Recent issues in an IT Master Services Agreement

Jun 5, 2017 | Commercial Contracts, IT

Case Study - IT Master Services Agreement

Here at the Contract Company we were recently asked to advise on a Master Services Agreement with a large IT company.

In this case under the Master Services Agreement our client was supplying  goods and/or services to the large IT company (and their affiliates).

Key Issue

The key issue for consideration in this contract was the interaction between the Master Services Agreement and a distribution agreement that our client had previously signed.

The immediate issue under consideration was whether our client  was able to grant rights under the Master Services Agreement to the large IT company, or would this violate the pre-existing distribution agreement.

Our client is the exclusive distributor of an overseas product in Australia and as such had been granted certain rights under a distribution agreement. If our client breached the distribution agreement then they stood to lose the rights to supply and distribute certain products within  Australia.   Something our client was very keen to avoid.

Ownership of New IP

One of the key issues for consideration in the Master Services Agreement was the ownership of new intellectual property.

As you will appreciate the Master Services Agreements have been drafted by a top tier law firm and as such suppliers to the large IT company have to hand over everything including their first born child. Plus why say it in 10 pages when you can say it in 50. No point cutting to the chase when you can waffle on a bit. Bit like this article….

Under the standard terms of the Master Services Agreement the large IT company owns all newly created IP and any supplier to the large IT company provides a royalty free perpetual licence to the large IT company to the extent that any of the supplier’s IP forms part of the services being provided. This ensures that there will be no IP issues for the large IT company because they will own all newly created IP but also they have a right to use any of these suppliers pre-existing IP that is required for the large IT company to make use of the newly created IP. In short, an IP stitch up! But standard sort of fare in large IT contracts.

Outcome

In our case we were able to successfully amend the contract with the large IT company on the basis that the rights  the large IT company required under the contract our client was simply not able to grant,  as doing so would have meant a breach of its pre-existing distribution agreement. Had we breached our distribution agreement this could have had the effect of losing the exclusive distribution rights and potentially putting our client out of business.

Amending the contract with the large IT company in this manner was relatively straightforward because we had an effective ‘ sales pitch’  to make to the large IT company as to why we required these changes.  As you will appreciate in many contract negotiations looking to amend or change the contract and explaining why you want those changes is not so straightforward.

Every contract is different so if you are thinking of entering into a contract with the a large IT company please get in touch as we can assist.

We hope that’s clear. Still in need of in depth explanations? Call us on 1800 355 455 today to schedule a consultation.

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