld”. This makes it sound as if you need a really great reason to say “No.” But the truth is that any “reasonable” “No.” is good enough. So if you think that the party accepting the subcontracting work isn’t of good quality, that’s reasonable. If you want to keep the original party responsible because they’ve had difficulty completing tasks already, that’s reasonable. In all, virtually everything can be formed into a good, reasonable reason as to why you’re saying “no”.

Third, if you DO grant permission, please put it in writing. Create an amendment to the agreement to show exactly “what for” and why you’re granting permission. Detail the specific scope of the permission (X may use ZCorp subcontractor to perform the invoice and billing tasks for the duration of and as contemplated by the Agreement). Notice that I also included a time component (“for the duration”) as well. Be as specific as possible… and include a way to revoke the permission in the event that the subcontractor/assignee does not perform work in a satisfactory manner.

Fourth, some contract professionals argue that it’s wise to have an agreement with the third party directly for the performance of services. To be honest, I’m not sure how I feel about the topic. Sometimes it seems necessary, sometimes it seems like overkill. If you have a great agreement with the prime contractor, for example, simply state in the Assignment Amendment that the terms of the prime must be “flow-down” to the subcontractor, AND state that while the permission may be granted for the performance of those certain activities, that the prime will continue to be held liable for failure to meet any goals, responsibilities or objectives listed in the Agreement. This keeps the original party responsible for the performance of their subcontractors.

Complete transfers of an agreement, however, are a little different… as it’s a replacement of the original party with a completely new party (which eliminates much of the ability to hold the original party liable for future failures by the new party). This means that if you perform any sort of background check or other due diligence-type activities with new partners, you should perform the same type of check on the proposed newer partner, as well. In fact, many organizations outright resist transfers except as a result of merger, acquisition or complete divestiture.

Next week, we’ll turn the tables about 45 degrees and talk about transfer and assignment from the software licensing perspective – which brings a whole new twist to the impact of the language.

Update: A well-respected colleague, Ken Adams, author of A Manual of Style for Contract Drafting, wrote to let me know that he believes that the use of the term “transfer” is not necessary. Rather, using the term “assignment” and then clarifying which rights are being assigned (none, some or all) would be the more appropriate contract language to use. For obligations, instead of rights, the term “delegate” would be used rather than assign. Thanks Ken. I learn something new every day!