An IT Reseller Agreement allows software developers (the supplier) to engage another party (the reseller) to sell their software. Entering into a Reseller Agreement can benefit your business in a number of ways. For example, engaging a reseller allows you to sell more products, increase your business’ brand awareness and target new markets without having to physically expand your business. Each party’s obligations should be detailed in a well-drafted IT Reseller Agreement to ensure a mutually beneficial relationship. This article discusses the key issues you should consider when entering into an IT Reseller Agreement.
Having an open working relationship means both parties will strive for a mutually beneficial relationship. As the supplier, you can provide the reseller with the recommended minimum retail price for your software but are prohibited from enforcing a certain amount in your contract. This means you cannot stop a reseller from selling your software below minimum retail price or threaten to cease supplying software should they continue to sell below the minimum retail price.
However, you may terminate the relationship if the reseller is purposely selling your software below minimum retail price to:
- promote their business; and
- attract customers who are likely to purchase other products from them.
This is known as loss leader selling. To determine your reseller’s intention, you should maintain an open line of communication and request regular sales reports.
Your IT Reseller Agreement should address two critical intellectual property issues.
Firstly, as a supplier, it is crucial your IT Reseller Agreement does not assign intellectual property rights to the reseller. The reseller should instead be granted a limited licence that prohibits copying, modifying or reverse engineering the software.
Secondly, your contract should grant the reseller a licence to use your registered trade marks and copyright in marketing material. You may also wish to limit how the reseller can use your intellectual property to ensure that it is in line with your brand image.
There are two common delivery options for IT Reseller Agreements:
- the supplier delivers the software to the client upon being notified of payment from the reseller; or
- the supplier provides the reseller with the software which the reseller then delivers to the client.
Given that most software products are now accessed through the cloud or downloadable links, it is essential to clarify liability around delivery errors. A delivery error for a non-physical product occurs when the client fails to receive the software. Some common causes are:
- an error as a result of the deliverer’s server or operating system;
- any viruses transferred to the client while downloading the software; and
- delays in delivery to the client for whatever reason on the part of the deliverer.
In most cases, parties will agree that the deliverer should be liable. Consequently, in example 1 the supplier would be liable whereas the reseller would be liable in example 2.
Bundling and Selling Other IT products
Most resellers will sell more than one product. It is worth doing some due diligence on a reseller and finding out about what other products they are offering. You may find that:
- the reseller sells other IT products that would be complemented by your software; and
- the reseller may or may not sell competing IT products.
A reseller may request to bundle your software with other IT products since this will assist their overall sales. However, researching the reseller’s business should inform whether you will allow the reseller to sell your product alongside other IT products or if you would prefer them to sell your software as a standalone product.
If the reseller is not already selling competing IT products, then you may seek a clause prohibiting the reseller from doing so. If the reseller is hesitant to agree, you may instead try to negotiate a clause where the reseller can only sell competing IT products with your permission first.
Communication, Training and Reports
As the supplier, you should encourage an open working relationship with the reseller. As such, you should:
- negotiate to train the reseller in ways which will assist in selling your software; and
- request periodic sales reports setting out what units were sold and at what price.
Communication is vital for the relationship with the reseller to succeed. If you are working with a larger corporation, you may wish to have a single point of contact who is accessible and informed about your deal. This will help the parties solve any grievances before the issue can escalate into a contractual dispute.
Engaging a reseller provides you with an opportunity to expand your business and reach a broader range of customers. However, it is crucial you have a well-drafted IT Reseller Agreement that addresses the terms of the relationship. If you are looking to engage a reseller, you should ensure that your IT Reseller Agreement addresses:
- communication, training and reports;
- intellectual property licenses;
- delivery; and
- bundling and selling other IT products.
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.
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