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Archive for February, 2015

FCC Decision on Net Neutrality: What Does this Mean for the Software Industry?

Written by on Thursday, February 26th, 2015

The Federal Communications Commission (“FCC”) adopted new rules today on the issue of net neutrality, affirming the government’s right to increase its regulatory powers over the Internet.

In a press release issued to announce the new rules, the FCC identified the following as the key provisions of the rules to be adopted:

  • Application of the rules to all methods of accessing the Internet;
  • Institutes a ban over three practices determined to harm the Open Internet: (i) blocking access to legal content, applications, services, or non-harmful devices; (ii) impairing or degrading lawful Internet traffic on the basis of content, applications, services, or non-harmful devices; and (iii) favoring some lawful Internet traffic over other lawful traffic for consideration;
  • Establishes that internet service providers cannot “unreasonably interfere with or unreasonably disadvantage” consumers in selecting, accessing, and using the lawful content, applications, services, or devices of their choosing;
  • Ensures that the FCC will have the authority to address questionable practices by internet service providers on a case-by-case basis and provides guidance as to how the FCC will provide the standard in practice;
  • Requires broadband providers to disclose in a consistent format promotional rates, fees, surcharges, and data caps, as well as packet loss as a measure of network performance, and network management practices that can affect services;
  • Requires internet service providers to engage in reasonable network management that is primarily used for and tailored to receiving a legitimate network manages rather than business purpose;
  • Authorizes FCC to hear complaints and take enforcement action upon any determination that the “interconnection activities” of internet service providers are not “just and reasonable”;
  • Reclassifies broadband service as a telecommunications service over which the FCC has regulatory authority; and
  • Specifically authorizes the FCC to allow investigation of consumer complaints, protect consumer privacy, ensure fair access to poles and conduits in order to deploy new broadband networks, protect the disabled, and bolster universal service fund support.

USA Today reports that the new FCC regulations will be published in the Federal Register in a few weeks and become law sixty days after publication.

As anyone who has followed the net neutrality issue is aware, today’s move by the FCC is considered highly controversial.  While the Obama administration has characterized the net neutrality debate as a “fairness” issue in order to increase Internet access for all, opponents have warned against the dangers of allowing the government to exercise greater regulatory powers over the Internet.  CBS is reporting that it conducted a recent poll on Americans’ views on the issue, and that a majority of Americans they polled were against the concept of net neutrality.   However, industry groups have been far from unified on the net neutrality issue. Netflix and Twitter have been reported to have supported the net neutrality vote, as has the NTCA Rural Broadband Association.   Comcast has also been reported to have gone on record as supporting net neutrality.   However, several major internet service providers apparently oppose the FCC’s actions and are reportedly prepared to take legal action to challenge the new rules.

So, what does the move today mean for the software industry?  While there has been minimal commentary on the subject, the implications are largely going to be in the cloud and SaaS space, which is completely Internet-dependent.  There is no question the greater access to the Internet and fewer limitations over bandwidth are all positive developments for online software companies, as they could result in a larger potential customer base.  On the other hand, greater government regulation over the Internet will likely translate into more government regulation over cloud-based and SaaS business activities and practices, which will inevitably result in greater compliance and legal costs for those companies, which will have to address FCC rule making, investigations, and legal actions.  All in all, while the move should in theory be beneficial to the software industry, like with many big ideas, the practical consequences of the FCC action will likely not prove to be beneficial to the software industry as a whole.

In the meantime, the expectation is that we will see legal challenges filed to block the enforcement of these rules, so perhaps the only certainty is that the FCC action will provoke a legal battle over the future of net neutrality.  Clearly, the action today puts front and center the debate over who should have the authority to exercise control over the Internet.

 

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Careful Drafting of Pricing Terms is Key to all Software Licenses and SaaS Agreement

Written by on Tuesday, February 3rd, 2015

As a software company, do you make a special point of sending all your price schedules, payment terms, and price-related clauses to software counsel for review before you send them out the door to your potential customer?

If your company is like most, my expectation would be that you are probably handling all such issues internally  since those are not purely legal terms and you are probably trying to save money on legal fees.

However, when a dispute arises over software licenses or SaaS agreements, what is usually at the heart of the dispute?  If you guessed that it is those pricing terms that your company is handling internally to save money on legal fees, then you would be correct.  It is precisely those clauses that will typically be the basis for the customer dispute.

Why is this?  Well, one problem that often arises is that the pricing terms were not considered as part of the overall drafting of the contract.  For example, if you are selling a multi-user license or SaaS Agreement, you have to draft the whole agreement to work with the multi-user model.   If you just take a single-user software license and add a price schedule for 90 users as an attachment, then your contract is not going to work.  It is still going to be a contract for a single user that is charging for 90 users.  Also, if you a charging for a particular add-on service at a flat fee rate, and your contract is not set up to describe the terms and conditions being provided for the services charged, then there is a high likelihood that there is going to be an issue over the fee you are charging at some point in the future.  The attorney needs to understand each and every fee you intend to charge a customer and how the fees will be charged in order to properly draft the contract.  If the attorney is kept in the dark on these issues, there is likely going to be a problem with how the contract is structured and drafted.

Another problem that arises on a recurring basis is over implementation and costs that the software user may have to pay while implementation continues.  When you haven’t considered the timing and amount of payments that may be due while implementation is ongoing, you are setting the scene for a potential dispute to arise. Again, if  software counsel were to review your contract before it goes out the door, this issue would most likely be flagged and addressed before it ever arises and the attorney might raise with you suggestions on how to structure the fees differently to ensure that the issue never arises.

A third problem that comes up frequently is the adding on of terms onto a price schedule that conflict with terms that the attorney carefully drafted in the agreement.  You should not make a practice of adding extra terms into a price schedule, and in particular, you definitely want to refrain from adding conflicting terms into a schedule.  If software counsel had had the opportunity to review the draft contract before it went out the door to the customer, the attorney would have reviewed the contract specifically looking for conflicting terms and this issue would be caught and fixed.

Finally, a fourth problem that often arises is charging fees that just don’t make sense in the context of a particular agreement.  For example, if you are negotiating a SaaS agreement with a customer and charging an annual maintenance fee, when maintenance fees are generally included as part of the recurring subscription fee of the SaaS agreement, or alternatively, charging on a monthly basis for a license that would generally be licensed on a one-time basis, then you are likely to run into an issue with the pricing either in negotiation or as soon as the customer becomes disgruntled.  Software counsel reviewing the contract would be alert to any such issues and would flag the problem before the contract is sent out the door.

The above examples are just a few of the scenarios that can arise over how pricing terms are structured if they are not run by software counsel before they are sent out to a prospective customer for review.

The bottom line is that those pricing terms you may not want to talk to your outside software counsel about are precisely the terms that you should be consulting him or her about, as those are the terms that are most likely to result in a contentious legal dispute.   Fees in software contracts need to be carefully structured in conjunction with the rest of the contract, and where that is not happening, mistakes are most likely being made, any one of which could blow up into dispute with a customer.

 

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