Description
This Online Software Distribution Agreement is designed for a Software Owner to grant to an independent Distributor the right to distribute its software over the internet. This allows the Software Owner to avoid the expense of manufacturing CDs or DVDs and distributing them via a retailer outlet to the customer.
In this particular Contract, the Distributor wishes to mass market lower value software (i.e. “off-the-shelf” type software which would, if conventionally distributed, be covered by a “shrink-wrap” software licence).1
In the case of online distribution, the software is delivered over the internet to the final end-user once the end-user has read and accepted a “click-wrap” (digital) software licence.2
The Distributor can also provide software support, updates, upgrades and help-line facilities more efficiently online as well as allowing more accurate target marketing thus saving costs.
When such an agreement is drafted for a Software Owner there are numerous important aspects to be considered, including the following:
Licensing (Clause 3)
The Click-wrap Software Licence should be capable of being “Accepted” online before the Software is downloaded (see the Explanatory Note to “Click-wrap” Software Licence, Contract 61). For identification of the end-user Licensee, this “Accept” procedure can be combined with “Registering” the end-user’s details in a box at the same time. Whether this is necessary or not will be decided by the Owner and Distributor.
Fees and Royalties (Clause 6)
The Software Owner may impose a charge for granting the right to distribute as well as a royalty per copy of the Software downloaded.
Where this contract is drafted for the benefit of the Software Owner, minimum revenue targets are important not only to monitor the Distributor’s performance but also to guarantee a return on investment.
Software Support (Clause 9)
If the Distributor does support the Software, it is now commonplace to provide a support portal where the end-user can log any faults and seek advice or a solution. A telephone help-line may also be provided. Support staff should be properly trained and knowledgeable about the Software to be able efficiently to respond to fault calls.
Specific Points to Consider in this Contract
1. Should the appointment be exclusive or non-exclusive?
It is more often preferable from the point of view of the Software Owner to grant non-exclusive rights in order that other distributors may be appointed to act co-laterally and hence market to a greater number of potential customers. The grant of non-exclusive rights will also enable the Software Owner to appoint another distributor with the minimum of contractual or practical problems in the event of default or poor performance of the first distributor.
As importantly as the practical issues of the contract, the grant of non-exclusive rights will avoid the question of competition law or anti-trust law affecting the contract.
2. Should the appointment have territorial restrictions?
From the Software Owner’s point of view, it may be more realistic to restrict the distributor’s appointment to the particular territory in which the distributor has a proven track record which is more often than not the reason that that particular distributor was chosen. The territory may be (a) a geographical area; (b) a particular market sector; or (c) a particular product range.
3. Should the appointment include a right to support the software?
If the distributor is given the right to support, it must also be given a significant amount of proprietary and confidential information relating to the software so that the distributor’s staff can properly analyse and correct faults. If the Software Owner does delegate the right of support, the owner is to some extent also removing itself further from the direct line of contact with such end-users which is an important link in ascertaining the requirements (present and future) of end-users of its software. The Owner is also further removed from the “feed back” of information on defects or shortcomings in the software reported by end-users, which information is essential for “bug” fixing, upgrading, development and product-enhancement that evolves from such contact.
Alternatively, if the Software Owner does not want the distributor to support the software, does the Software Owner itself have the support staff necessary to handle fault calls and the speedy resolution of problems?
The factors which should be considered in deciding whether or not the distributor should also be allowed to support the software include:
(a) whether the distributor has suitably skilled personnel to provide proper support;
(b) whether the distributor can provide sufficient geographical coverage in the territory to ensure a reasonable response time1;
(c) whether it is desirable to disclose to the distributor sufficient confidential and proprietary information to enable the distributor properly to support the software.
4. Should the Distributor be granted the right to license, sub-license or merely to act as an “agent” on the Software Owner’s behalf?
It must be remembered that any right which may be granted to the distributor must be compatible with those rights which are held by the “Software Owner”/supplier i.e. is the software supplier itself the owner, licensor, sub-licensor or merely itself a distributor of the software?
The preference for the Software Owner would be for the distributor to pass-on the Owner’s own software license to its end-users so that its own brand name is associated with its software.
5. Should the Software Owner grant the distributor the right to appoint dealers or sub-distributors?
It should not be an automatic right for the distributor to be granted the right to appoint dealers or sub-distributors since, firstly, the Software Owner has presumably appointed the distributor for its own name and performance in the territory and not that of any dealer or sub-distributor (unless the latter are already part of the distributor’s existing, successful marketing network).
Secondly, where too many parties become involved in marketing, the Software Owner can eventually lose direct control of that market area and so too its end-user customers. One adverse effect of marketing through numerous parties is that the Software Owner is further removed from its end-users and therefore not in direct contact to receive feedback of end-user requirements and thereby the future enhancement and development of the product.
Thirdly, the Software Owner is less likely to be able to control the manner in which dealers or sub-distributors are marketing (and perhaps also supporting) the software and therefore the goodwill of perhaps both the Software Owner and its software in the marketplace may suffer.
This contract has included support by the Distributor and guidelines for amendment when the Software Owner supports the Software.
[1] See Contract 2 for “shrink-wrap” licences. [2] See Contract 61 for Click-wrap licences. [1] See Contract 3, Software Support Agreement.
