Negotiating a digital content license with a vendor can be daunting – and getting all the contractual details right perhaps even more so. But it doesn’t have to be that way. If you are new to this area, or just need a refresher, this article will get you off to a good start.
This advice comes from my 15 years of experience negotiating and contracting with content vendors. There are, of course, a lot more than seven things to know about a digital content license, but these are some of the most crucial ones – those that can trip you up if you are not careful. The legal framework for this article is English Law, which is widely used in content agreements. Most of the points are applicable to any English-speaking jurisdiction. However, beware of possible variations; if you are contracting under another country’s laws, make sure you familiarise yourself with the implications.
1. When is a deal a deal?
Unlike consumer contracts, where there is often a “cooling off period” and legislative protection against “unfair terms”, when it comes to Business-to-Business agreements it is a case of “caveat emptor”: buyer beware. Once you have legally committed to the deal, that’s it. There is no way out, unless the contract itself provides a mid-term exit route. The law will not protect you against deviously drafted vendor clauses. Both parties are considered to have enough expertise to look after themselves.
It is, therefore, important to be very clear on when – at what point in time – you are actually committing your organisation to a deal. In the eyes of the law, three conditions need to be fulfilled for an agreement to exist:
- An offer must have been extended by one party and accepted by the other
- The applicable terms and conditions must be clear (Scammel v. Ouston 1941)
- Sufficient “consideration” must exist – the parties must promise to trade something of value in exchange for a services or goods.
It is conceivable that those conditions could be fulfilled through a mere email exchange. The buyer could thus enter into a legally binding agreement without intending to do so. To avoid this situation just add “subject to contract” to any wording accepting an offer in writing. The intention to have the license governed by a subsequently signed document, is then made explicit.
The opposite situation could also occur – you may have intended to enter into a legally binding arrangement only to find that the document does not have the intended legal effect. The “Letter of Intent”, for example, does not create a legally binding contract, although the vendor may claim for services already delivered on a pro rata basis (British Steel Corpn. V. Cleveland Bridge & Engineering Co. 1984).
2. Correctly interpret the digital content license
Since the law does not provide any protection against unfair terms in Business-to-Business contracts, here are a few pointers on how to read a digital content license and stay out of trouble:
- Read everything! Do not rely on headlines to pick out what text to read. Headlines are for guidance only, and important clauses may be hidden where you least expect to find them.
- Equally, “definitions” may not just be definitions; they may hide obligations and rights as well.
- Be mindful of capitalised words. Any capitalised word not at the beginning of a sentence has the exact meaning assigned to it in the “Definitions” section or as defined in the body of the text.
To become familiar with a typical structure of a digital content license you could download freely available industry agreements such as the PDR (Pharma Documentation Ring) model license[1] developed through collaboration between pharmaceutical companies and content vendors. In the financial industry FISD (Financial Information Services Division of the Software & Information Association) has developed an equivalent model license[2].
3. Get the usage rights your organisation needs
Usage rights are the core of the digital content licence. They are what you get in exchange for paying the license fee. It is important to remember that no ownership of the content changes hands. All you get is the right to use the content in a specified way for the duration of the term of the licence. Anything not explicitly permitted by wording in the contract is prohibited, so do not make any assumptions. Therefore, if your organisation needs to use the content in a way different than to what is described in the contract get the wording changed.
Some vendors have been known to periodically analyse their own contracts for “usage rights gaps”, then create add-on licences to breach those gaps – at an additional cost, of course… These newly productized “usage rights gaps” may very well include rights you already assumed you had, rights you relied on, and rights which the vendor knew your organisation relied on. If you find these “usage rights gaps” before the vendor does and include them in your annual negotiations, it may end up costing you less, or nothing at all.
What kind of usage should be included in the digital content license? That depends on the needs of your organisation today and in the near future. Look at the previously mentioned model agreements from PDR and FISD for inspiration.
As important as what your users can do with the content is who these users are, as defined by the contract. Pay attention to the Authorised User definition. If you are going for a global-IP-identification-based licence, ideally you would want everyone who is permitted to access your organisation’s secure network (on-site or remotely) to be included. This includes individual contractors and consultants.
If your organisation uses Business Process Outsourcing (BPO) providers who need access to the content in order to deliver services to you, the picture gets vastly more complicated. These BPO providers are typically not included in the vendor’s Authorised User definition. Many vendors feel that including BPOs would cannibalize their revenue, or jeopardize their opportunities to expand revenue by selling new licenses directly to the BPO providers. If you can convince the vendor that such negative impact on revenue would be unlikely in your specific case, you may have a chance of getting BPO providers included as Authorized Users.
4. Group companies coverage
If the digital content license is intended to be global, you need to make sure it really is just that. Having the word “global” included in the contract wording is not enough. You need to think about which group companies the license should cover. What really matters is the wording of the “Group Definition” or “Affiliate Definition”. That sets out which legal entities within the wider group are covered. Corporate structures can be complex, so the Affiliate Clause needs to be adequately flexible to accommodate that complexity.
