Appointment of a Reseller
A SOFTWARE RESELLER AGREEMENT IS A CONTRACT BETWEEN A SOFTWARE VENDOR (THE OWNER OR DEVELOPER OF THE SOFTWARE) AND A RESELLER (AN ENTITY AUTHORIZED TO SELL THE SOFTWARE TO END-USERS).
THE APPOINTMENT OF A SOFTWARE RESELLER SERVES SEVERAL STRATEGIC AND BUSINESS PURPOSES. IT ENABLES THE SOFTWARE OWNERS TO EXPAND THEIR MARKET REACH AND GROW THEIR SALES EFFICIENTLY WITHOUT THE NEED FOR RECRUITMENT OF IN-HOUSE SALES TEAM. RESELLERS OFTEN ESTABLISH EFFICIENT BUSINESS NETWORKS AND MAINTAIN STABLE CUSTOMER RELATIONSHIPS. THEIR ACTIVITY IS SUPPORTED BY THEIR KNOWLEDGE OF LOCAL MARKETS, THAT THE SOFTWARE OWNERS MIGHT LACK.
SOFTWARE RESELLER AGREEMENT OUTLINES THE TERMS AND CONDITIONS UNDER WHICH THE RESELLER CAN MARKET AND DISTRIBUTE THE SOFTWARE. THE DETAILED PROVISIONS OF SUCH AN AGREEMENT DEPEND LARGELY ON THE LAW APPLICABLE TO THE GIVEN CONTRACTUAL RELATIONSHIP; HOWEVER, IT IS POSSIBLE TO IDENTIFY SEVERAL GENERAL KEY AREAS OF SUCH A CONTRACT WHICH SHOULD BE PROPERLY ADDRESSED BY THE DRAFTER, REGARDLESS OF THE LAW GOVERNING THE AGREEMENT.
Exclusivity
AN EXCLUSIVITY CLAUSE IN A SOFTWARE RESELLER AGREEMENT GRANTS THE RESELLER THE EXCLUSIVE (UNSHARED) RIGHT TO SELL AND DISTRIBUTE THE SOFTWARE WITHIN A SPECIFIC MARKET. THE SOFTWARE OWNER / VENDOR AGREES NOT TO APPOINT OTHER RESELLERS OR SELL THE SOFTWARE DIRECTLY TO CUSTOMERS IN THE AREA OR SCOPE COVERED BY EXCLUSIVITY. THE EXCLUSIVITY MAY CONCERN THE TERRITORY (GEOGRAPHIC REGION), PERIOD OF TIME, IT MAY ALSO BE RELATED TO THE DEFINED CUSTOMER GROUPS OR PRODUCT LINE (RESALE OF A SPECIFIC VERSION OF THE PRODUCT).
WHEN DRAFTING AN EXCLUSIVITY CLAUSE, IT SHOULD BE BORNE IN MIND THAT ITS MAIN PURPOSE IS TO STRENGHTEN THE BRAND FOCUS. HOWEVER, THIS CAUSES A SITUATION OF HIGH DEPENDENCE OF OVERALL SALES RESULTS ON THE RESELLER’S ACTIVITIES. AS THE MARKET CONDITIONS CHANGE, THE WORDING SHOULD BE FLEXIBLE ENOUGH TO PROTECT THE SOFTWARE OWNER FROM THE CONSEQUENCES OF REPETITIVE LOW PERFORMANCE OF THE EXCLUSIVE RESELLER. THE AGREEMENT SHOULD SPECIFY CONDITIONS UNDER WHICH THE BENEFIT OF EXCLUSIVITY WOULD NO LONGER BE GRANTED TO THE RESELLER (E.G. FAILURE TO MEET THE PRE-DEFINED SALES TARGETS). WHEN REPRESENTING A RESELLER, THE ATTORNEY SHOULD STRIVE TO MAINTAIN A FAVORABLE EXCLUSIVITY CLAUSE, WHICH REDUCES COMPETITION FROM OTHER SELLERS AND ALLOWS TO MAXIMIZE MARKET PENETRATION.
