I've just published a Quick Take report that explains why the Nevada District Court’s recent decision on some of the issues in the four-year-old Oracle versus Rimini Street case has significant implications for sourcing professionals — and, indeed, the entire technology services industry — beyond its impact on the growing third-party support (3SP) market.
The court’s ruling represents a partial victory for Oracle on some of the disputed issues, but the main case is still a long way from coming to trial, so there is as yet little impact on companies using 3SPs. The reason that the judge’s ruling is so momentous is that it casts doubt on the legality of a wide range of third-party services, including customization, integration, and external hosting. My report explains how the court’s literal interpretation of old contract language should concern all services providers and send sourcing professionals hurrying to check their old software agreements. I urge all Forrester clients to read it.
One of the key themes of the ruling was that the court should interpret the contract as literally as it could and not infer rights or restrictions that the contract did not make explicit. For instance, one of the representative contracts that the court examined restricted use to the "internal data processing operations at (the licensee's) facilities in the United States". The judge pointed out that this prohibited the licensee from moving the software to an outsourcer's facility for it to run on its client's behalf. That may appear to be an obsolete restriction in today's world of outsourced datacenters and public clouds, but that's irrelevant - if it is in the contract then the customer must honor it.
Conicidentally, I saw similar wording in a different contract that a client sent me to review, just a few days before this ruling. The client wanted to keep her 15 year-old master agreement because it had some nice concessions that her firm had won at the time, but I advised her to give them up and agree to the vendor's request to sign a new agreement. In my opinion the risk from this and other similarly obsolete clauses outweighed the benefit of her concessions. I often hear clients say "but surely they'd never enforce that" or "but everyone breaks that restriction" but that's a dangerous assumption to make.
Bottom Line: Don't ignore obsolete restrictions in your software agreements on the assumption that they no longer apply or are unenforceable. Instead, work with the software provider to bring them up to date.
Posted by Duncan Jones
Related Forrester Research
- Don't Let Oracle's Lawsuit Dissuade You From Considering 3SPs, But Recognize The Risks
- The Emerging Third-Party Software Support Marketplace: Questions And Answers
- Updated Q4 2013: Forrester's Software Contract Review Checklist User Guide
- Quick Take: The Rimini Street Ruling Has Serious Implications For Oracle Customers