Oracle Software License and Services Agreement

We’ve all been on the receiving end of a sales pitch that promises one thing but delivers something very different. Oracle’s software license agreement is a document that has made more than one lawyer feel misled. Oracle offers many solutions, but their agreement needs an overhaul. Attorney Martin Clausen argued that it has many loopholes and flaws which give Oracle the power to bully users into handing over extra fees and risking major business disruptions.

Questions In This Episode

1. Why is the Rights Granted clause particularly onerous?
2. How can Oracle claim ownership rights of material that you pay to develop?
3. What makes Oracle’s indemnification clause so risky?
4. Regarding technical support, why is there a risk of being unsupported?
5. Why is it unreasonable to expect the user to figure out export laws?

 

Oracle’s License Agreement

The Oracle License and Services Agreement governs a licensee’s right to the software. It describes in detail the use of the software, as well as the restrictions that apply. Anytime a user purchases a license from Oracle to use their many products, they must sign this agreement and often don’t have negotiating power, or the terms were negotiated long ago.

Vague Language Means Unclear Usage Rights

According to Clausen, the agreement uses vague language to Oracle’s advantage in the Rights Granted clause. It does not define internal business operations. Which is puzzling since a business is, by definition, outward facing. It’s important to ask for clarity—make sure the exact way you are putting the software to use is confirmed in the license.

Also, keep in mind that using the software does not extend to, say, a business partner. They don’t qualify. Even if the software has been designed for that use, Oracle won’t take responsibility.

You need to be very careful in clarifying for yourself how you can and cannot use the software before entering into this agreement. Especially considering any third parties that may use the software. Enforce extreme clarity during negotiations of contracts like this.

Did You Surrender Your Ideas?

Oracle has worded this agreement in such a way that they will retain all ownership and intellectual property rights for anything developed under this agreement.

For instance, you could ask for a change to the product that will benefit your business. Since the change was made at your request, you will pay for them to develop the idea. But in the end, they will own that new creation. 

What is the DeWitt Clause?

If you’ve heard of the DeWitt Clause, you know it started with Oracle. Some refer to it as a “gag clause” and Oracle will use it with extreme prejudice if they find you’ve violated it. In short, it’s a clause that gives Oracle incredible power to punish you for speaking ill of their product, and it all began with a service benchmark.

In 1982, an assistant professor named David DeWitt was testing his parallel database system back. He developed benchmarks that databases should have, which he called the Wisconsin Benchmark test. He then tested a number of databases against these benchmarks. Oracle didn’t look good when compared to others.

Oracle responded aggressively to the criticism. They went as far as pressuring DeWitt’s employer to fire him. Fortunately they failed, but the DeWitt clause has surfaced in other technology agreements as a way to prevent any public criticism of companies. The clause is unfair and suppresses free speech. It’s definitely something to look out for.

Termination Of Service Is A Big Deal

When evaluating your remedies for possible contract breaches by companies like Oracle, remember that simply returning your client’s fees will rarely compensate for business interruptions.

In this case, the words “commercially reasonable” sound ok as a permissible use, but here, the agreement over-reaches. You stand to risk that Oracle will require you to either change what you’ve created so much that it’s no longer usable, or they terminate your license. You’ll get your money back. But termination can really gum-up your process. Most of Oracle’s software is designed to be integrated into the heart of your company’s operations. Getting your money back is a small consolation prize that doesn’t begin to cover the effect that termination will have on your business.

Intended Uses Not Always Covered

Further into the indemnification clause, we see language that says Oracle is not responsible for results that arise from you combining their product with a third party.

 

This seems reasonable at first. Why would Oracle be responsible if you decide to do that? Well, if Oracle designed their products specifically to work with a third party, then describe to you how easy it would be to do so, you might think they would take responsibility for that. But they do not. Oracle is not responsible for liabilities arising from use with third party software even if they described that kind of use to you. Pretty misleading. Especially considering that most Oracle products are specifically designed to work with third party software.

Disappearing Technical Support

Oracle can, at its discretion, chose to stop supporting the product you are using. If you’ve only paid for tech support up to a year in advance, Oracle could eliminate that support as soon as your year is up. Considering that Oracle products are so integrative to a company, not being able to support a major part of your operations after only a year can be catastrophic.