Support and Maintenance
TO AVOID CONFUSION OVER RESPONSIBILITIES OF THE SOFTWARE OWNER AND THE RESELLER AS TO THE SUPPORT AND MAINTENANCE OF THE PRODUCT, THIS CLAUSE SHOULD SPECIFY THE NECESSARY DETAILS. FIRST OF ALL, IT SHOULD BE CLEARLY STATED WHICH OF THE PARTIES WILL PROVIDE TECHNICAL SUPPORT TO END-USERS AND WHAT LEVELS OF SUCH SUPPORT SHOULD BE PROVIDED. IT SHOULD ALSO BE OUTLINED WHAT WARRANTIES ARE BEING PROVIDED AS TO THE CORRECT OPERATION OF THE SOFTWARE AND HOW THE POTENTIAL CLAIMS OF THE END-USERS WILL BE HANDLED. IN ADDITION, THIS CLAUSE SHALL SPECIFY THE CONDITIONS OF SOFTWARE MAINTENANCE AND UPDATING, FIXING AND RESOLUTION OF ISSUES OF VARIOUS SEVERITY. TYPICALLY, A BASIC TROUBLESHOOTING, ANSWERING CUSTOMER INQUIRIES, AND HANDLING SIMPLE ISSUES IS HANDLED BY THE RESELLER, WHILE MORE COMPLEX TECHNICAL ISSUES, ADVANCED TECHNICAL SUPPORT OR CODE-LEVEL ISSUES ARE MANAGED BY THE SOFTWARE OWNER AND ITS DEVELOPMENT TEAM. BY ENSURING THAT THE END-USERS RECEIVE HIGH-QUALITY SUPPORT, THE SOFTWARE OWNER SAFEGUARDS THE REPUTATION OF ITS BRAND.
Intellectual Property Rights
THE INTELLECTUAL PROPERTY (IP) RIGHTS CLAUSE IN A SOFTWARE RESELLER AGREEMENT DEFINES THE OWNERSHIP, USAGE, AND PROTECTION OF INTELLECTUAL PROPERTY RELATED TO THE SOFTWARE BEING MARKETED. THE MAIN PURPOSE OF THIS CLAUSE IS ENSURING THAT THE SOFTWARE’S ELEMENTS—SUCH AS CODE, DESIGN, TRADEMARKS, AND DOCUMENTATION—ARE PROTECTED.
A COMPLETE IP RIGHTS CLAUSE SHOULD INCLUDE A STATEMENT THAT THE SOFTWARE OWNER RETAINS OWNERSHIP OF ALL INTELLECTUAL PROPERTY RIGHTS RELATED TO THE PROPRIETARY SOFTWARE AND NO OWNERSHIP RIGHTS ARE TRANSFERRED TO THE RESELLER OR END-USERS. THE RESELLER SHOULD BE GRANTED AN APPROPRIATE LICENSE TO MARKET AND DISTRIBUTE THE SOFTWARE. TYPICALLY, THE END-USERS WILL BE ASKED TO ACCEPT AND COMPLY WITH THE TERMS OF USE OF SOFTWARE DEFINED BY THE SOFTWARE OWNER, AS ATTACHED TO THE AGREEMENT BETWEEN THE END-USER AND THE RESELLER.
FROM THE RESELLER’S PERSPECTIVE, IT IS CRUCIAL TO INCLUDE A NON-INFRINGEMENT WARRANTY, BASED ON WHICH THE SOFTWARE OWNER GUARANTEES THAT THE SOFTWARE DOES NOT INFRINGE ANY THIRD-PARTY INTELLECTUAL PROPERTY RIGHTS.
THE CLAUSE SHOULD ALSO DEFINE THE SCOPE OF AUTHORIZED USE OF THE VENDOR’S TRADEMARKS AND LOGOS BY THE RESELLER FOR MARKETING AND PROMOTION. IT HAS TO BE CONSIDERED WHETHER THE MARKETING MATERIALS SHOULD BE APPROVED BY THE SOFTWARE OWNER BEFORE PUBLICATION, TO ENSURE COMPLIANCE WITH BRAND GUIDELINES.
