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Seven Things to Know Before Signing a License
By
Volume 38, Number 2 - March/April 2014

Negotiating with content vendors about subscriptions for electronic resources can be daunting—and getting all the contractual details correct perhaps even more so. But it doesn’t have to be that way. If you are new to this area, or just need a refresher, this article will get you off to a good start.

This advice comes from my 15 years of experience negotiating and contracting with content vendors. There are, of course, a lot more than seven things to know about contracts, but these are some of the most crucial ones—those that can trip you up if you are not careful. The legal framework for this article is English Law, which is widely used in content agreements. Most of the points are applicable in any English-speaking jurisdiction. However, beware of possible variations; if you are contracting under another country’s laws, make sure you know the contract’s legal jurisdiction.

When is a deal a deal?

Unlike consumer contracts, where there is often a “cooling off period” and legislative protection against “unfair terms,” when it comes to business-to-business agreements, it is a case of “caveat emptor”: buyer beware. Once you have legally committed to the deal, that’s it. There is no way out, unless the contract itself provides a midterm exit route. The law will not protect you against deviously drafted vendor clauses. Both parties are considered to have enough expertise to look after themselves.

It is, therefore, important to be very clear on when—at what point in time—you are actually committing your organization to a deal. In the eyes of the law, three conditions need to be fulfilled for an agreement to exist:

1. An offer must have been extended by one party and accepted by the other.

2, The applicable terms and conditions must be clear ( Scammel v. Ouston 1941).

3. Sufficient “consideration” must exist—the parties must promise to trade something of value in exchange for services or goods.

It is conceivable that these conditions could be fulfilled through a mere email exchange. The buyer could thus enter into a legally binding agreement without intending to do so. To avoid this situation just add “subject to contract” to any wording accepting an offer in writing. The intention to have the license governed by a subsequently signed document is thus made explicit.

The opposite situation could also occur—you may have intended to enter into a legally binding arrangement only to find that the document does not have the intended legal effect. The “Letter of Intent,” for example, does not create a legally binding contract, although the vendor may claim for services already delivered on a pro-rata basis ( British Steel Corporation v. Cleveland Bridge & Engineering Co. 1984).

CORRECTLY INTERPRET THE AGREEMENT

Since the law does not provide any protection against unfair terms in business-to-business contracts, here are a few pointers on how to read a contract and stay out of trouble:

1. Read everything! Do not rely on headlines to pick out what text to read. Headlines are for guidance only, and important clauses may be hidden where you least expect to find them.

2. Equally, “definitions” may not just be definitions; they may hide obligations and rights as well.

3. Be mindful of capitalized words. Any capitalized word not at the beginning of a sentence has the exact meaning assigned to it in the “Definitions” section or as defined in the body of the text.

To become familiar with a typical structure of a content license, you could download freely available industry agreements such as the PDR (Pharma Documentation Ring) model license developed through collaboration between pharmaceutical companies and content vendors (p-d-r.com/content/e7/e1427/FINAL2012_Model_Licence.pdf). In the financial industry, FISD (Financial Information Services Division of the Software & Information Industry Association) has developed an equivalent model license (archive.fisd.net/contracts/ecg/sample2.asp).


Get the usage rights your organization needs

Usage rights are the core of the license. They are what you get in exchange for paying the license fee. It is important to remember that no ownership of the content changes hands. All you get is the right to use the content in a specified way for the duration of the term of the license. Anything not explicitly permitted by wording in the contract is prohibited, so do not make any assumptions. Therefore, if your organization needs to use the content in a manner different from what is described in the contract, get the wording changed.

Some vendors have been known to periodically analyze their contracts for “usage rights gaps,” then create add-on licenses to breach those gaps—at an additional cost, of course. These newly productized “usage rights gaps” may very well include rights you already assumed you had, rights you relied on, and rights that the vendor knew your organization relied on. If you find these “usage rights gaps” before the vendor does and include them in your annual negotiations, it may end up costing you less, or nothing at all.

What kind of usage should be included in the contract? That depends on the needs of your organization today and in the near future. Look at the previously mentions model agreements from PDR and FISD for inspiration.

As important as what your users can do with the content is who these users are, as defined by the contract. Pay attention to the “Authorized User” definition. If you are going for a global-IP-identification-based license, ideally you would want everyone who is permitted to access your organization’s secure network (on-site or remotely) to be included. This includes individual contractors and consultants.

If your organization uses business process outsourcing (BPO) providers who need access to the content in order to deliver services to you, the picture gets vastly more complicated. These BPO providers are typically not included in the vendor’s Authorized User definition. Many vendors feel that including BPOs would cannibalize their revenue or jeopardize their opportunities to expand revenue by selling new licenses directly to the BPO providers. If you can convince the vendor that such negative impact on revenue would be unlikely in your specific case, you may have a chance of getting BPO providers included as Authorized Users.


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Armand Brevig is the founder of Content Impact Ltd (content-impact.com), a specialized consulting and training company, and the creator of the Content Buyers & Sellers blog (contentbuyerseller.com) and the “Buying eContent” LinkedIn group.

 

Comments? Contact the editors at editors@onlinesearcher.net

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