Buyer Beware Should Not Apply Here

Export Laws are very complicated. It’s takes a lot of time to figure out what you are allowed to do with Oracle products. Staying on top of regulations that change frequently can be exhausting and is untenable. Users should be provided with classifications so that they’re aware of what restrictions apply to use of the software.

There needs to be more support here for educating the user. And since export laws can change quickly, it’s not reasonable to expect that the buyer will be aware. Staying abreast of every rule would cost a lot of money.

Audit Clause Used Nefariously

The Audit Clause is the key to making the rest of the agreement work in Oracle’s favor. Because there are so many hidden restrictions on how software can be used, Oracle reserves the right to audit how you are using their products.

Oracle uses this clause to enforce every word of their contract. If you make the slightest mistake, for example with the export laws mentioned above, they can find it in an audit.

They aren’t allowed to interfere with your business operations while conducting the audit, but that’s not the worry. Companies have spent hundreds of thousands of dollars trying to comply with this clause. And since Oracle makes you pay for the audit, they are motivated to conduct them as often as they can and find something out of place.

These are all concerning issues that make it important to avoid dealing with someone like Oracle. Of course, that’s not always possible. If you can’t avoid it, make sure you plan for the company to enforce the agreement fully. Even if a sales rep assures you that the company will never look for reasons to audit you, or extract more license fees, they can and they have. Oracle is very good at finding small ways they can get you. It’s a good bet they know their agreement better than you, so be prepared to question every way you use their products.

 

Show Notes

THE CONTRACT: Oracle Software License and Services Agreement

THE GUEST: Martin Clausen is the Managing Director of Syngrato ApS, a Danish legal tech startup building a practical, computable contract platform. You can find him on LinkedIn or at www.syngrato.com.

THE HOST: Mike Whelan is the author of Lawyer Forward: Finding Your Place in the Future of Law and host of the Lawyer Forward community. Learn more about his work for attorneys at www.lawyerforward.com.

Transcript

Mike Whelan [00:00:01] Hey, everybody, I’m Mike Whelen for Law Insider. This is the Contract Teardown show, which is basically what it sounds like. We take contracts and beat the crap out of them. I am here with my friend Martin Clausen. Martin, how are you today?

Martin Clausen [00:00:15] I’m good, thank you.

Mike Whelan [00:00:16] So we are going to share a document, guys, and what we’re going to do is walk through and criticize this thing. This is the document. It’s an Oracle License and Services Agreement. It’s about 35 pages long, I think is the length on it. And you can see that Martin got very angry. There’s even red highlighter in here. We are doomed. So, Martin, real quick, tell me, what is this document and what generally drives you crazy about it?

Martin Clausen [00:00:43] Well, it is a uniquely bad document to have to sign up to, not only because the vendor is very skilled at using the nooks and crannies of it and the loopholes, but but also because in general, it is it is exceedingly unfair to the license taker.

Mike Whelan [00:01:03] And we’re going to go to those special highlighted sections that you put in there to tell you guys what specifically in Martin’s thinking is wrong and how you might write these things better. Before we get to that, I want to ask Martin, tell us briefly about yourself. I don’t think you’re in New Jersey, judging by the accent. Where are you? What do you do?

Martin Clausen [00:01:20] I’m in Copenhagen, Denmark, and these days I’m a legal technology consultant and entrepreneur. But I spent the better part of my career as a in-house lawyer focusing on technology contracts. And so I’ve come across this particular document that many documents like it many, many times throughout my career and negotiated them and tried to fix the really bad parts.

Mike Whelan [00:01:48] Cool. Well, through the power of technology, we’re going to be able to pull up every one of these sections that you highlighted. I’m going to drag them into the screen and then I’m going to read them to you real quickly. And then you just tell me what’s driving you crazy about this. So first, in the rights granted section, there’s a line about internal business operations and then it says, quote, You may allow your agenda and contract or your agents and contractors, including without limitation outsourcers to use the program for this purpose. And you are responsible for their compliance with this agreement in such a use for programs that are specifically designed to allow your customers and suppliers to interact with you in the furtherance of your internal business operations. Such use is allowed under this agreement. Why is that bugging you?

