Establishing Global Software Product Distribution Networks

2137737248_318e717653_oYour company (Company) has established a successful U.S. software product licensing and distribution network, and you are now considering expanding that network internationally.  What steps need to be taken?  Will the licensing and product support efforts be direct efforts (directly between the Company and the end user) or via third party resellers located in the foreign countries?  If the later, how can the company protect itself and its intellectual property when utilizing third party resellers to accomplish this international expansion?  The focus of this blog concerns the drafting of global distribution agreements and related due diligence activities when the decision has been made to utilize third party resellers in countries outside of the U.S.

First, the Company should utilize U.S. legal counsel familiar with (or who become familiar with) the Company’s products and related services to undertake a collaborative effort with the Company to develop a non-country specific “form” Reseller Agreement that accurately reflects the Company’s intended international business model including: pricing structures, payment structures (between both the resellers and the Company, and the resellers or Company and the end users), licensing terms and restrictions (utilizing Company’s current form U.S. End User License Agreement as a basis), product support obligations, warranty obligations and operational aspects of the product (including data flow).

Also included as part of the form Reseller Agreement will be various legal terms and conditions designed to protect the interests of the Company.  Developing the form requires an early determination about the end user license agreement (EULA), and the entities that will be the contracting parties to those agreements.  Is the Company or the reseller contracting with the end user under the EULA?  Will there be a form EULA included as part of the form Reseller Agreement that will be required to be used by the resellers (changes of which will require the approval of the Company), or will the reseller be permitted to develop its own end user agreement that must include flow-down provisions identified in the Reseller Agreement form.  The form Reseller Agreement, and the form EULA included within the Reseller Agreement, if applicable, are drafted to be governed by, and enforceable under, U.S. law.

After developing the form Reseller Agreement, qualified counsel in each foreign jurisdiction in which Company has decided to expand its distribution network will need to be identified and contacted for the purpose of reviewing the form Reseller Agreement to advise as to its enforceability in the foreign jurisdiction — while maintaining U.S. law as the governing law of the Reseller Agreement.  In order to guide foreign counsels’ review, a letter composed by Company’s U.S. counsel identifying key areas for which Company is requesting advice should accompany the Reseller Agreement and be provided to foreign counsel for review.  Examples of some such key areas for particular advice may include:

  • Intellectual property protection provisions (e.g. copyright registration requirements in the foreign jurisdiction);
  • Provisions relating to the termination of the reseller (e.g. are there statutory provisions that mandate compensation to a reseller following termination);
  • Are there regulations or license requirements with respect to Company’s importation of its software product encryption technology into the foreign jurisdiction? Are there other registration procedures that Company should be aware of;
  • Must the reseller be a national of the foreign jurisdiction;
  • Is arbitration an effective mechanism for enforcing the reseller agreement;
  • Are there any issues with respect to the cross-border transmission of data utilizing the Company’s technology; and
  • Generally, are there any other areas of the Reseller Agreement that may be subject to significant local laws or regulations that require modification of the form Reseller Agreement?

Of course, these are only examples, the actual areas for specific review will be largely dependent on the technology being distributed, the distribution business model utilized by Company, and the specific terms and conditions of the form Reseller Agreement.

Upon receipt of foreign counsels’ response, Company and its U.S legal counsel will review the advice of foreign counsel and follow-up with them with any questions or further clarification necessary.  Combining the advice of U.S. counsel and foreign counsel, Company will elect to proceed, or not proceed, with respect to product distribution in the particular foreign jurisdiction under review, and if proceeding, the form Reseller Agreement will be revised accordingly for use in that jurisdiction.

Kevin D. Sheldon brings over 24 years of experience in technology related legal matters. A computer programmer turned technology and IP lawyer, clients gain valuable benefit from his experience in software licensing, outsourcing and other complex technology transactions. He is currently recognized as one of the “Best Lawyers in America” for Technology Law, as published in Best Lawyers in America by Woodward/White, Inc. (2015-2016).

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