by Paul Temple
Ever try to license software or provide SaaS to a Fortune 500 company or some other high profile company? Did they insist on working from “their paper”? You know enough not to simply hope for the best and sign whatever contract they put in front of you, but you also don’t want to delay further a months-long sales effort over the paperwork. What do you do?
The Customer’s Form Contract
You want the deal, so you tell them to send you the draft. BigCo sends you its contract. It’s a long, complex document that rivals the King James Bible. You send it to your lawyer, who spends an hour or two reviewing it. The lawyer comes back with a list of concerns that go something like this:
- The intellectual property terms don’t apply to the deal you’re trying to close. You simply want to provide access to your SaaS platform, and the contract has your company assigning over all of its IP – effectively preventing you from offering a SaaS platform to your other customers.
- The security terms are totally overbearing. You’ll only receive publicly available, anonymized information, but the contract has your company submitting to monthly penetration tests, annual SOC 2 Type 2 audits across all five principles, and background checks on all your employees by a third party of your customer’s choosing.
- The renewal and termination provisions give your customer a right to terminate at any time, for any reason, with a pro-rata refund.
You then call your counterpart at BigCo and negotiate the renewal and termination provisions, while your lawyer rewrites the intellectual property and security terms. You’ve now spent your own relationship capital negotiating a key term, you’ve spent money on legal expenses, and the revisions haven’t even been sent to your customer’s attorney yet. Worse still, you’re beginning to wonder why they sent over a contract that requires this much hassle.
Here’s the problem: When they told you they wanted to work from their paper, you felt like you were in no position to negotiate. You spent a long time to get the deal to that point, and the economics were finally set. Your counterpart may have even said, “Our legal can be a pain. I don’t like having to deal with them, but it’s how we do things at BigCo.”
A Better Way Forward
Assuming you are even willing to work from their form, consider an alternative. Imagine instead that you told your counterpart at BigCo, “Certain legal items are really important to us. They are X, Y and Z. If we can work from a contract with those included, I’m confident the lawyers can hammer out the rest and we can quickly get this deal done.”
So what are X, Y, and Z? Here’s a sample of issues that are critical in many software deals:
- Intellectual Property – Are you assigning your software (literally giving the code and full ownership to your customer), licensing it and reserving ownership rights to yourself, providing user access to a SaaS platform, or something else?
- Data – If you’re providing a SaaS platform, who is responsible for the content of the data uploaded into it? Who owns it? What can (and can’t) you and your customer do with it?
- Termination – Under what circumstances can your customer terminate the agreement?
Obviously that’s not an exhaustive list, and critical issues vary from deal to deal and company to company. Ideally, you already know your X, Y and Z.
When you communicate key legal concerns the moment you are willing to concede on using their paper, you send some important signals to BigCo:
- You’re willing to work with them if they’re willing to work with you.
- You know that the legal terms matter, and you know which issues are especially critical for your deal.
- You want to learn quickly whether they will insist on dealbreaker terms.
- You will expedite the process to get the deal done.
If your counterpart at BigCo also wants to get the deal done soon, your message will reach BigCo’s legal department. And if BigCo’s legal department takes cues from your counterpart, you’re much more likely to receive an agreement that actually applies to your deal. This saves everyone time and money in the long run.
But suppose your counterpart doesn’t want to close quickly or doesn’t relay your message, or suppose the legal team doesn’t take cues from your counterpart. Suppose the contract you receive from BigCo’s legal department isn’t any better. Are you really any worse off than if you had not tried this approach?
by Paul Temple |