Oracle Software License 10 Issues Worth Negotiating

Transcription

1 Tactical Guidelines, J. Disbrow Research Note 24 September 2002 Oracle Software License 10 Issues Worth Negotiating Oracle's license agreements have more balanced terms and conditions than those from many other software vendors. However, before you sign the final agreement, you'll need to address several contractual issues. Core Topic Customer Relationship Management: Creating Business Value for CRM Key Issue How can enterprises control the investment associated with CRM initiatives? Tactical Guidelines The contracts you sign to finalize a software deal contain terms and conditions that you must live with throughout the life of that product. You should show the same due diligence in negotiating the contract as you did in choosing a particular product for your enterprise. Note 1 Oracle Online Information The Oracle License and Services Agreement can be found on the Oracle store by clicking on the "How to Order" icon. The Web site for the U.S. Oracle License and Services agreement is CCtpSctDspRte.jsp?section=11365&media =os_local_license_agreement Oracle's technical support policies can be found at index.html?policies.html. Despite the challenges Oracle faces with respect to its pricing and sales tactics, its license and service agreement is more reasonable than many of the standard software license agreements offered by other software vendors (see Note 1). However, it is essential to negotiate the terms and conditions required to give your enterprise more flexibility now and in the future. Gartner advises enterprises to obtain legal counsel before completing any software license agreement, because we do not provide legal advise concerning contracts. This analysis is focused on the nonlegal issues that you should modify in your license agreement. Contract Issues 1. Broad Usage Rights: Be sure you have the usage rights you need to include your parent organization, subsidiaries and affiliates. Include the right to transfer licenses in case of a merger, acquisition or divestiture. In the event of a divestiture, you will want your enterprise will need to be able to process applications for the divested entity for some period of time at no additional cost 12 months would be a reasonable period to include in your negotiations. In addition, you need to know how your costs will be affected if some of the licenses are transferred to another entity. 2. Pricing and Metrics: Ensure that the definitions of your metrics are clearly understood. Add any definitions that are missing, but are used in the agreement and are subject to interpretation. Read all relevant definitions and ensure that they are broad enough to cover your requirements. Also know how such usage will be audited to ensure that you are in compliance with your license agreement. Examples include: Gartner Entire contents 2002 Gartner, Inc. All rights reserved. Reproduction of this publication in any form without prior written permission is forbidden. The information contained herein has been obtained from sources believed to be reliable. Gartner disclaims all warranties as to the accuracy, completeness or adequacy of such information. Gartner shall have no liability for errors, omissions or inadequacies in the information contained herein or for interpretations thereof. The reader assumes sole responsibility for the selection of these materials to achieve its intended results. The opinions expressed herein are subject to change without notice.

2 A. Under "Named User," a definition and examples of nonhuman devices should be included. This is referenced in Oracle's license agreement with no clear definition of what should be included. Because Oracle is now including "printers" under nonhuman devices, you'll want to clearly eliminate such broad usage. Because this also affects the number of named user licenses required, you should also include how usage will be counted at the multiplexing front end (see "Oracle's Multiplexing Clause Creates Confusion and Costs"). B. Definitions need to be reviewed for clarity Think about what will happen if you need more of some "category" or less of that "category." Include provisions in the agreement to cover both scenarios. C. If an "order line" is a "zero" amount or placeholder, will it be counted? If it's an internal order, will it be counted? If you receive a large discount on the price of order lines because you order many small items, will Oracle guarantee you that same discount after its price protection period? D. "Cost of goods sold" or "transportation spending" or other financial bases for contracts are always risky, and we advise you to avoid them whenever possible. Be sure you work with the department that owns that metric to clearly define what will be included in a financial-based calculation and what will be excluded. For example, if there's an increase in transportation spending because of extra taxes on fuel cost, then these costs should probably be excluded. E. Processor licenses are currently defined as "... all processors where the Oracle programs are installed and/or running. Programs licensed on a processor basis may be accessed by your internal users (including agents and contractors) and by third-party users." Oracle states that this is an unlimited usage license model, but "unlimited" is not part of its standard definition. Be sure you add the word "unlimited" to the definition. Any measurement unit that affects how you will be charged for your licenses needs to be clearly defined, so that it is clear in relation to usage rights and how it will be measured in case of an audit. Again, there is nothing in this agreement that addresses business downturns or what would happen if you were to divest part of an enterprise. 3. Authorized Software: Oracle will ship out software that you are not licensed to use. At best, you should include a clause that Oracle will not ship you any software for which you have not licensed. At worst, be sure you have the right to remove unauthorized software from your system if it has been 24 September