An Affiliate Definition describes the relationship that needs to exist between the contracting legal entity (“Licensee”) and other companies within the group, for such companies to be considered “Affiliates”. The sample Affiliate definition in the PDR model agreement is an example of a good definition. It includes entities “controlled by, controlling, or under common control with, the Licensee”. In other words, a holding company would be included, and so would a direct subsidiary of Licensee, as well as any other entity within the group. “Control” in this context often means more than 50% ownership.
In addition to defining Affiliates correctly, the digital content license then also needs to extend usage rights to those Affiliates.
Complex corporate structures also tend to change, driven my mergers, acquisitions and sell-offs. So, what happens to the contract in those cases? If the changes are big, a renegotiation is often unavoidable. However, for minor acquisitions and sell-offs you may save yourself a renegotiation by including wording in the contract that deals with this eventuality. It could be something simple along the lines of saying that any acquisition or sell-off that changes the total Full Time Employee (FTE) number by less than X% will not affect the current agreement and, therefore, no additional payment or discount is due. Whether it is worth including this kind of wording depends on whether small acquisitions/sell-offs have formed part of your company’s recent activities and/or are part of a strategy for the future.
5. If it’s not in the agreement, it doesn’t count!
Have you ever been promised something by a vendor and then have that promise somehow… evaporate? Let’s face it – we have all been there! Negotiations can be longwinded and include many convoluted issues, so it is easy to lose track.
Virtually all agreements include an “Entire Agreement Clause” – a clause that says that anything discussed, promised, or any representation made that is not included in the contract cannot be relied upon. This is regardless of whether the discussion, promise or representation was verbal or in writing.
Trying to change a contract after signature to get something included that had slipped between the cracks, is a nightmare at best and outright impossible at worst.
A simple, yet effective, way of avoiding this situation is to keep a log throughout the negotiation process. Record every promise made, the legal effect you intend the corresponding clause to have, and possibly also draft contract wording. You can then get the vendor to confirm all promises made before final contract draft, and if your own Legal department is to work on the contract, you can share the log with them. It really is a time-saver, especially for big complicated negotiations.
6. If things go wrong
Breach of contract happens every day, often inadvertently. A scientist may “discover” through a Google search that many very well respected scientific journals appear to be freely available on the internet. He downloads them all to read on his commute home. It may seem innocent, but a breach of a vendor’s content license just happened.
The journals were, in fact, not “freely available on the internet”. The only reason the scientist could access them was because his workplace’s IP addresses were recognised by the publisher’s website – access governed by a negotiated digital content license. The publisher has software that detects the unusual download activity and automatically terminates access for the entire organisation. Thanks a lot, Mr. Scientist!
Breach may not just lead to termination of access, but termination of the entire agreement. That’s a problem – or is it? Not if the digital content license allows you time to cure a breach, if you promptly cooperate with the vendor to end the breach and take reasonable steps to prevent its re-occurrence. Thirty days is normally considered a reasonable grace period to cure any breach. This is, of course, assuming that a cure is possible.
In many cases, the relationship between the parties is strong enough to deal with any unintended breach. However, it is always prudent to have legal cover as well. Relationships do, after all, change over time.
7. Ending the relationship painlessly
Everything comes to an end at some point, even licensing agreements. If you do not want to renew the digital content license, you need to make sure that the relationship is ended in a way acceptable to your organisation.
Over time, part of the content may have found its way into applications and places where it cannot be extracted again without investing significant cost and effort. It is, therefore, important that the digital content license explicitly states that there is no obligation to purge integrated content.
It may also be important to your organisation to retain usage rights to the content consumed while the contract was in force. If so, a clause granting “perpetual rights” needs to be included. This content would then remain governed by the usage rights of the terminated agreement. The applicable clauses are said to “survive” termination. It is generally good practice to ensure that only clauses that really need to survive do so. Otherwise, you may end up with a terminated agreement which is not truly terminated.
Negotiating for content
These seven things to know before signing a digital content license should make your negotiating with content vendors less stressful. They won’t answer your every question or address every single issue that could arise in an individual negotiating and licensing situation. They will, however, give you a huge advantage in the negotiating process.
Negotiating and licensing are skills rarely taught in graduate library schools. Often these skills are acquired “on the job” or through courses not necessarily equipped to cover the intricacies of library content subscriptions. For additional help, drop me a line at armand.brevig@content-impact.com.
This article first appeared in Online Searcher Magazine, March/April 2014, VOL 38/No.2
About the Author: Armand Brevig (MBA, M.Eng) is the founder of Content Impact Ltd, a specialised consulting and training company, which offers flexible and affordable solutions to buyers and vendors of content. Armand is also the creator of myProcurementCube – an effective and lean Procurement product that unlocks hidden business value.
[1] http://www.p-d-r.com/content/e7/e1427/FINAL2012_Model_Licence.pdf
[2] http://www.siia.net/Divisions/FISD-Financial-Information-Services-Association/Resources/Documents
