Matt Karlyn, J.D., Contributor
The limitation of accountability is one of the best important clauses in a software authorization acceding because it banned the bulk and types of amercement one affair can balance from the added party. For example, if the software doesn’t assignment and your aggregation suffers amercement as a result, the limitation of accountability will bind your company’s adeptness to compensate its loss.
Unfortunately, the forms best vendors use for licensing agreements generally accommodate limitations of accountability that disproportionately favor the vendor. For example, accede the afterward clause:
“Licensor shall not be accountable to licensee for any absent profits, absent revenues or opportunities, downtime, or any consequential amercement or costs, consistent from any affirmation or account of activity based on aperture of warranty, aperture of contract, negligence, or any added acknowledged theory, alike if Licensor knew or should accept accepted of the achievability thereof. In no accident shall Licensor’s accumulated accountability beat the amounts absolutely paid by Licensor in the 12 ages aeon anon above-mentioned the accident giving acceleration to the claim.”
This commodity provides no aegis for the licensee added than a abeyant refund. From a licensee’s perspective, three aloft problems should be corrected:
First, the commodity should be fabricated mutual. As the customer, you charge your aegis adjoin amercement to be, at a minimum, the aforementioned as the vendor’s. For example, the aboriginal allotment of the aboriginal book could be adapted to accompaniment that “Neither Licensor or Licensee shall be accountable to the added party” for the types of amercement listed. The aboriginal allotment of the added book could be adapted to accompaniment that “in no accident shall either party’s accumulated liability” beat the bulk described.
Second, the absolute on the bulk of absolute amercement that are recoverable may be unreasonable. In the archetype above, this is the amounts paid by the Licensor in the 12-month aeon anon above-mentioned the accident giving acceleration to the claim. If your aggregation paid 100% of the authorization fee up advanced and hasn’t paid annihilation added for added than 12 months, the licensor’s accountability could be zero. You could fix this botheration by alteration the cap to a assorted (e.g., three times) of all the fees paid by licensor to the licensee beneath the contract.
But don’t stop there, because if it’s aboriginal in your bell-ringer relationship, that cap may not be ample abundant to awning your company’s abeyant damages. A bigger band-aid is to brace the assorted of fees cap with a anchored accountability amount. This will authorize a reasonable cap on the parties’ accountability alike back the chump has not paid the bell-ringer a ample bulk of money to authorize a reasonable limitation of liability.
An archetype of such a limitation of accountability is the following: “In no accident shall either party’s accumulated accountability beat the greater of (1) three times the fees paid, payable, or to be paid by licensee beneath this agreement, or (2) $1,000,000.”
Third, it is acute that the limitation of accountability not administer to assertive amercement that may appear beneath the contract. For example, if your aggregation suffers amercement because the software infringes (or is declared to infringe) the bookish acreage rights of a third affair and the arrangement includes an obligation on the licensor to atone you for such damages, the limitation of accountability should not bind your company’s adeptness to balance all the amercement suffered.
In fact, accede excluding all of the afterward from the limitation of liability:
In summary, the limitation of accountability commodity is one of the best important clauses of any software authorization agreement. Watch out for bell-ringer forms that accommodate biased limitations of accountability that assure the bell-ringer and leave your aggregation accessible to boundless risk. This will acceptable beggarly that you will charge to re-draft the limitation of accountability in the vendor’s anatomy to be mutual, accommodate an adapted cap on amercement and exclude assertive types of amercement from the cap.
This commodity is not a acting for acknowledged counsel. In any accustomed situation, the appulse of the law depends on abounding factors. The authors acclaim agreeable acknowledged admonition to appraise your acknowledged liability.
Matt Karlyn, J.D., M.B.A. is a affiliate of Foley & Lardner LLP’s Advice Technology & Outsourcing Practice Group in Boston. Write to him at [email protected]
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