Martin Clausen [00:02:33] It’s potentially a very onerous clause, both because of the definition internal business operations, which is, I mean, completely unclear. What does, I mean, a business is, per definition, acting outwards. So what is the internal business operations of a company? So my first recommendation would be to have clarified that the use that you intend to put the software to is actually allowed. I mean, thinking just very practically about what am I going to do and have the license confirmed that that is actually allowed. The second part is, is the extension, if you will, at the last part of what you read that says that for programs that are specifically designed to allow your customers and suppliers to interact with you in the furtherance of business operations, such use is allowed. Please note that we are talking about customers and suppliers only. So if you have a business partner that wouldn’t qualify as one of these definitions and you are using the software in furtherance of your internal business operations, or that partner’s using the software, even if the software is designed to do that and could meaningfully be used by business partner, you wouldn’t be allowed to do it. So that might come as a surprise to people.

Mike Whelan [00:03:53] Hmm. So if there’s a principle to draw from this, it is?

Martin Clausen [00:03:58] It is to be very careful in analyzing exactly how you intend to use the software and make sure that your usage is actually covid and that any third party how to use it, specifically business partners that are not customers or suppliers, if they are to use the software in any way, shape or form, you want to be careful that your your planned usage is covered by an amendment to disclose.

Mike Whelan [00:04:23] Very good. In the second piece here, we’re going to talk about the ownership and restriction area you highlighted. Oracle retains all ownership and intellectual property rights to anything developed and delivered under this agreement resulting from services. Words like anything. What’s in your mind on this one?

Martin Clausen [00:04:42] Yeah, well, it’s quite obvious, right? Because this agreement also covers services. You could have Oracle develop integrations, extension standalone software under this agreement. And it just plainly right. That it’s their property. Right. You have a right to it, but you paid for it, but you don’t get to own the result. I it might be workable, but in many respects it’s probably not a reasonable balance since you paid for the show. Right. Uh, so this this is a question of basic fairness. Uh, and if you go along with the ownership, best thing with Oracle, you should also here make very sure that your use right covers your intended use.

Mike Whelan [00:05:23] That’s a fight waiting to happen. All right. Under the you may not section, which is always fun, you highlighted you may not make the programs or materials resulting from the services available in any manner to any third party for use in the third parties’ business operations.

Martin Clausen [00:05:45] And this is just highlighted because it relates to the question that we talked about previously, that you want to fix this part, too, so it doesn’t collide with any extensions that you’ve secured for yourself regarding the previous clause.

Mike Whelan [00:05:58] Yeah, and also in the you may not: you may not disclose results of any program benchmark tests without Oracle’s prior written consent.

Martin Clausen [00:06:09] Yes. So this is quite interesting and actually a piece of history. This clause is actually in the sort of parlance of contracts and technology contracts, called it the DeWitt clause. And that name comes from a story where a professor at, uh, I forget the name of the university. It’ll probably come to me in a second, but actually published some benchmarks, benchmarks being tests of how a program performs, how many transactions it’s able to process and so on. So he published these benchmarks and Oracle’s products came out looking really poorly in those benchmarks. That made the CEO and owner of the Oracle Corporation so mad that he tried to get this professor fired as a tenured professor that he attempted to get fired. That didn’t succeed. So for many years, he banned any graduate from that particular university for working for the Oracle Corporation. But returning to the contents of this, this is just a very odd clause. And and it prevents you from sharing, for instance, the results of a benchmark with a consultant in an attempt to fix the product or scale to Hotmail or whatever, because as you can see here, you’re not allowed to disclose these results. And that might not be what you what you want. Uh, so so I would I would think twice before signing up for this particular thing.

Mike Whelan [00:07:44] We’re going to move to the section that probably as I’ve done more of these resources that you can find it law, insider, dotcom, less resources. The indemnification area seems to be the one that causes the most fights in the most questions. This is a bit long and I’m going to yell when we get to the red part, but not really. This shows if the provider believes or it is determined that any of the material may have violated a third parties intellectual property rights, the provider may choose to either modify the material to be non infringing while substantially preserving its utility or functionality, or obtain a license to allow for continued use. Or if these alternatives are not commercially reasonable, the provider may end the license for and require a return of the applicable material and refund any fees from the recipient who may have paid to the other party for it, and any unused pre-paid technical support fees that you have paid to order Oracle for the license. And now I’m going to yell. If you are the provider and such and, and such return materially affects Oracle’s ability to meet its obligations under the relevant order, then Oracle may at its option and upon 30 days prior written notice terminate the order. There’s a lot of red on there.

