Over the years I have worked closely with technology providers and discovered that they make common mistakes that can devalue their company, reduce revenue, or compromise their long-term health. This article will help you avoid these 10 common mistakes.
10. Inability to register a federal copyright in company-developed software
Your company has spent many months or even years creating the next big thing. Your company is out there trying to maximize revenues, licensing it to customers and fighting off other competitors. What would you do if your software was being misused by a customer? What if your software was copied by a competitor to be used in its products? You have many options to address these issues, but the best way to strengthen your claim is to register a copyright to the software with The United States Copyright Office. Registering your copyright gives you a better chance of having a court stop infringing on your software and allows you to recover more damages. Registration is easy and affordable.
9. Too broad licensing technology
You have landed a big deal with a large customer. The price of the deal was determined by your expectations about how the customer will use your technology. This is done by targeting a particular group in the customer’s large company. This deal is expected to result in greater adoption of your technology throughout the company and eventually more revenue for you. You find out later that the one group sharing your technology across the entire company without any additional licensing fees. There is nothing you can do. What’s the problem? Why?
8. Failure to provide support and maintenance policies.
Too often, when a company’s technology has been licensed, it becomes an afterthought to determine how to support that technology. It is easy to get into disagreements and miss expectations by imposing general and non-descriptive obligations such as “providing phone and email support” or “providing updates”. What time is phone support offered? What response time will you give to customer problems? What are the differences between an update and a new product that you charge separately? You may need to ask your customer for certain details before you can diagnose the problem and solve it. To avoid future problems, set the right expectations for your support and maintenance policies.
Customers expect you to be available to help them with their product problems and give them updates as you add new features or fix bugs. Customers expect you to charge them for these services on a regular basis. This is why so many technology vendors fail to set up regular and recurring support fees when selling products to customers. A support fee stream is the best way for technology vendors to make the most of their profit margins, not through an upfront license charge.
6. Inadequate nondisclosure agreements and non-compete agreements are not acceptable with contractors and employees
Technology is one of the most competitive markets. You don’t want to risk losing your competitive edge by failing to ensure that your intellectual property and customer lists are protected. If you don’t understand the terms of the agreement you found online, you might find it more difficult to use. You can also take simple steps to make sure that your employees do not create any agreements.
5. Too liberal in allowing intellectual property ownership
Many technology companies create customized technology for customers or modify existing technology to meet specific customer needs. Customers argue that they should own the technology if they pay for it. However, giving your intellectual property to your company in these cases can stop you from reusing the information for other customers. This effectively closes down a potential source revenue. Your customers might not actually need to “own” the development. A license right is often enough.
4. Use subjective or too broad acceptance testing
Customers will often want to test drive your technology before paying for it. This is neither unusual nor unreasonable. Customers who have unrealistic expectations of the technology’s capabilities can cause problems. They may withhold payment or demand additional services in order to meet their unreasonable expectations. This is especially true if the customer includes acceptance testing language within a contract that is not linked to objective and realistic standards. It can be time-consuming, but it will save you time and help you get paid quicker.
3. Offering liberal source code escrow release conditions
Software developers know that source code is the crown jewel of their business. Your source code is the heart of your technology. It represents months or even years of your sweat, blood, and tears. Many software companies will give it away for free to customers. How do you do it? You can do this by entering into a source-code escrow agreement. This allows you to release the code to customers in cases where it still has value. Customers will often demand that the source code is released to them even if you cease to support the software. However, the intellectual property contained in the code could still be used in other products and technology. This gives your customer the ability to replicate your technology. This can be minimized by creating very specific release conditions for source code.
2. Technology is undervalued
How valuable is your technology? This is a hard question to answer. Value can be measured in many different ways. In order to get into the market, many new technology companies feel pressured to lower their prices. While this may have some merit, vendors often undervalue their technology, which can result in significant revenue loss. Pricing your product is only possible if you understand the potential loss and impact on the customer if they don’t license your technology. Also, pricing your product too low can give the impression that your company is cheap. This will not help your company’s long-term reputation.
1. Use a form licence and/or service agreement that isn’t compatible with your business model
It is difficult and time-consuming to capture exactly how your products or services will be provided to your customers, as well as allocating risks and creating each party’s obligations and rights. You may be unaware of the potential risks of copying a form agreement from another company. It could also violate the copyright of the agreement and increase the risks discussed in this article. A customized agreement that is tailored to your business and addresses your industry’s laws and risks is key to running a successful technology company.
Pepper Law Group, LLC works with technology companies since over 10 years. We help them to avoid making mistakes and adopt the best practices in their industry. What can we do to help you? For a complimentary consultation, please contact us.