“Are you sure you’re licensed to use your business-critical software – and how would you cope if your IT provider goes out of business?” asks Valerie Toon, partner at Mundays LLP, a US-based law firm specializing in air cargo and logistics industry issues.
The implementation of new technology, particularly IT, is a potential minefield that can explode in major operational difficulties and sharply higher than expected costs.
The legal issues - and not just those involving disputes over the efficiency or suitability of systems - can cause significant problems for the user.
One such area, says Toon, is IT licenses. She points out that many software and application licenses are restricted to a specific number of users or a particular location. Consequently, as companies expand their business, they need to go back to the supplier and buy additional licenses or risk large unexpected bills later on.
IT licensing can also be a problem when companies are being taken over or merged, continues Toon, who is currently working on a case where the client is trying to sell the assets of a business and the IT system is not transferable to the buyer.
Toon’s advice is to carefully check technology licensing agreements to see what they cover and, if necessary, take legal advice to confirm those details.
A more frequently publicized problem arising from IT and other technology developments - and an issue that can often end up in a legal dispute - is that of a new system that fails to perform to the buyer’s expectations.
“If the purchaser has not taken legal advice on the contract, they can find that the vendor’s terms exclude liability for all sorts of things,” warns Toon. “Unless the purchaser has negotiated appropriate provisions in the contract to ensure there are no clauses that prevent claims being brought or restrict the value of claims, they may end up with not much of a remedy.”
Another potential problem for buyers of technology arises when the supplier of business-critical software suddenly goes out of business, which is dangerous situation for customers without an escrow arrangement.
In order to correct errors and update IT software, suppliers have source codes that are not released to customers. Toon says that if the software is really important to your business, you want the source code to be deposited with an escrow agent with whom you have a legally binding agreement. “Then, if the vendor goes bust, you can get your hands on that source code and do your own error-correction, updating and so on.”
Toon adds that, as with all other aspects of agreements with technology suppliers, such as the terms of related maintenance arrangements and ‘system down’ response times, the key is to get all the details legally documented at the time the purchase is made.
“Often, a vendor’s standard terms will not provide adequate protection for the buyer. If the customer signs without taking legal advice, then they are going to find it very difficult to bring a claim if there are problems later on. Whatever the salesman says, the terms are negotiable - but do that at the bargaining stage, don’t leave it too late.”
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