3 downloaded in error. If such software is discovered during an audit, you should have 30 days to remove it from your systems without payment or penalty. So far, Oracle has not agreed to include a clause in its contract that it will not ship out software you're not authorized to use. This seems risky. Oracle should agree that it will send out a notice with the media sent that reflects the software you're authorized to use. 4. Conformance With Documentation: Notice that Oracle states that its software will perform only substantially in accordance with documentation. It should perform "according" to documentation. Ensure you have looked at its documentation to see what it states. This is your only warranty, and you need to look at it. 5. Audit Rights: Oracle includes the right to audit in its license agreement. (For information about audits and clauses you should consider for all software license agreements, see "Don't Be Surprised by Vendor Audits." To understand the issues involved with audits concerning Oracle's multiplexing definition, see "Oracle's Multiplexing Clause Creates Confusion and Costs.") 6. Functionality Replacement: You should make sure that you have the rights to the functionality that you have originally licensed, if that functionality is included in later versions of the software. This should be true even if the products are renamed or rebundled. Include in the contract a description of the functionality contained in each module. Because Oracle renames or rebundles its software products, you should require the company to provide you with a yearly road map of the prior names of software products, as well as the current names of each renamed or rebundled product. Software vendors, including Oracle, will not make a commitment to future functionality or new versions because of revenue recognition issues. This issue is focused on obtaining the functionality that you currently have licensed in future products, if Oracle does not support that functionality in the original product. 7. Entire Agreement Clause: Like most software contracts, Oracle's software agreement contains an "entire agreement" clause, which eliminates all proposals, promises and presentations from being incorporated in the agreement unless they are explicitly referenced as being incorporated in the agreement. Ensure you have included all of the attachments to the agreement that you used to make your decision to license this software. Remember that a signed contract with any software vendor represents the terms and conditions that govern the use of your software. Although you may have certain verbal understandings through discussions with your Oracle sales representative, if it is not included in the contract, then it has not 24 September

4 been properly documented and negotiated. Again, work with your legal department to ensure that all documents are included and there is no conflicting language between the different documents. 8. Notification: Include in your agreement a clause that states Oracle will invoice you 90 days (or whatever period you need) before your technical support and upgrade support payments are due. This will give you time to review the invoice and make any corrections. Then, in addition, before Oracle actually can cancel maintenance, it should be required to send out a notification via certified mail or recognized overnight carrier that your support will be dropped, with another 30 days to pay. Include the generic title of whomever will be sent this notification (for example, the CIO or the legal department). The Oracle Web site states that, if your support is dropped, you will be required to pay reinstatement fees of 150 percent and you will have to move to a current license model to be reinstated. This can be costly. Another alternative is to limit reinstatement fees to what would have been due had maintenance and support been continued. It's very important that you base this on the rates you have negotiated, rather than the then current rates based on new license models. 9. Maintenance Increases: Negotiate a long-term cap on maintenance increases. Oracle will often agree to a five-year cap on maintenance increases; however, the contract states that, after this cap is done, you will go to its then-current maintenance cost. If you have received a 50 percent discount on your original deal, your maintenance can increase substantially when the cap runs out. At the time of sale, negotiate with Oracle to extend the maintenance cap beyond that five years. Or, at minimum, include a clause in your Oracle contract that states something like both parties will negotiate in good faith to give you discounted maintenance based on similar-size deals with other Oracle customers." Ensure you have the right to remove unused licenses and modules from maintenance and support, and include how reinstatement of licenses will be handled. 10. Maintenance Entitlements: Maintenance entitlements are an important part of your Oracle agreement because they reflect Oracle's commitment to providing such services. Negotiate for them now with a contractual provision that those entitlements cannot be reduced. Oracle offers several options for maintenance. Obtain copies of the entitlements for each maintenance level and ensure you have the right to move from one level to another at some negotiated price. There is no service-level agreement (SLA) information on what is provided for maintenance and support. SLA information needs to 24 September

5 be added. There needs to be a clear list of your maintenance entitlements and a guarantee that your entitlements will not be reduced. The technical services agreement needs to be negotiated at the same time as the license agreement. Maintenance and support entitlements need to be guaranteed Oracle should not be able to change them, although they are currently stated as " subject to change at Oracle s discretion." The number of support personnel who can call in to the Oracle's technical support department is limited. If this limitation does not meet your requirements (which it may not, especially if you're a global enterprise), include in the contract the right to add additional personnel at some negotiated cost. Related Reading "Software Licenses: Watch the Small Print" "Keep Software Prices in Check: Lock In Prices and Terms" "Ten Basic Steps to Getting a Good Deal" "Professional Software Negotiators: Do You Need Them?" "Don't Be Surprised by Vendor Audits" Acronym Key CIO Chief information officer CRM Customer relationship management SLA Service-level agreement Oracle contracts are like other software vendor's contracts they are written to protect the vendor, not your enterprise. We recommend that enterprises start their negotiations using their internally created agreements. This is a best practice; however, if you must begin with the vendor's standard agreement, make sure your legal advisor reviews all contracts prior to signing by both parties. In addition, you can use this list as a starting point within your enterprise to determine which issues are important to you and should be negotiated as part of your agreement. Bottom Line: Ensure you receive a legal review for any contract that you are signing with any software vendor. The issues covered are focused on business issues, not legal issues. Negotiate the changes you need to the software license agreement to meet your particular requirements. 24 September