Martin Clausen [00:09:06] Yeah, yeah. Actually, the operative of the really dangerous parties is the fact that it is possible for Oracle, the provider of this product, to if they find the, uh, the obtainment of a license for this this material that they haven’t been, uh, they haven’t been licensed to use or haven’t been allowed to use. If they find that commercially unreasonable, they can terminate the license. And we’re talking about software that in many respects, in many instances, constitutes an integral part of very large corporations, I.T. infrastructure. So you’re faced with a scenario that if something if the copyright breach that Oracle has committed is so onerous and they’ve stolen so much that it becomes commercially unviable to obtain a license for it because the other party obviously wants a lot of money. You stand the risk that this license may be terminated and you will you will, of course, have a refund and so on. But that’s going to be a very small Band-Aid on a very large wound if that happens. So you really want to think about this part. Um, for sure. And you might want to look at the words commercially reasonable and adjust that. So it’s not so they really have to go out of their way to avoid it.

Mike Whelan [00:10:34] More indemnification and more red. Oracle will not indemnify you to the extent that an infringement claim is based upon the combination of any material with any product or services not provided by Oracle. Interpret that for me.

Martin Clausen [00:10:53] Yeah, that’s interesting because even you on the face of it, this seems reasonable. Right? Why would Oracle be responsible for you combining their products with some product obtained from a third party? But the thing is that that combination actually may be proscribed in Oracle’s documentation for using the software. And even in that case, they won’t be held responsible for a use that they have themselves outlined in their documentation. For instance, if you bought a monitoring product of something from Oracle and they describe how you can use it to monitor some third party product, that combination, if that infringes, that’s not our problem, according to Oracle, probably not reasonable. Right. So you might want to tune what what kind of third party products and combinations should be covered by the indemnity anyway.

Mike Whelan [00:11:47] All right. On technical support, we’re getting further into the contract. It points out. Let me see if I can zoom this in. So I’m not like kissing the screen. There we go. The technical support policies incorporated in this agreement are subject to change at Oracle’s discretion. I love that. However, Oracle policy changes will not result in a material reduction in the level of services provided for supported programs during the period for which technical support have been paid. What does what does that mean?

Martin Clausen [00:12:18] Again, it seems pretty reasonable on the face of it, right? We can’t we can’t reduce it, make a move to reduction of the level of services, but only for the period for which you’ve paid. So if you’ve only paid up your support one year advance, you start the risk that in one year, Oracle will just unilaterally decide that we want to reduce the the support services provider for this product to nothing. We don’t count. Right. And and that’s probably not the time horizon you’ve invested in Oracle products with for one year. So you have to realize that that if you let this stand unamended, there’s a continuous risk that Oracle, at its discretion, will decide to effectively de-support your products. And you only have until the end of your payment cycle to figure out what to do.

Mike Whelan [00:13:11] Enter agreement section: Oracle puts that including reference to information contained in a URL or referenced policy, talking about anything incorporated by written reference. What’s bugging you about this?

Martin Clausen [00:13:29] Of course, that they’ve made it an entirely dynamic document where they control potentially the content by changing what is at the end of that Oracle URL. Right, the you could ammend or extend or whatever do with the basically by changing that stuff, construct any agreement that you want.

Mike Whelan [00:13:49] So would that mean to make those kinds of changes? You wouldn’t need any kind of amendment or change order or whatever? No, just your incorporating–

Martin Clausen [00:13:56] Incorporates it by automatically, which is really dangerous to do that.

Mike Whelan [00:13:59] Guys, this one’s a bit long. We’re talking about export laws and regulations. The United States and other relevant local export laws and regulations apply to the programs. You agree that such export control laws govern your use of the programs, including technical data and any services deliverables provided under this agreement. I’m going to leave this for people to read the rest of. But no, I mean, American regulations right now on export laws are all over the map. What’s what’s bothering you about this one?

