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hey everybody i'm mike whalen for law insider this is the contract tear down show which is basically what it sounds like we take contracts and beat the crap out of them i am here with my friend martin clausen martin how are you today i'm good thank you so we are gonna share a document guys and what we're gonna do is walk through and criticize this thing this is the document it's an oracle license and services agreement uh it's about 35 pages long i think is the length on it and you can see that martin got very angry there's even red highlighter in here uh we are doomed so martin real quick tell me what is this document and what generally drives you crazy about it well uh it is a uniquely bad document to have to sign up to not only because the vendor is very skilled at using the nooks and crannies of it and the loops holes but but also because in general it is it is exceedingly unfair to the license taker and we're going to go to those special highlighted sections that you put in there to tell you guys what specifically and martin's thinking is wrong and how you might write these things better before we get to that i want to ask martin tell us briefly about yourself i don't think you're in new jersey judging by the accent where are you what do you do i'm in copenhagen denmark and these days i'm a legal technology consultant and entrepreneur but i spent the better part of my career as a in-house lawyer focusing on technology contracts and so i've come across this particular document and many documents like it many many times throughout my career and negotiated them and tried to fix the really bad parts cool well through the power of technology we're going to be able to pull up every one of these sections that you highlighted i'm going to drag them into the screen and then i'm going to read them to you real quickly and then you just tell me what's driving you crazy about this so first in the rights granted section there's a line about internal business operations and then it says quote you may allow your agenda and contract or your agents and contractors including without limitation outsourcers to use the program for this purpose and you are responsible for their compliance with this agreement in such use for programs that are specifically designed to allow your customers and suppliers to interact with you in the furtherance of your internal business operations such use is allowed under this agreement why is that bugging you it's potentially a a very uh onerous clause both because of the definition internal business operations which is i mean completely unclear what does i mean a business is per definition acting outwards right so what is the internal business operations of a company so my first recommendation would be to have clarified that the use that you intend to put the software to is actually allowed i mean thinking just very practically about what am i going to do and have the licensor confirm that that is actually allowed the second part is is the the the the extension if you will at the last part of what you read that says that for programs that are specifically designed to allow your customers and suppliers to interact with you blah blah blah in the furtherance of business operations such users allowed please note that we are talking about customers and suppliers only so if you have a business partner that wouldn't qualify as one of these definitions and you are using the software in furtherance of your internal business operations or that partner is using the software even if the software is designed to do that and could meaningfully be used by business partner you wouldn't be allowed to do it so that might come as a surprise to people so if there's a principle to draw from this it is it is to be very careful in analyzing exactly how you intend to use the software and make sure that your usage is actually covered and that any third party party usage specifically business partners that are not customers and suppliers if they are to use the software in any way shape or form you want to be careful that your your planned usage is covered by by an amendment to this clause very good in the second piece here we're going to talk about the ownership and restriction area uh you highlighted oracle retains all ownership and intellectual property rights to anything developed and delivered under this agreement resulting from services words like anything uh what what's in your mind on this one yeah well it's quite obvious right because this agreement also covers services you could have oracle develop integrations extensions stand-alone software under this agreement and they just plainly write that it's their property right you have a use right to it but you paid for it but you don't get to own the result i it might be workable but in many respects it's probably not a reasonable balance since you paid for the for the for the show right so this this is a question of basic fairness and and if you go along with the ownership investing with oracle you should also here make very sure that your use right covers your intended use that's a fight waiting to happen all right under the you may not section which is always fun uh you highlighted you may not make the programs or materials resulting from the services available in any manner to any third party for use in the third party's business operations and this is just highlighted because it relates to the question that we talked about previously that you want to fix this part too so it doesn't collide with any extensions that you've executed for yourself regarding the previous clause right yeah and also in the you may not you may not disclose results of any program benchmark tests without oracle's prior written consent yes so this is quite interesting and actually a piece of history this clause is actually in the sort of parlance of contracts and technology contracts called it the whit clause and that name comes from a a story where a professor at i forget the name of the university it'll probably come to me in a second but but actually published some benchmarks benchmarks beings being tests of how a program performs how many transactions is it able to process and so on so he published these benchmarks and oracle's products came out looking really poorly in those benchmarks that made the uh ceo and owner of the oracle corporation so mad that he tried to get this professor fired as a tenured professor that he attempted to get fired that didn't succeed so for many years he banned any uh graduate from that particular university for working for the oracle corporation but returning to the contents of this this is just a a a very odd clause and and it prevents you from sharing for instance um the results of a benchmark with a consultant in an attempt to fix the the product or scale your hardware or