One Size Doesn’t Fit All

While combing through a proposed software license agreement with a business client, Brian Gamsey discovered language that would have let the vendor use the client’s data to train artificial intelligence. 

“That was something the client very much did not want,” says Gamsey, of Mills Gamsey in Atlanta. “We were able to get them to not use that feature as part of the offering once the license agreement was in place.”

Choosing the wrong software vendor, or signing without reading the fine print, can come back to bite a company—especially if the application is critical to business operations, says David Schulman, an attorney with Atlanta’s Greenberg Traurig. 

“If you’ve got a manufacturing floor with employees and robots and there’s a software application that runs the line … well, imagine that that software shuts down and then the manufacturing line shuts down. With a restaurant chain, imagine a software application that tracks your supply and inventory and allows you to reorder. If that shuts down, your operations are going to be brought to a halt. Imagine software that runs an operating room. Those are all ‘mission critical’ because they’re integral to the viability of that particular company.”

Before you sign a software licensing agreement, ask yourself: Why do I need it? For how long? Is it essential to my company’s operations or is it just a fun bells-and-whistles feature?

Although most businesses subscribe to “software as a service” applications that are stored in the cloud, some regulated industries such as banking, health care and national defense prefer—or are required by regulation to have—traditional “on-premises” software that their IT staff can more closely control. Either way, says Schulman, “Make sure that your software vendor has good support and maintenance systems, that they are constantly working on new developments, new improvements, and new features and functionality. Because as industries evolve, you want your software vendor to also be flexible and address your evolving business needs.”

Seek legal counsel early on. “Getting an attorney once there’s a problem is sort of like trying to put the toothpaste back into the tube,” Gamsey says. “It makes a lot of sense to engage a lawyer to review the terms, because even if you may not be able to negotiate away the risk, you will be able to have those risks specifically identified. … If you don’t know what you don’t know, it’s very easy to fall into the fine-print landmines.”

Because software agreements can contain tricky “legal terms of art”—legal distinctions that are difficult to interpret and not found in other types of contracts—it’s important to find an attorney well-versed in them. “I wouldn’t want my technology attorney drafting my trust and estates,” says Gamsey. “Similarly, I wouldn’t want my trust and estates attorney looking at my software licensing agreement.”

Pay attention to language about how your data can be used and who owns your intellectual property. Watch out for price increases that can sneak in with automatic renewals, and make sure any software you acquire can be incorporated into your existing systems. Consider joining the vendor’s advisory group, a committee made up of customers who understand the needs of the industry and can offer suggestions for improvement.

Though software vendors prefer their own form agreements, Schulman often advises large companies to create their own software procurement documents—but to be prepared for the software vendor to balk, at least initially. “It’s often a question of negotiating leverage. As software applications have integrated into every aspect of our lives, agreements have become more and more favorable to the software companies,” he says. “In critical applications, business owners need to be very careful and very deliberate in their procurement process.”

Finally, don’t fall for a take-it-or-leave-it licensing agreement from a vendor who asserts that it works for every business, Gamsey adds. “Just because they say ‘one size fits all,’ don’t allow that to preclude you from doing your diligence in ensuring that the contract is sized to fit you.”