If you are a software startup or medium-sized business, you may have considered selling your software internationally. Generally, you will sell software internationally by either establishing offices and a team overseas or engaging an IT reseller. While each option has benefits, engaging IT resellers is typically more cost-effective for businesses and startups because they grant you quick access to new markets and allow you to tap into the reseller’s local network. However, to ensure a mutually beneficial relationship, it is essential you and the reseller are aware of your obligations. In these circumstances, an IT Reseller Agreement will set out your mutual rights and obligations. This article will discuss the key issues you should consider when entering into an IT Reseller Agreement with an international IT reseller.

Pricing

Under the Australian Consumer Law, suppliers are prohibited from setting minimum resale prices. As such, you have the right to provide the reseller with a recommended retail price, although this cannot be contractually enforced. Similarly, threatening to terminate your relationship with the supplier can attract fines from the Australia Competition and Consumer Commission if you are found to have engaged in resale price maintenance. However, this position not held worldwide. As you scale your business, you should be aware of each country’s specific consumer laws when setting resale prices. For example, the prohibition of resale price maintenance also exists in the European Union and New Zealand.

Resale price maintenance refers to suppliers placing pressure on businesses to charge a set price. It is illegal for suppliers to threaten to stop supplying the reseller unless their recommended price is applied.

You should also consider the currency the software transacts in and how to address fluctuating exchange rates. Depending on your market, adjusting the price in accordance with exchange rates to maintain your profit margins may also be considered resale price maintenance.

Protecting Your Intellectual Property

As you sell software internationally, your international Reseller Agreement should ensure the proper protection of your intellectual property. As such, your Reseller Agreement should set out:

  1. The reseller is only granted a limited licence to your intellectual property. The clause should ensure you are only temporarily licensing, and not assigning, your valuable intellectual property rights. You should also include a clause which prohibits the copying, modifying and reverse engineering of your software.
  2. The reseller has a licence to use your registered trade marks and copyright in marketing material. This is important in ensuring you allow the reseller to accurately and legally promote your software overseas. You may also wish to protect your branding by providing specific instructions on how the reseller is to use your intellectual property.

Non-Compete Clause

Most resellers will have more clients than just you. As such, it is worth researching potential resellers to find out whether they sell competing IT products. If they do not already sell competing IT products, then you may negotiate a non-compete clause that prohibits them from selling competing IT products. Placing this restriction may assist your sales and cement your brand in the local market. Alternatively, you may draft the clause to permit the reseller to contract with other IT businesses after attaining your consent.

Dispute Resolution

It is crucial you have a well-drafted dispute resolution clause that you can access should the need arise. This clause should ensure the attempt of alternative dispute resolution methods before either party can initiate court proceedings. For example, the clause may specify you attempt negotiation, then mediation and only then may you proceed to litigation. You should aim to resolve the dispute well before escalating to court proceedings, particularly as international disputes can be difficult to resolve and court proceedings must be initiated in one country. While multinational enterprises may find this commonplace, this should incentivise smaller businesses to take extra care when choosing their reseller.

Organising Training and Reports

Regular communication is critical to ensure the arrangement is successful and grievances are addressed before they can escalate. Further, you should clarify any training that needs to be provided during your negotiations. For example, you may have to train the international reseller in:

  • setting up the software;
  • answering common questions customers have about your software; and
  • any marketing tools you have developed to assist the sale of your software.

Overall, you will have to become accustomed to the lack of visibility when working with international parties. You should therefore maintain awareness of the status of the relationship as it progresses. You should consider having clauses requiring the reseller to provide you with periodic sales reports which set out what units were sold and at what price. This will assist you in providing any additional training or assessing your progress in the new market.

Key Takeaways

Selling your software internationally is a great sign of growth and a rewarding step for your software business. Engaging international resellers allows you to access new markets without dedicating as many resources than if you physically expanded. It is crucial that you have a well-drafted IT Reseller Agreement which meets your business circumstances. If you are looking to engage a reseller, you should ensure that your IT Reseller Agreement includes:

  • the provision of communication, training and reports;
  • recommended pricing;
  • intellectual property licencing;
  • non-compete clauses; and
  • dispute resolution clauses.

If you need assistance drafting or negotiating your IT Reseller Agreement, get in touch with one of LegalVision’s IT lawyers on 1300 544 755 or fill out the form on this page.

Justin Ocsan
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