Interopera-what?

Strategic Factors Affecting Licensing Negotiations

Recently we looked at how a party's market role or position might affect the tone of a negotiation.   In this post we'll take a first look at a number of other strategic factors that can influence the shape of a licensing deal.    This is a very broad topic, so we will list these generally first.   In our next post, we will take a look at some industry examples.

For the sake of clarity, we'll assume below that you are doing the licensing. If you're a licensee, simply reverse the analysis.

Reports of the death of custom enterprise software have been somewhat exaggerated...

Many observers believe that with the advent of Software as a Service (SaaS), custom enterprise software may have had its day.   The demand for various models of cloud services has increased.   This model often comes hand in hand with a "best of breed" software selection approach which reduces the need for custom-made software solutions in the IT services industry.  But will the continuing trend towards this model mean the death knell for custom designed software?   It's not likely.   In fact, as we suggest below, there is a significant likelihood that a demand for customized enterprise solutions will continue.    This means that a good understanding of how to negotiate enterprise software contracts will be a necessary skill.

Living in the Cloud

Cloud services have proliferated the IT services industry in the last few years or so, and it's easy to see why.   There are numerous advantages to offering and using cloud services as opposed to out of the box software solutions.   For service vendors the model enables a steady income stream and a quick way to fix bugs and get improvements to customers.   For providers, it's a way of diversifying existing IT services and enabling income that wasn't previously available.   For service users, the model offers better tax deductibility due to the switch from CAPEX to OPEX, usually a better overall reliability, and if properly researched, it can reduce the overall IT maintenance spend.

IP Ownership - is it really all that it's cracked up to be?

When negotiating a collaboration agreement, one of the issues that often causes a headache is who is to own the IP.   In many cases, it is a debate that doesn’t need to happen.  As we saw a couple of weeks ago, this issue can be so divisive that the negotiating parties lose perspective and fall into the joint ownership trap.

Software Escrow Arrangements

So what would happen if your IT contractor went into liquidation?   It could be your IP horror story.   In a disturbingly high number of cases, IT services contracts specify that where software solutions are custom-made for an enterprise, they are owned by the contractor, not the enterprise.   This means that in a liquidation scenario, ownership of the software will vest with the liquidator.

Your new IT contractor will need to have access to your software, and preferably a license to tinker with the source code.   Without these things, not only does switching contractors become an impossible transition, but any modifications to your software solution may lead to a breach of the liquidator’s IP.