whatever because as you can see here you you're not allowed to disclose these results and that might not be what you were what you want so so i i would i would be think twice before signing up for this particular thing we're going to move to the section that probably as i've done more of these resources that you can find at law insider.com resources the indemnification area seems to be the one that causes the most fights in the most questions this is a bit long and i'm going to yell when we get to the red part but not really this shows if the provider believes or it is determined that any of the material may have violated a third party's intellectual property rights the provider may choose to either modify the material to be non-infringing while substantially preserving its utility or functionality or obtain a license to allow for continued use or if these alternatives are not commercially reasonable the provider may end the license for and require return of the applicable material and refund any fees from the recipient who may have paid to the other party for it and any unused prepaid technical support fees that you have paid to order oracle for the license and now i'm going to yell if you are the provider and such return and yeah and such return materially affects oracle's ability to meet its obligations under the relevant order then oracle may at its option and upon 30 days prior written notice terminate the order there's a lot of red on there yeah yeah actually the operative or the really dangerous part here is is the the fact that it is uh possible for oracle the provider of this product to if they find the uh the obtainment of a license for this this material that they haven't been they haven't been licensed to use or haven't been allowed to use if they find that commercially unreasonable they can terminate the license and we're talking about software that's that in many respects in many instances constitutes an integral part of very large corporations i.t infrastructure so you're faced with a scenario that if something if if the if the the the copyright breach that oracle has committed is so onerous and they've stolen so much that it becomes commercially unviable to obtain a license for it because the other party obviously wants a lot of money you stand the risk that that the that this license may be terminated and you will you'll of course have a refund and so on but that's gonna be a very uh small band aid on a very large wound if that happens so you really want to think about this part for sure and you might want to look at the words commercially reasonable and adjust that so it's not so they really have to go out of their way to avoid it right more uh indemnification and more red uh oracle will not indemnify you to the extent that an infringement claim is based upon the combination of any material with any product or services not provided by oracle interpret that for me yeah that's interesting because uh even you on the face of it this seems reasonable right why would we why would oracle be responsible for you combining their products with some product obtained from a third party but the thing is that that combination actually may be prescribed in oracle's documentation for using the software and even in that case they won't be held responsible for a use that they have themselves outlined in their documentation for instance if you bought a monitoring product of something from oracle and they describe how you can use it to monitor some third-party product that combination if that infringes that's not our problem according to oracle probably not reasonable right so you might want to tune what what kind of third-party products and combinations should be covered by the indemnity anyway all right on technical support we're getting further into the contract um it points out let me see if i can zoom this in so i'm not like kissing the screen there we go the technical support policies incorporated in this agreement are subject to change at oracle's discretion love that however oracle policy changes will not result in a material reduction in the level of services provided for supported programs during the period for which technical support have been paid what is that what does that mean again it seems pretty reasonable on the face of it right we can't we can't reduce it uh make a material reduction of the level of services but only for the period for which you've paid so if you've only paid up your support one year in advance you stand at risk that in one year oracle will just unilaterally decide that we want to reduce the the the support services provided for this product to nothing we don't care right and and and that's probably not the time horizon you've invested in oracle products with for one year so you have to realize that that if you let this stand ornamented there's a continuous risk that oracle at its discretion will decide to effectively desupport your products and you only have until the end of your payment cycle to figure out what to do entire agreement section oracle puts that including uh reference to information contained in a url or referenced policy talking about uh anything incorporated uh by written reference uh what's bugging you about this of course that they've made it an entirely dynamic document where they control potentially the contents right by changing what is at the end of that or url right anything on the website right right they you could amend or extend or whatever do with the basically by changing that stuff construct any agreement that you want so would that mean to make those kinds of changes you wouldn't need any kind of amendment or change order or whatever it would just you're incorporating it incorporates it by automatically which is really dangerous uh this one's a bit long we're talking about export um export laws and regulations the united states and other relevant local export laws and regulations apply to the programs you agree that such export control laws govern your use of the programs including technical data and any services deliverables provided under this agreement i'm going to leave this for people to read the rest of but no data i mean american regulations right now on export laws are all over the map what what's what's bothering you about this one the thing is that you lift to your own devices right okay fair enough these laws apply but but in actual in actual fact to figure out what you are allowed to do with one of oracle products you need to know a lot about the product you need to know how it's classified potentially what cryptographic elements it has and so on and so forth and i can tell you from very painful personal experience that actually figuring that out for products in reality and continuously being aware of what what restrictions applies to potentially a large suite of oracle products is extremely costly and