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socrateaser, Attorney
Category: Business Law
Satisfied Customers: 39045
Experience:  Retired (mostly)
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As discussed, I believe B is misreading the agreement as to

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As discussed, I believe B is misreading the agreement as to whether
ABC, after the Initial Term, can elect to renew the "Term" with the
right to continue white-labeling the Product, while at the same time
electing also to discontinue paying for Services (and thus at the same time
buying exclusivity). The answer is clearly "yes."

ABC's payment obligation is set forth in Section 6.1, which provides
that ABC has to pay the $80,000 Services Fees "during the Term" of the
Agreement. "Term" is defined under Section 7.2 as the Initial Term (ending
on the one-year anniversary of the Acceptance Date) "together with any
Renewal Period(s)." A Renewal Period is defined as the "initial one-year
extension" after the Initial Term per the 1st sentence of Section 7.2
together with additional one-year periods triggered when ABC gives
written notice to XYZ at least 90 days before the expiration of that
first one-year extension, per the 2d sentence of 7.2. After defining what
constitutes renewals of "the Term" and what notice is required for each
Renewal Period (any time before the expiration of the Initial Term for the
1st renewal and 90 days for each renewal thereafter), Section 7.2 continues
as follows--"Notwithstanding the foregoing to the contrary, during each
Renewal Period, XYZ’s obligation to offer Development and/or Support
Services, and XYZ’s obligations of exclusivity under Section 4, will
continue at ABC’s option on a month-to-month basis, but not longer
than five (5) years from the Effective Date, and only so long as ABC
elects to continue to pay Services Fees in accordance with Section 6.1."
In other words after the Initial Term, ABC can renew the Term AND
elect at its option to continue to pay Services Fees or not on a
"month-to-month" basis. "Month-to-month" means that ABC could provide
XYZ notice prior to the beginning of the first month of the Renewal
Period that it wishes to discontinue payment for, and the requirement that
XYZ provide, Development Services. The phrase "but not longer than
five (5) years from the Effective Date" was added to make clear that
ABC could not buy exclusivity (by paying Services Fees) for more than
5 years.

In other words, ABC is obligated to pay Services Fees during the
Initial Term. Thereafter, provided ABC renews the Initial Term by the
requisite written notice, ABC may at its option discontinue payment
of, and therefore terminate XYZ's obligation to provide, Development
Services and Exclusivity.   ABC can continue to renew the Agreement
(ie give written notice thus triggering a Renewal Term) in perpetuity, thus
maintaining the right to sublicense the Software Product so long as it pays
royalties thereon. The only exception is that ABC cannot sublicense
the Stand-Alone Product to an XYZ Competitor (assuming that it doesn't
exercise the Perpetual Licence Option).
Since the license is granted "during the Term," and the "Term" is defined as the "Initial Term of the Agreement, together with any Renewal Period(s)," and as the Renewal Period terminates upon a failure to pay service fees in accordance with Section 6.1, then the license would terminate concurrent with ABC's failure to make monthly payments.

According to ABC's counsel, there is a royalty attached to the license. If that is true, and it does not appear in any of the contract language that you have previously posted here, then I would accept the ABC interpretation, because it is exchanging the royalty for the licensing right.


If there is no royalty, then my position would be that ABC's licence renewal right would be in exchange for nothing, if it cancelled the service agreement, and as such, the licensing renewal right would be unenforceable for lack of contractual consideration.


Hope this helps.


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Customer: replied 8 years ago.

6.6 Royalty Fees. Until the earlier of expiration of the Term or ABC's exercise of the Perpetual

License Option, XYZ shall be entitled to a royalty for each Sale of an XYZ Stand-Alone Software Product, and

each Sale of a ABC Product that incorporates the Software Product, equal to fifty percent (50%) of all Net

Revenue from such Sale. For this purpose (a) "Sale" means a sale by ABC or a ABC Affiliate during the

Term to a party that is not a ABC Affiliate and (b) "Net Revenue" means, for each Sale, the total perpetual

license fees or recurring user fees received by ABC during the Term for the XYZ Stand-Alone Software

Product or, in the case of a sale of a ABC Product incorporating the Software Product, the portion of such

amounts attributable solely to the Software Product, in all cases, excluding (or if otherwise included, reduced by)

returns, taxes (including without limitation sales, use and value added tax), discounts and or rebates actually

granted or given. During the Term, ABC shall provide a quarterly statement that outlines the number of

ABC Product units incorporating the Software Product and the number of XYZ Stand-Alone Software

Product units licensed by ABC, or its Affiliates or assigns, and the Net Revenue received for such licenses.

The above contractual language creates a separately enforceable contract for the license. So, I would agree that ABC can cancel service and support and maintain its use and distribution rights.


Sorry, I know that's not what you wanted to read, but I cannot avoid the obvious.

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