Pricing and payment terms
THIS SECTION INCLUDES THE PROVISIONS REGARDING THE PRICE THAT THE RESELLER PAYS TO THE OWNER, SUGGESTED RETAIL PRICES AND DISCOUNTS, AS WELL AS PAYMENT TERMS (E.G. UPFRONT OR UPON SALE TO END-USER). THEY ARE CRUCIAL FOR ENSURING CLEAR FINANCIAL EXPECTATIONS, MAINTAINING CASH FLOW, AND MOTIVATING THE RESELLER TO ACHIEVE DEFINED SALES TARGETS (E.G. BY INCLUDING THE COMMISSION OR PERFORMANCE BONUSES). TIERED PRICING MIGHT ALSO BE AN OPTION TO CONSIDER, WHERE DIFFERENT PRICING LEVELS CAN BE BASED ON THE VOLUME OF SALES OR CUSTOMER SEGMENTS, ENCOURAGING BULK PURCHASES. AN IMPORTANT ELEMENT OF THIS CONTRACTUAL SECTION IS THE PROCESS OF PLACING INTERNAL ORDERS BY THE RESELLER. A TEMPLATE OF SUCH AN ORDER SHOULD ALSO BE DRAFTED, FOR QUICK AND TROUBLE-FREE ORDERING PROCESS, PROCESSING AND SETTLEMENT OF PAYMENTS.
Export control
THE EXPORT CONTROL CLAUSE IN A SOFTWARE RESELLER AGREEMENT SPECIFIES THE COMPLIANCE REQUIREMENTS RELATED TO THE EXPORT AND RE-EXPORT OF SOFTWARE, TECHNOLOGY, AND RELATED SERVICES. THESE CLAUSES ENSURE THAT BOTH THE SOFTWARE OWNER (VENDOR) AND RESELLER ADHERE TO INTERNATIONAL EXPORT CONTROL LAWS (U.S. EXPORT ADMINISTRATION REGULATIONS (EAR), INTERNATIONAL TRAFFIC IN ARMS REGULATIONS (ITAR), EU DUAL-USE REGULATION, UNITED NATIONS OR OTHER INTERNATIONAL SANCTIONS)
THE MAIN OBJECTIVE OF INCLUDING AN EXPORT CONTROL CLAUSE IS ENSURING LEGAL COMPLIANCE, PREVENTION OF UNAUTHORIZED EXPORT TO EMBARGOED COUNTRIES AND RESTRICTED END-USERS AND MINIMIZATION OF FINANCIAL RISKS ASSOCIATED WITH POTENTIAL FINES.
WHILE DRAFTING THE CLAUSE, IT SHOULD BE TAKEN INTO ACCOUNT THAT AN EXPORT LICENSE MIGHT BE REQUIRED BEFORE EXPORTING OR RE-EXPORTING THE SOFTWARE, HENCE WHICH PARTY WILL BE RESPONSIBLE FOR OBTAINING THE NECESSARY EXPORT LICENSES. IT SHOULD INCLUDE THE REQUIREMENT FOR THE RESELLER TO VERIFY THE END-USER’S IDENTITY AND POTENTIAL RESTRICTIONS RELATED TO THEM OR THEIR COUNTRY OF RESIDENCE.
Conclusion
THE APPOINTMENT OF A SOFTWARE RESELLER IS A STRATEGIC MOVE THAT ALLOWS SOFTWARE OWNERS / VENDORS TO EXPAND THEIR REACH, REDUCE COSTS, AND GROW THEIR BUSINESS MORE EFFICIENTLY. HOWEVER, IT IS ALWAYS NECESSARY TO ENSURE THAT YOUR INTERESTS ARE PROTECTED BY AN APPROPRIATE CONTRACT. DO NOT HESITATE TO CONTACT US TO BENEFIT FROM THE ASSISTANCE OF ATTORNEYS EXPERIENCED IN NEGOTIATING SOFTWARE RESELLER AGREEMENTS.