legal, enterpriseI’m a startup software vendor. Some of my enterprise clients attach purchase terms and conditions (T&C) to their purchase order. Some of these purchase terms and conditions are completely crazy. For example, the T&C that I reviewed just now basically says that they are allowed to do anything with our intellectual property, including selling it to third parties or embedding it in their own products.
What can I do about this? Until now, I’ve always explicitly declined their T&C. I am usually able to talk them out of attaching their own T&C, but it is a pretty tiring process. Most of the procurement people attach a T&C because it’s standard procedure, so explicitly declining the T&C every time causes a lot of friction in the communication. They have to go through their boss, or legal, etc.
Sometimes they insist on attaching their own T&C but are willing to negotiate the terms. But then I will still need to hire a lawyer to review their T&C. This is not only expensive, but also time-consuming because I will have to review their summary and think about the business implications.
What else can I do? How do other enterprise startups deal with this?
Yes, those P.O. terms and conditions can be egregious. A common way around them is to provide your own "Sales Terms and Conditions" along with every quote/estimate or invoice you send them. You have a line in your own Sales Terms and Conditions that basically says, "in the event of a conflict between the Sales Terms and any Purchase Order terms and Conditions, the Sales Terms prevail unless the seller expressly agrees in writing."
In other words, two can play at this game.
I found this nice example for you (emphasis is mine):
These Sales Terms and Conditions (“Terms”) govern all sales of products by Seller (“the Products”) to Buyer regardless of whether Buyer purchases the Products through the medium of written purchase orders or electronic orders via facsimile or EDI (collectively, “Purchase Orders”). Upon receipt by Buyer of an express acceptance by Seller or upon commencement of performance by Seller, these Terms, the face of the Purchase Order, as modified by Seller’s acceptance or order acknowledgment, become a binding contract between Buyer and Seller on the terms reflected in those documents (the “Sales Agreement”). In the event of a conflict between these Terms and the Purchase Order, these Terms prevail except where Seller has expressly agreed to the conflicting term(s) in the Purchase Order in Seller’s written acceptance or order acknowledgment. In the event of a conflict between the Purchase Order and Seller’s written acceptance or order acknowledgment, Seller’s written acceptance or order acknowledgment prevails. In all cases, any and all terms and conditions as may be contained on the reverse side of any request for quotations, request for bids, purchase orders and similar documents issued by Buyer are hereby expressly rejected in their entirety and shall have no force or effect. Seller is not responsible for typographical or clerical errors made in any quotations, orders or publications. All such errors are subject to correction.
Rocky is spot on. Just chiming in to highlight an insightful life story from Steve Blank. Quoting:
After being in business for all of seven months, one of our first deals at Epiphany was with a software company called Visio, (now owned by Microsoft.) After some heroics from our CTO in extracting data from SAP, the Visio CFO loved our product, thought we could save them a ton of time and money and wanted it installed ASAP. We were excited that we were getting our first six-figure check and a reference customer. Then Visio gave us their boilerplate contract.
We passed it to our law firm who promptly threw up all over it. […]
The issues our lawyer had raised about the contract, while correct, were strategy questions the founders needed to answer, not legal questions. Negotiating deal points before we thought through our strategy at best would have cost us a ton of money with little progress.
The entire blog post is a good read.
The takeaway is this: avoid involving lawyers in negotiations, as it’s a recipe to end up with legal pissing contests. And for that matter, avoid negotiating with procurement teams as well, because that’ll mean negotiating with lawyers by proxy.
Talk to whoever wants to get the deal moving forward instead. Make their pride or their boss’ pride work for you - ask if they’ve the flexibility (meaning the authority) to overrule their lawyers. Itemize the points you can’t possibly live with because they’d kill your company. You can safely live with bizarre terms that won’t kill you - you’re dealing with a large company that moves slowly, not a nimble start-up. Sketch out terms you can both accept. Then involve lawyers.
My point in highlighting it is that thinking through the business implications (i.e. what you’re doing right now) is in fact desirable. But you want to do so without letting lawyers get in your way.
Yes, Rocky’s advice is right on the point. I will add that as a software vendor, you must have your own specific terms and conditions. Certain critical conditions has to be kept non negotiable and that should be made clear in your Sales terms. So that before hand, prospects are aware about non negotiable terms.
IP related terms have serious consequences. Depending on which side of the fence you are (software vendor/ developer/ dealer etc. and there are different type of software agreements), the terms need to be crafted and tuned. It is always better to have concrete IPR terms (in fact all the terms and conditions) in your Sales Terms which will form your Standard Terms of Sales.
It is better to have your own set of terms and conditions. Once it is in place, the same can be used in all your dealings. Even then, for mutual benefit, certain amount of negotiations will have to be there so as to tweak and tune the terms a little here and there as needed form the purchasers angle. Understanding the nature of business of the purchaser will be helpful.
For the long terms benefits, the nitty gritty of legal terms need to be taken care of at the earliest.
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