Software Reseller Agreement Essentials
A software reseller agreement is a legal agreement outlining the rights and responsibilities between the owner of software (the “publisher”) and a person or business wanting the right to sell or license the software to third parties (the “reseller”). A software reseller agreement is sometimes referred to as a “software distributor agreement” or a “software distribution agreement”.
The software reseller agreement contains important terms and conditions relating to the rights and responsibilities of the reseller. Although each software reseller agreement will vary depending on a variety of criteria, here are some key terms that will need to be addressed:
Agent vs. Sales Representative vs. Reseller
Although software reseller and sales representative are often used interchangeably, from a legal perspective, they are very different. However, the lines between these distinct roles are often blurred.
An agent is a legal representative of the principal (which, in this case, would be the software publisher), and can include employees of the publisher. Thus, the agent is legally authorized to enter into contracts on behalf of the software publisher – which would include software licenses[insert link to software license article] to end users.
By contrast, an independent sales representative is not legally empowered to execute end user licenses on behalf of the software publisher. Instead, the representative will negotiate terms with the prospective licensees, but the software publisher will enter into a software license agreement [insert link to software license article] directly with the end user. The representative is compensated with a sales commission, which is typically a percentage of the license fee associated with the software license.
Like an independent sales representative, a software reseller is independent of the publisher and does not have the ability to enter into contracts on behalf of the software publisher. In a traditional reseller arrangement, the reseller will pay a fee to the software publisher for the right to resell or sublicense the software. The difference between this fee and the fee the reseller charges the end user will be the software reseller’s compensation. However, because software resellers often are compensated via a commission-style arrangement, this can be a source of confusion as to the true role of the reseller.
Exclusive or Non-Exclusive Software Reseller
Most commercial software reseller agreements are non-exclusive, meaning that the publisher may grant others the right to resell the software. In some situations, a software reseller agreement may be exclusive, which would prohibit the publisher (or any of its other resellers) from reselling or distributing the software to certain end users.
The terms of exclusivity are often limited by geography (“the United States”) or by industry or “field of use” (e.g., education, healthcare, etc.) Thus, the publisher would be permitted to grant licenses to people outside the scope of the exclusivity.
Software Reseller Agreement Payment Terms & Renewals
Compensation to the reseller is typically the difference in price between the amount paid by the user/customer and the price paid by the reseller to the publisher. However, many software reseller arrangements provide for the reseller to receive a sales commission based on license fees paid to directly to the publisher by the user, which is more similar to how a sales representative of agent is compensated). This is especially true of “software as a service” agreements (or “SaaS agreement”).
Also, if the user license is based on an annual or other renewable subscription, or if the user can purchase additional products or services from the publisher, the software reseller agreement should clarify whether the reseller is entitled to compensation in connection with any such renewals or additional purchases.
Software Updates and Maintenance
The software reseller agreement should address whether the publisher is obligated to provide end users maintenance or upgrades to the software and, whether an additional fee is required for any such maintenance or upgrades.
Installation, Training and Software-Related Services
The software reseller agreement should address whether the reseller is obligated or allowed to provide installation, training or other services. In fact, many software resellers are primarily IT services companies who offer the publisher’s software as an add-on or tool to their clients or a middleware using the software to bridge their own software applications with the customer’s software or date, or that of third parties. In these arrangements, it is important that the software reseller agreement address the potential issues associated with the interplay of these various systems.
Software Reseller Agreement Term and Termination
The term of a software reseller agreement describes the period of time in which the reseller is granted the right to resell the software. Often this, is for an initial term, and may be extended for additional terms (typically this is subject to the reseller having met certain performance obligations during the initial term).
Regardless of the length of the term, the software reseller agreement should address what happens when the term expires or is otherwise terminated. Some post-termination items that may need to be addressed include the impact on end user license renewals, ownership of data or other IP associated with modifications to the by the reseller, software whether future commissions are owed to reseller, and responsibility for ongoing service agreements related to the software.
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