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.

Licensing Negotiations - profiling the opposition

Before entering into any technology license negotiation, it's sensible to first develop a profile of the party you're negotiating with.   With IP negotiations, this can be done in a number of ways, but in this post we'll talk about how a party's role in the market can impact on their profile.

Here's a quick breakdown of how a party's market role can affect their negotiation stance:

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.

The Joint Ownership Trap

Parties contemplating a collaboration will often enter heated negotiations about who is to own future IP. To resolve the deadlock, they sometimes adopt a halfway position that results in "joint ownership" of newly developed IP. This can result in several problems.

Web Scraping and Copyright

Technology develops faster than the law does.   This can have both good and bad results.  Take the practice of web-scraping, for instance.   The same type of software used to detail the content of your site for search engine results can also be used to rob you of your innovative content.   Instead of just syndicating the content to provide it for search results, the software can also ‘scrape up’ the content to be used somewhere else.

The logical legal tool to deal with web-scraping abuse is copyright.  

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.