The corporate world is undergoing constant change with ever increasing reliance on information technology. Much of the information technology upon which many businesses rely, originates from outside sources rather than in-house. As reliance on outside vendors increases, so do the risks associated with vendor agreements. Here are four useful tips for negotiating and analyzing information technology (IT) agreements.
Clearly Define The Acquisition
Clearly defining the subject matter of an acquisition helps to set common expectations for all parties to the deal. This can also be helpful in quickly resolving disputes when there are disagreements regarding the deal.
Definitions of IT products and services should be sufficiently specific for an arbitrator or judge – who may lack technology or industry background – to determine the subject matter of the acquisition.
Avoid Jargon and Acronyms Whenever Possible.
It is difficult to avoid the use of jargon and acronyms, however, many technology acronyms have more than one potential meaning. Without a truly common and unique meaning, the use of acronyms presents a risk that the parties to an IT agreement do not have a common understanding of the subject matter of the agreement.
Additionally, in the event of a dispute, jargon and acronyms make it more difficult for an arbitrator or judge (who may not be technologically savvy) to determine whether the terms of the agreement have been met. Therefore, acronyms should be defined in the agreement, and jargon should be avoided or defined.
Carefully Select the Choice of Law and Venue Provisions.
Many people negotiating agreements often overlook the choice of law provision which will govern how the agreement is interpreted. Furthermore, some states have unique provisions of law and default rights read into agreements unless the agreement specifically excludes such provisions.
With regard to the choice of venue, it is often best to choose your home jurisdiction or one that is sensitive to your industry. For gaming and gaming-related companies, using Nevada as the venue of choice for resolving disputes is preferable to other jurisdictions because any outcome of a dispute is more likely to consider the unique nature of the highly regulated industry where the company operates.
Carefully Review Indemnity Provisions.
Intellectual property infringement liability, in some cases, can flow to the end users of software programs. In recent highly publicized lawsuits, a company holding rights in the UNIX operating system has filed suit against certain companies that are end users of LINUX operating systems, based on various intellectual property infringement claims. While many of these suits remain unresolved, the expense of defending such suits can be significant. Therefore, every IT agreement should have indemnity provisions that protect the company licensing software or receiving information technology services, from claims of intellectual property infringement made by third parties. Such provisions should require the vendor to defend and hold the company harmless, require the vendor to pay any costs of settlement or adverse judgments, and provide the company with alternatives to using any allegedly infringing materials.
While several other issues should be considered before signing an IT agreement, the four quick tips should be useful in negotiating and analyzing IT agreements to minimize the risks to businesses acquiring information technology products and services.