Comments on: Customer Audits of Your Contracts http://www.licensinghandbook.com/2009/05/04/customer-audits-of-your-contracts/ The companion site to the Software Licensing Handbook Wed, 06 Jan 2010 00:13:18 +0000 hourly 1 http://wordpress.org/?v=3.3 By: Martin Clausen http://www.licensinghandbook.com/2009/05/04/customer-audits-of-your-contracts/comment-page-1/#comment-800 Martin Clausen Wed, 06 May 2009 07:48:35 +0000 http://www.licensinghandbook.com/?p=922#comment-800 Your suggested approach makes sense in terms of fixing damages in case of a breach, but does not address the issue of discovering and documenting such breach. I see two possible approaches to this , both of which I have seen implemented in practice. 1) Limit the scope of the audit to the clauses of the contracts relevant to the matter, and allow the Licensor to blackline the rest. 2) Conduct the audit through a proxy (auditors or similar, preferably subject to mandatory statutory confidentiality obligations). The proxy would be allowed unfettered access, but only be allowed to report breaches and relevant documentation of such back to the Licensee. Your suggested approach makes sense in terms of fixing damages in case of a breach, but does not address the issue of discovering and documenting such breach. I see two possible approaches to this , both of which I have seen implemented in practice. 1) Limit the scope of the audit to the clauses of the contracts relevant to the matter, and allow the Licensor to blackline the rest. 2) Conduct the audit through a proxy (auditors or similar, preferably subject to mandatory statutory confidentiality obligations). The proxy would be allowed unfettered access, but only be allowed to report breaches and relevant documentation of such back to the Licensee.

]]> By: Jeff http://www.licensinghandbook.com/2009/05/04/customer-audits-of-your-contracts/comment-page-1/#comment-799 Jeff Tue, 05 May 2009 13:35:40 +0000 http://www.licensinghandbook.com/?p=922#comment-799 Thanks for the comment Douglas! I suggested crafting it as a warranty because if I was the vendor in this particular situation, I wouldn't want my failure to provide an exclusive license to void (or potentially void) the entire transaction. Rather, if there's a specific warranty, a specific remedy, and a statement which says that such remedy is the sole and exclusive remedy for breach of that warranty, then I don't have to worry about a breach of contract suit. In fact, I shouldn't have to worry about a suit at all - the warranty remedy is what the licensee gets. And then the remainder of the license continues - maintenance fees and all (including maintenance calculated at the rate of the license fee paid). If, however, there's a breach of contract, I could end up with no license at all. Not good for me as a vendor. :) Thanks for the comment Douglas!

I suggested crafting it as a warranty because if I was the vendor in this particular situation, I wouldn’t want my failure to provide an exclusive license to void (or potentially void) the entire transaction. Rather, if there’s a specific warranty, a specific remedy, and a statement which says that such remedy is the sole and exclusive remedy for breach of that warranty, then I don’t have to worry about a breach of contract suit. In fact, I shouldn’t have to worry about a suit at all – the warranty remedy is what the licensee gets. And then the remainder of the license continues – maintenance fees and all (including maintenance calculated at the rate of the license fee paid).

If, however, there’s a breach of contract, I could end up with no license at all. Not good for me as a vendor. :)

]]> By: Douglas Griess http://www.licensinghandbook.com/2009/05/04/customer-audits-of-your-contracts/comment-page-1/#comment-798 Douglas Griess Tue, 05 May 2009 13:29:13 +0000 http://www.licensinghandbook.com/?p=922#comment-798 Your point about trust being fundamental to the initial transaction is well taken. Contracts do not create good faith between parties, but they can be used to communicate, allocate, and manage and expectations, concerns, and risks. Regarding the warranty, I think it is a good example of using the contract to communicate. However, I don't think the warranty serves any particularly unique purpose as the there is no greater liability or responsibility if there is a breach of warranty than there would be if there was a breach of the exclusive licensing provision. The real issue seems to be how to fashion a remedy for the particular breach, or better yet, one that builds in some kind of security into the agreement which does not rely on the expense of litigation as the sole means for enforcement. Thanks for the post. Your point about trust being fundamental to the initial transaction is well taken. Contracts do not create good faith between parties, but they can be used to communicate, allocate, and manage and expectations, concerns, and risks.

Regarding the warranty, I think it is a good example of using the contract to communicate. However, I don’t think the warranty serves any particularly unique purpose as the there is no greater liability or responsibility if there is a breach of warranty than there would be if there was a breach of the exclusive licensing provision. The real issue seems to be how to fashion a remedy for the particular breach, or better yet, one that builds in some kind of security into the agreement which does not rely on the expense of litigation as the sole means for enforcement.

Thanks for the post.

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