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2 QUESTIONS REGARDING TECHNOLOGY AGREEMENTS March 16, 2016

3 DISCLAIMER The information provided in this presentation reflects the personal views of the participants and does not reflect the opinions or positions of Arent Fox LLP. None of the presenters nor Arent Fox LLP may be held responsible for the use which may be made of the information contained in this presentation. Because of the generality of this presentation, the information provided herein may not be applicable in all situations and should not be used or acted upon without obtaining specific legal advice based on a particular situation. 3

4 LIMITATION OF LIABILITY Please discuss what sort of caps are often included in technology agreements? From a customer s standpoint, what are some of the most important exceptions to the liability caps to include in technology agreements, and does the answer differ if it is a cloud services agreement, a software license agreement, or a professional services agreement? In addition, but more specifically, in connection with cloud services agreements, how are data-related breaches often handled with respect to limitation of liability? 4

5 LIMITATION OF LIABILITY (CONT D) From a provider s standpoint, what are some of the most important exceptions to the liability cap to include in technology agreements? What are some of the most significant risks for a customer when the provider s liability cap is low, and there are no exceptions to the cap? If you are a customer and you cannot get the exceptions to the liability caps that you are looking for, but you still want to do the deal, what are some of the other things you might seek to obtain to reduce your risk? 5

6 LIMITATION OF LIABILITY (CONT D) As to certain types of damages with respect to data issues (such as notifications, government fines, etc.), are they being classified in many technology agreements as direct damages so that they are recoverable from providers? Is personal information generally excluded from the definition of confidential information in technology agreements so that the two items can be handled differently in the limitation of liability cap? Is there a trend with providers seeking unlimited liability for a client s breach of the license grant? 6

7 INDEMNIFICATION What are some of the most important indemnification issues for customers in connection with software license agreements? From the SaaS vendor s perspective, since indemnity seems to always invite negotiation and requests that the obligations be mutual, are vendors of SaaS services often better off foregoing the indemnification section? In that same regard, with respect to making the customer liable for third party claims arising from its data, would many SaaS providers be better off just creating an acceptable use policy (requiring the customer data to be in conformance with the law, etc.) and carve it out from the limitation of liability? Why are so many indemnification clauses written as additional remedies for a breach between the parties and not arising from a third party claim? 7

8 INDEMNIFICATION (CONT D) What would constitute strong indemnification language from the client side? How about from the provider side? Is it typical that vendors would indemnify the client for client s use of the vendor s IP? How do the indemnity and limitation of liability provisions relate to one another? If the limitation of liability provision does not expressly carve out indemnification, is it safe to assume that the indemnity is capped by the amount set forth in the limitation of liability provision? 8

9 WARRANTIES In technology agreements, do providers generally grant a warranty against infringement or is the customer s protection with respect to infringement usually limited to just indemnification? How beneficial is it to get a warranty of non-infringement? 9

10 DATA PRIVACY How does a customer seek to ensure that its technology agreements have adequate provisions to protect confidential and personally identifiable information, particularly when the customer has limited bargaining power and the provider doesn't want to change its standard contract language? What are some of the most important concerns when data/information is exchanged via technology agreements and what protections may be included in the agreement with respect to data privacy issues? What type of language is frequently included in cloud services agreements to seek to address evolving EU data privacy issues? 10

11 DATA SECURITY Do customers frequently seek to require the SaaS vendor to disclose the company names (and locations) of all of its third party providers who are connecting with the SaaS solution, and how beneficial are such disclosures to the customers? Do customers frequently require the SaaS vendor to disclose all of the countries where the customer data is being stored and/or transmitted, either by the SaaS vendor itself or its third party providers, and how beneficial are such disclosures to the customers? What type of data security requirements do customers often seek to require of third party providers, and is such ordinarily accomplished through flow-down provisions in the customer s agreements with the primary providers? 11

12 DATA SECURITY (CONT D) Are data security requirements often linked to a customer s right to terminate, and, if so, how? That is, do customers often have the right in their technology agreements to terminate for an actual or suspected data security breach, or is this ordinarily covered through the default provision? Is a security breach effectively a de facto material breach, or can a security breach be less than material? 12

13 CONFIDENTIALITY Are indemnification provisions common in NDAs that are executed in connection with technology agreements? With respects to breaches of confidentiality, what types of damages do customers or providers often consider to be consequential/indirect, rather than direct? 13

14 GRANT OF LICENSES What are some of the most common errors (both from the licensor and licensee perspective) in the scope of the license grant? What are some of the pros and cons of granting licenses on a perpetual basis rather than for a long period of years? What is the difference between licensing technology vs. licensing patent rights and/or copyrights? 14

15 GRANT OF LICENSES (CONT D) When software is licensed to a company for its internal use supporting its business operations, what implied uses are considered encompassed within the license grant? For example, may the licensee allow its technology service providers to access or incidentally use the software solely in the scope of their own work for the licensee e.g., installing updates, conducting software installation assessments or testing, providing a hosted platform, creating interfaces, etc.? What are the limits of such implied incidental uses? 15

16 IP ISSUES What are some approaches for a provider for dealing with a customer that insists on using its standard form agreement that purports to give the customer sole ownership of all deliverables, and references all deliverables as "works made for hire," when the deliverable is the provider s proprietary SaaS product/ service that the provider provides to many customers? When a customer pays for a deliverable, if and when does ownership of that deliverable vest in the customer? Is it upon payment, creation or at some other time? 16

17 SERVICE LEVEL AGREEMENTS How can a customer seek to receive appropriate service level agreements ( SLAs ) from a cloud services provider when the provider makes the statement that we can only pass on the SLAs we have from our hosting provider? What are some of the best counterarguments when cloud services providers make this statement? If you have a technology agreement, do customers generally need support provisions or is that ordinarily covered just through the credits received via the SLA? 17

18 TERMS OF USE/CLICK THROUGH AGREEMENTS There are many click through license agreements for software products that include terms stating that the license agreement may be amended at any time if the software company posts a new version online. Can these types of amendments be enforceable in many instances, and how does a licensee manage this type of clause? 18

19 OPEN SOURCE CODE When a customer licenses software from a provider, is there an approach to take to identifying or addressing open source code? 19

20 CHOICE OF LAW AND CHOICE OF FORUM How important are choice of law and choice of forum provisions in technology agreements, and what compromises may be used when the parties cannot agree on the resolution of choice of law or choice of forum? 20

21 MANAGED SERVICES What are managed services technology contracts and how, if at all, do these contracts differ from a typical supplied services agreement? What are some of the key elements of managed services agreements for staff augmentation or IT outsourcing transactions? 21

22 ADDITIONAL TOPICS When you are working with a major technology provider, for example a cloud hosting provider, who present their contracts as largely non-negotiable, what are some of the red flags a company should watch out for and attempt to negotiate? Are there any good resources you would recommend for technology agreement templates or suggested clauses that would be helpful to a startup or solo in-house lawyer whose budget and resources may be limited? 22

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