extremely difficult and if you take this seriously and if you are operating an international organization that are represented in sort of the uh across the globe um this is going to cost you a substantial amount of money monitoring this and keeping in compliance and they don't really give you anything right so at least you want to com make oracle provide you with classifications and anything that they can do in order for you to be aware of what what restrictions apply and and and also we're in a world where these things are becoming more and more dynamic right the one day you know the us government or some other government decides that some country in africa the middle east or asia whatever are on the blacklist and all of a sudden these restrictions apply to your product sorry rest of the world we're trying to figure stuff out okay yeah exactly yeah and it's not only the united states actually but it but it it the united states is very uh how should i put it active in terms of these things we're a bit mercurial on our pal trade policy right now uh all right in other it says upon 45 days written notice oracle may audit your use of the programs you agree to cooperate with the audit um you agree to pay within 30 days of written notification any fees applicable to your use of the program if you don't pay oracle will injure technical support dun dun dun what's bugging you about an audit it's so open-ended of course i mean they an alternative to an audit is of course to have your auditor sign a written declaration that you're in compliance with the terms right that's something you should immediately put on the table oracle in particular is not likely to accept it they love this clause they use it actively and they use it to enforce some of the nitty gritty that we've been through here which ends up costing licenses a lot of money if they've accidentally made a slight mistake in the way they use the software i also don't like that that that the the the cost that they can actually impose on you in complying with this clause are open-ended i mean uh this this uh this shall not unreasonably interfere with your normal business operations is like again a small band-aid on a potentially very large wound i've seen organizations spend in the hundreds of thousands of us dollars trying to comply with this clause finally we're going to talk about definitions and i'm going to ask you a general principle question because i want to get to the big picture of what lawyers should do with this kind of contract under definitions they define employee and it's very inclusive obviously all your full-time part-time all your agents um you know really anybody who's around your company this employee definition is broad is that what's bothering you about this no it's actually more that it's it potentially it is it's because employee is used in the license metric for certain oracle products right so they count employees in terms of figuring out what you're do to pay right right and there the tricky part or the potentially very tricky part is actually the last part the roman numeral two at the very end of the clause where we are also counting all of the companies full-time employees we are talking about employees at the company that you've outsourced your business functions too right and we need to count those people too fair enough i mean that you shouldn't be able to escape the license if just because you have somebody else do it and you're allowed to do it but the tricky thing is that you're counting everybody who provides the service and have access to use or are tracked by the programs now use fair enough they use the software they provide services to you of course you should pay but just because they have access to it i mean if it's on their desktop but they never use it to provide services to you should that really mean that you should pay for that employee i i don't think so that doesn't make a lot of sense well one thing that i'm seeing obviously in contracts written like this oracle does so much business they've run into trouble and they're trying to do these catch-all basket clauses that cover any possible you know they're drawing cert really big circles around a scope of problems that they've run into obviously some of these problems if somebody comes at you with a contract like that you're not in the power position against oracle really right like they could just go get another client how do how much pushback can i give to these kinds of contracts that are written over broad like this um it depends very much on your situation you you you want to have an alternative on hand before entering so into something like this you you are completely right in a pers in a situation where you do not have an alternative you will just have to accept all of this right and that's deeply problematic and and in my mind a reason to consider not engaging with the supplier like or at all yeah but if you have to if you don't have any leverage i'm sorry to say you you won't have any of these things changed and and then you have to to really figure out can i can i live with these things unchanged right you probably can't because you should not rely on oracle not enforcing these things there's a reason this this audit clause is there and it's because they use it they use it actively and they use every last bit of it also the things that the sales rep told you i will never do that that we're not unreasonable will never be that the account you know be using that even though you could theoretically use it to extract more licenses do not accept that premise right and you're paying for the audit so uh if they find any so they're going to find something they're heavily incented yeah very good at finding things and and you can you can be absolutely sure that unless you are maybe one of 25 odd people around the world they know their license agreement better than you and they know where the loopholes are well um nice work if you can get it i guess for oracle so uh martin if people want to follow up with you and rant about oracle contracts and uh viking related tv what's the best way for them to get in touch with you well i my company is called shrinkato s y n g yngraco.com and my my initials are mac mike alpha charlie so they can reach me on that email if they want to i'm also on twitter that's klausen8 perfect and we'll put a link to that information as well as a link to this contract online cider you can actually look it up online site or if you don't have a subscription go to lawnsider.com you'll see it there if you want more videos like this more ways to learn go to lawinsider.com resources we do webinars we do blog articles we do videos like this we're trying to teach as much as we can so that you don't get screwed by contracts like this we'll see you guys next time on the contract tear down show thanks again martin you're welcome cheers