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

GROUP COMPANIES COVERAGE

If the contract is intended to be global, you need to make sure it really is just that. Having the word “global” included in the contract wording is not enough. You need to think about which group companies the license should cover. What really matters is the wording of the “Group Definition” or “Affiliate Definition.” That sets out which legal entities within the wider group are covered. Corporate structures can be complex, so the Affiliate Clause needs to be adequately flexible to accommodate that complexity.

An Affiliate Definition describes the relationship that needs to exist between the contracting legal entity (“Licensee”) and other companies within the group, for such companies to be considered “Affiliates.” The sample Affiliate definition in the PDR model agreement is an example of a good definition. It includes entities “controlled by, controlling, or under common control with, the Licensee.” In other words, a holding company would be included, and so would a direct subsidiary of the Licensee, as well as any other entity within the group. “Control” in this context often means more than 50% ownership.

In addition to defining Affiliates correctly, the contract then also needs to extend usage rights to those Affiliates.

Complex corporate structures also tend to change, driven by mergers, acquisitions, and sell-offs. What happens to the contract in those cases? If the changes are big, a renegotiation is often unavoidable. However, for minor acquisitions and divestitures, you may save yourself a renegotiation by including wording in the original contract that deals with this eventuality. It could be something simple, along the lines of saying that any acquisition or sell-off that changes the total Full Time Employee (FTE) number by less than X% will not affect the current agreement, and, therefore, no additional payment or discount is due. Whether it is worth including this kind of wording depends on whether small acquisitions/sell-offs have formed part of your company’s recent activities and/or are a part of a strategy for the future.

If IT’S NOT IN THE AGREEMENT, it doesn’t count!

Have you ever been promised something by a vendor and then have that promise somehow … evaporate? Let’s face it—we have all been there! Negotiations can be longwinded and include many convoluted issues, so it is easy to lose track.

Virtually all agreements include an “Entire Agreement Clause”—a clause that says that anything discussed, promised, or any representation made that is not included in the contract cannot be relied upon. This is regardless of whether the discussion, promise, or representation was verbal or in writing. Trying to change a contract after you’ve signed it, to get something included that had slipped between the cracks, is a nightmare at best and outright impossible at worst.

A simple, yet effective, way of avoiding this situation is to keep a log throughout the negotiation process. Record every promise made, as well as the legal effect you intend the corresponding clause to have, and possibly also draft contract wording. You can then get the vendor to confirm all promises made before final contract draft, and if your own legal department is to work on the contract, you can share the log with them. It really is a timesaver, especially for big, complicated negotiations.

If things go wrong

Breach of contract happens every day, often inadvertently. A scientist may “discover” through a Google search that many very-well-respected scientific journals appear to be freely available on the internet. He downloads them all to read on his commute home. It may seem innocent, but a breach of a vendor’s content license just happened.

The journals were, in fact, not “freely available on the internet.” The only reason the scientist could access them was because his workplace’s IP addresses were recognized by the publisher’s website—access governed by a negotiated license agreement. The publisher has software that detects the unusual download activity and automatically terminates access for the entire organization. Thanks a lot, Mr. Scientist!

Breach may not just lead to termination of access, but termination of the entire agreement . That’s a problem—or is it? Not if the contract allows you time to cure a breach, you promptly cooperate with the vendor to end the breach, and take reasonable steps to prevent its reoccurrence. Thirty days is normally considered a reasonable grace period to cure any breach. This, of course, assumes that a cure is possible.

In many cases, the relationship between the parties is strong enough to deal with any unintended breach. However, it is always prudent to have legal cover as well. Relationships do, after all, change over time.


Ending the relationship painlessly

Everything comes to an end at some point, even licensing agreements. If you do not want to renew the contract, you need to make sure that the relationship ends in a way acceptable to your organization.

Over time, part of the content may have found its way into applications and places where it cannot be extracted without investing significant cost and effort. It is, therefore, important that the contract explicitly states that there is no obligation to purge integrated content.

It may also be important to your organization to retain usage rights to the content consumed while the contract was in force. If so, a clause granting “perpetual rights” needs to be included. This content would then remain governed by the usage rights of the terminated agreement. The applicable clauses are said to “survive” termination. It is generally good practice to ensure that only clauses that really need to survive do so. Otherwise, you may end up with a terminated agreement that is not truly terminated.

NEGOTIATING FOR CONTENT

These seven things to know before signing a license should make your negotiating with content vendors less stressful. They won’t answer your every question or address every single issue that could arise in an individual negotiating and licensing situation, but they will give you a huge advantage in the negotiating process.

Negotiating and licensing are skills rarely taught in graduate library schools. It’s more “on the job” training or specialized courses not necessarily equipped to cover the intricacies of library content subscriptions. For additional help, check my Content Buyers & Sellers blog (contentbuyerseller.com) and join the Buying eContent group on LinkedIn. Above all, don’t panic when confronted with negotiating a license agreement.


The 7 Things to Do Before Signing the License

1. Know when a deal is a deal.

2. Interpret the agreement correctly.

3. Get the usage rights your organization needs.

4. Cover all possible group companies.

5. Keep track of what’s been discussed.

6. Be prepared for things to go wrong.

7. Plan for painlessly ending a relationship.


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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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