Tuesday’s Tip: Software Licensing and Pricing – Now’s The Time To Remove “Gag Rule” Clauses In Your Software Contracts

Published on January 27, 2009 by R "Ray" Wang

Vendors Find New Ways To Limit Access to Third Party Advisers

Conversations over the past 3 months with clients about their software contracts highlight some egregious licenses practices by software vendors.  Here are some examples of gag rules that some vendors have recently attempted and successfully put into contracts:

  • Limits on third party negotiation support.  Licensees limited in their ability to discuss contractual terms with others.  On top of this, discussion of contractual details require the vendor’s written permission.
    The impact:
    Legal advisers, contract specialists, and other interested third parties must obtain permission.  A vendor recently banned a licensee from working with a contract specialist citing confidentiality.
  • Restrictions on freedom of speech. One vendor had the audacity to include legal language to restrict a client vendor from disclosing details about bugs, defects, and contractual breaches with the press, peers, and user groups.
    The impact:
    Licensee prevented from working with peers and ecosystem members to resolve technical issues and compare pricing options.  In addition, the customer now lacks the proper check and balances in pressuring a vendor to deliver on promised capabilities or address severe security issues and can not go to the media as a last resort if needed.

The bottom line – take advantage of the recession to reassert your rights to work with third parties*

Take the opportunity to restructure your contracts upon renewal.  Current economic conditions shift the balance of power back to the licensee and now’s the time to:

  1. Retain your rights to access third party expertise in assisting with software contract reviews and overall apps strategy.
  2. Reassert your ability to freely speak to peers, third parties, and the press as needed about issues with a vendor.
  3. Pressure vendors who fail to public provide transparency about software licensee and pricing policies to begin that process.

Your POV.

Has your software vendor put a gag order on your ability to seek help?  Are you working well with a vendor who has good practices?  Post your thoughts or send me a private email to rwang0@gmail.com.

(Added 3/5/2009) Take the new poll on what rights should be in the 2009 Enterprise Software Licensee Bill of Rights!

*Caveats are as follows:  1) This does not constitute legal advice.  Please consult your legal counsel for an official opinion and wording.  2) This does not consider any procurement or vendor management rules that must be applied to your enterprise.  Please work with your vendor management teams for compliance.  3)  Contract negotiation support provides insight into overall trends and price points.  Benchmarks are not provided as each user scenario is unique.

Copyright © 2009 R Wang. All rights reserved.

  • I was intrigued by your question:

    It begs the question of whether you are allowed to even reveal that fact — and it happened to me!

    In a contract negotiation with a very large software firm (no tattle-tale-ing here, but they are based in Israel and the name starts with “A”), I noticed an interesting confidentiality clause.

    Basically, it stated that I was not allowed to reveal the very existence of the entire contract!

    Other provisions of the contract blocked me from “exhibiting” (in the legal sense) any of the work products — course exercises, slides etc. — which meant that I could not show examples of my good work to a prospective new client.

    Fair enough, but of course I would tell the new client “No, sorry, but I can’t show you that material. The contract with A—– precludes that”.

    “No,” said the lawyer, “you can’t say that. The existence of a relationship between your company and A—– is confidential.”

    “So what do I say when they ask why they can’t see samples of my work for A—–?”

    “You say nothing.”

    Needless to say, I asked for and received permission to strike the “the existence of this contract is a secret” clause. And the Comedy of the Absurd was concluded, at least for that performance.

    Tell me, do lawyers actually get paid to write that stuff?

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