I got a call the other day from a former co-worker. It appears that her new company had recently spun off from it’s parent and in preparing for their software upgrade they got an ugly surprise…their former parent had never bought the software they contractually “transfered” to my friend’s company. About $400,000 worth of software needed to be bought.
Knowing for sure about software licensing during Mergers and Acquisitions or any other type of change of control activity is extremely important.
When a company splits off from a parent company there is a lot to be figured out, including who gets the software.
If the company has only purchased OEM software then the software rights transfer with the machine – however; documentation is key. The onus of ownership remains with the company using the software.
If the company purchased retail software, will this be transferred to the new company? If so, physical transfer of the licensing agreements and records needs to occur as well. It would also be wise for the new company to insist on financial records showing the initial purchase.
If the company purchased under volume agreements (non-contractual), then the publisher needs to be notified of the transfer (transfer fees may be involved) and appropriate documentation needs to be retained by both companies.
If the company purchased software through a contractual agreement then there are additional considerations. Is the contractual agreement also covering any of the former parent’s software as well? In most cases it would be. Does the contract allow for separation or transfer of licenses? Is there a license transfer fee or notifications? Will either company still be of appropriate size to qualify for the contract?
The last thing a company wants to do is acquire someone else’s software licensing nightmares. Ensuring that you receive full documentation of what you are paying for when you acquire the company and its software assets is key.
Additionally, a company that is acquiring another company generally has its own software assets already under various forms of contracts (or through acquisition a company might finally be of a size to qualify for a contractual volume agreement). Maintaining separate agreements or being able to wrap multiple agreements together is one of the items to be considered. Additionally, some contracts have language in them requiring a company to wrap acquisitions into an existing contract. It is important that a company be aware of any such requirements upfront so there are no costly surprises.
It’s also important to know your rights. It’s not unusual for software publishers to limit what rights can be transfered when a company is bought or sold.
If you need to know more, contact us through our website at www.cynthiafarren.com