The following is a checklist of the key issues presented in this chapter:
Negotiate basic warranty
Review warranties to ensure they cover all software and services to be provided by the
Beware of general warranty disclaimers that may conflict with express warranties.
Require the vendor to "pass through" all relevant third party warranties.
Avoid exclusive remedies for breach of warranty.
Always require a vendor intellectual property infringement
Consider additional vendor indemnities where appropriate (e.g., property damages and personal
Limit licensee indemnities to claims for which the licensee is at fault.
Make the limitation of liability apply to both parties.
Increase the overall liability cap to a multiple of all fees paid.
Carve out appropriate exceptions to the limitation of liability (e.g., breach of confidentiality, insured claims, indemnity obligations). Make sure the exceptions to the limitation of liability are carved out of both the exclusion of consequential damages and the overall liability cap.
Two of the most frequently neglected areas in license negotiations are confidentiality and security. While almost every vendor agreement includes a basic confidentiality clause, such clauses are usually one-sided, protecting only the vendor's information. Virtually no vendor license agreements address issues relating to the specific security measures the vendor must implement to protect the licensee's data and other proprietary information while in the vendor's possession. In this chapter we discuss the
The following sections of the form license agreement are discussed in this Chapter: 6 (Confidentiality).
Section 6 of the vendor form agreement illustrates most of the problems found in form vendor agreements. The provision only protects the vendor's information, provides no clear definition of what comprises the "confidential information," and provides none of the standard exceptions to the confidentiality requirements (e.g., information that is in the public domain, information that is independently developed by the licensee, etc.). Also note that Section 6
The confidentiality obligation should apply to protect the confidential information of both parties;
A clear, broad definition of "confidential information" should be included. The definition should be
The provision should require the receiving party to only disclose the information to employees, contractors, and
Include standard exceptions (e.g., information that is in the public domain, information that is independently developed by the licensee, etc.) to the confidentiality requirement; and
The confidentiality obligations should
In addition to negotiating the language of the confidentiality provision itself, the licensee must ensure breach of the provision is carved out of the limitation of liability.  If breach of confidentiality is subject to the limitation of liability, the protections afforded in the confidentiality provision will be rendered largely useless. If the vendor faces little liability if it breaches its confidentiality obligations, the vendor will have little motivation to take those obligations seriously. Unless it is certain the vendor will have no access to licensee confidential information, the exclusion from the limitation of liability should be aggressively negotiated.
[Alternate No. 1]
In the performance of this Agreement, each party may have access to confidential, proprietary or trade secret information owned or provided by the other party relating to software computer programs, object code, source code, marketing plans, business plans, customers, financial information, specifications, business processes, flow
[Alternate No. 2] Confidentiality.
Confidential Information Defined
. "Confidential Information" shall mean, with respect to a party hereto, all information or material which (i) gives that party some competitive business advantage or the opportunity of obtaining such advantage or the disclosure of which could be detrimental to the interests of that party; or (ii) which is either (A)
. The parties agree to hold each other's Confidential Information in strict confidence. The parties agree not to make each other's Confidential Information available in any form to any third party or to use each other's Confidential Information for any purpose other than as specified in this Agreement. Each party agrees to take all reasonable steps to ensure that Confidential Information of either party is not disclosed or distributed by its employees, agents or
 See Chapter 5 for a discussion of limitation of liability provisions.
Suggested replacement language for the existing Section 6 of the vendor form agreement. Alternate No.1 is an example provision of a short form confidentiality provision. Alternate No. 2