Welcome to Penrose IT / Cloud contracts
Penrose specialises in the legal aspects under Dutch law regarding Information & Digital Technology and IT related contracts. We advise and assist international IT / technology entrepreneurs, IT providers, software developers, procurement and investors with the drafting of IT related contracts. We also deal with IT and software disputes in the Netherlands. Hereafter, we discuss some of the Dutch law IT related contracts and issues that we encounter on a daily basis.
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Basic principles of IT contracts
IT buyers often have little knowledge of what they are purchasing and where to pay attention to in the corresponding agreements. IT suppliers often work with their own template offers, agreements and general terms and conditions. Therein we often notice a lack of clarity about the scope and specifications of the services to be provided, the related obligations and deadlines that apply to the IT supplier. In addition, the standard documentation of the IT supplier generally lacks arrangements governing continuity and exit, and an adequate clause on intellectual property rights. Another problem is that laws and regulations have not kept pace with the demands of an automated society.
Consequently, it is advisable to seek legal advice when entering into a collaboration agreement or licence agreement. Problems often arise because the agreements are insufficiently clear or strongly one-sided. A clearly-structured agreement that does justice to the interests of both parties is essential. Such agreement should cover at least the following topics: scope (what products and/or services are being provided?), price and additional expenses incurred for developing software, intellectual property rights such as copyright or, potentially, a patent, confidentiality, maintenance/service levels, liability, termination, continuity and exit, privacy and data protection.
Software development agreement
Suppose you are developing software specifically for a new customer. Rather than repeat past work, you make use of building blocks or components of software that you previously developed for another customer. However, the new customer has expressed its desire to own the copyright in and connected to the software.
Or, suppose your company or organisation uses business-critical software developed and/or supplied by the IT supplier. After your IT supplier has failed, for the third time, to meet the agreed-upon deadline or service level, you decide to suspend all payments. In response, the IT supplier (pursuant to its general terms and conditions) suspends its services and your screen goes black. How should that situation be resolved? Whether you are the customer of the IT supplier, it is important to be aware of these – perhaps theoretical – cases. Seek legal advice in order to tackle potential conflicts in advance instead of afterwards.
Software IP rights
The term “Intellectual Property” (IP) in IT contracts is generally understood to refer to copyrights in and in connection with software and in particular its source code. In some cases, a patent for software may have been granted.
When an IT supplier provides standard software, it usually does so on the basis of a licence (right of use). The use of the software may be subject to certain conditions such as a limitation on the number of users, where it can be used, and for how long.
Software Licence Agreement
When an IT supplier provides standard software, it usually does so on the basis of a licence (right of use). Software, and in particular its source code, is often protected by copyright.
The difference between the licence and transfer of IP rights (such as copyright) is that when a licence is issued, the licensor retains the legal ownership in the IP rights. The licensee merely acquires the ‘economic ownership’, i.e. the right to (temporary) use the IP rights. Software licensing agreements come in many shapes and sizes. It is important to establish whether the licence is exclusive, temporary, transferable and/or sub-licensable. The use of the software may be subject to certain conditions such as a limitation on the number of users, for what purposes it can be used, and for how long.
Open Source Software (OSS)
Another point to consider is the use of so-called open source software. It is a misunderstanding that open source software is not copyright protected. On the contrary, open source software is also subject to licence terms (e.g. Apache License, General Public License, MIT license). The distinguishing feature of open source licencing is that the source code is published and can be used free of charge. Any developer can make improvements to the open source software under the condition, however, that such improvements will also be made available open source, in order for others to continue developments.
White label licence
One of the most common forms of licencing to have evolved in practice is the white label licence. The main feature of the white label licence is the right of suppliers to use the software and offer it to customers as if it were their own software.
SaaS, IaaS and PaaS are all forms of cloud services. IaaS stands for Infrastructure as a Service, whereby the customer rents server capacity (hardware) hosted by the IT supplier to run its own software applications and data. This form of cloud service is quite similar to the traditional on-premises IT services.
SaaS, IaaS en PaaS zijn allemaal vormen van clouddiensten. IaaS staat voor Infrastructure as a Service. Hiermee wordt serverruimte (hardware) gehuurd (gehost) waar de eigen software applicaties en data van afnemer op draaien. Deze vorm lijkt nog het meest op de traditionele on-premise IT dienstverlening.
PaaS stands for Platform as a Service. PaaS takes more of the workload off the customer’s hands. In addition to server capacity, the operating system and databases are also stored in the cloud. The supplier configures, manages and monitors the server capacity. The customer is only responsible for the software applications and data.
SaaS stands for Software as a Service and consists of a complete, ready-to-use package in which everything from server capacity to applications and data is managed and maintained by the IT supplier. The fact that the software runs on the IT supplier’s servers does, however, involve a dependency risk for the customer. If the IT supplier’s server fails, or the IT supplier becomes bankrupt, the software service can no longer be used. The data may also become inaccessible or removed. That is why it is important to make clear contractual arrangements with the IT supplier on matters such as continuity and possibly keeping the source code of the software in escrow.
General terms and conditions for IT contracts
A standard set of general terms and conditions acceptable to both customers and IT suppliers has yet to be created. In the Netherlands, IT suppliers often use the “Nederland ICT Voorwaarden” (formerly known as ICT Office), or their own version derived from it. The central government, on the other hand, prescribes their own General Government Terms and Conditions for IT contracts (the so-called ARBIT).
ARBIT and “Nederland ICT voorwaarden”
The Nederland ICT Voorwaarden are very favourable to IT suppliers. The ARBIT conditions are particularly favourable to the customer, although not necessarily fit for purpose in all cases. IT suppliers tend to reject the application of the ARBIT conditions, partly because they do not contain specific provisions for ‘as a service’ services such as SaaS. However, it is inadvisable to simply agree to the applicability of the IT supplier’s terms and conditions. Exceptions to general terms and conditions are generally negotiable, and Penrose provides legal advice in such matters on a daily basis.
Service level agreement (SLA)
A SLA (often referred to as a Service Level Agreement) defines the scope and quality of the services to be provided.
It often contains arrangements on service availability (e.g. 99.5% uptime per quarter), performance standards or KPIs (key performance indicators), support/help desk including response and recovery times, maintenance (corrective, preventive, functional, adaptive) and reporting. SLAs may also include a penalty clause or a bonus-malus clause in the event the guaranteed uptime or other KPI has not been met by the IT supplier. There are advantages and disadvantages to these type of arrangements.
Continuity and exit in IT contracts
Although it is not something people usually want to think about when drawing up or concluding an agreement, provisions on continuity and exit are a must to be included in the agreement with the IT supplier. Will you still be able to access your data? Will the services continue to be provided for a certain period of time until a new supplier takes over?
In order to ensure the continuity of services, the access to and protection of information and personal data to the greatest extent possible, it is advisable to think about an exit plan or (re)transition plans when entering into an agreement with a IT supplier.
If your organisation uses software (e.g. under a licence) that is crucial for keeping the organisation up and running, an escrow agreement with the supplier may be worth considering. With escrow, a copy of the software source code is deposited, or put in escrow, with an independent third party. The customer has the right to access the source code in certain situations, e.g. the supplier’s bankruptcy, so that the software can continue to be used and maintained. It is also important to remember that any data processed with the software in principle remains on the servers of the (bankrupt) supplier.
Dutch IT contracts specialist
At Penrose, our IT lawyers are happy to work with you and answer any questions you may have. Contact details are available here.