Martin Clausen [00:14:29] The thing is that your left to your own devices, right? OK, fair enough, these laws apply. But but in actual in actual fact, to figure out what you are allowed to do with one of our products, you need to know a lot about the product. You need to know how it’s classified, potentially what cryptographic elements it has and so on and so forth. And I can tell you from very painful personal experience that actually figuring that out for products and reality and continuously being aware of what what restrictions applies to potentially a large suite of Oracle products is extremely costly and extremely difficult. And if you take this seriously and if you are operating an international organization that are represented in sort of the across the globe, this is going to cost you a substantial amount of money monitoring this and keeping in compliance. And they don’t really give you anything. So at least you want to make Oracle provide you with classifications and anything that they can do in order for you to be aware of what what restrictions apply and also where in a world where these things are becoming more and more dynamic. Right. The one day, you know, the U.S. government or some other government decides that some country in Africa, the Middle East, Asia, whatever are on the blacklist. And all of a sudden these restrictions apply to you.

Mike Whelan [00:15:59] Sorry, rest of the world. We’re trying to figure stuff out, OK?

Martin Clausen [00:16:02] Yeah, exactly. Yeah. And it’s not only the United States, actually, but it’s the United States is very how should I put it active in terms of these things?

Mike Whelan [00:16:15] We’re a bit mercurial on our trade policy right now. All right. In other, it says upon 45 days written notice, Oracle may audit your use of the programs. You agree to cooperate with the audit you agree to pay within 30 days, written notification, any fees applicable to your use of the program. If you don’t pay, Oracle will injure technical support. Dun dun dun. What’s bugging you about an audit?

Martin Clausen [00:16:42] It’s so open ended, of course. I mean, they allow internal to do an audit is of course, to have your auditor sign a written declaration that you are in compliance with the terms, but that’s something you should immediately put on the table. Oracle in particular is not likely to accept that they love this clause. They use it actively and they use it to enforce some of the nitty gritty that we’ve been through here, which ends up costing licenses a lot of money if they’ve accidentally made a mistake in the way they used the software. So I also don’t like that that that the the the cost that they can actually impose on you in complying with this clause are open ended. I mean, this this this shall not unreasonably interfere with your normal business operations is like, again, a small Band-Aid on a potentially very large wound. I’ve seen organizations spend into hundreds of thousands of U.S. dollars trying to comply with this clause.

Mike Whelan [00:17:43] Um, finally, we’re going to talk about definitions. And I’m going to ask you a general principle question, because I want to get to the big picture. What lawyers should do with this kind of contract. Under definitions, they define employee and it’s very inclusive. Obviously, all your full time, part time, all your agents, you know, really anybody who’s around your company. This employee definition is broad. Is that what’s bothering you about this?

Martin Clausen [00:18:07] No, it’s actually more the it’s it potentially it is. It’s because employees used in the licensed metric for certain Oracle products. So they count employees in terms of figuring out what you do to pay. Right. Right. And they’re the tricky part of the potentially very tricky part is actually the last part, the Roman numeral two at the very end of the clause where we are also counting all of the company’s full time employees. We are talking about employees at the company that you’ve outsourced your business functions to. Right now. We need to count those. People to fair enough, I mean, that you shouldn’t be able to escape the license fee just because you have somebody else to do it and you are allowed to do it. But the tricky thing is that you’re counting everybody who provides the service and have access to you all are tracked by the programs now use. Fair enough. They use the software. They provide services to you. Of course you should pay. But just because they have access to it, I mean, if it’s on their desktop, but they never use it to provide services to you, should that really mean that you should pay for that employee? I don’t think so. That doesn’t make a lot of sense.

Mike Whelan [00:19:17] Well, one thing that I’m seeing, obviously, in contracts written like this, Oracle does so much business, they’ve run into trouble and they’re trying to do these catch all basket clauses that cover any possible you know, they’re drawing really big circles around a scope of problems that they’ve run into. Obviously, some of these problems, if somebody comes at you with a contract like that, you’re not in the power position against Oracle. Really, like they could just go get another client. How do you how much pushback can I give to these kinds of contracts that are written overbroad like this?

Martin Clausen [00:19:51] Depends very much on your situation. You you want to have an alternative on hand before entering into something like this. You are completely right in a in a situation where you do not have an alternative, you will just have to accept all of this. And that’s deeply problematic and in my mind, a reason to consider not engaging with a supplier like Oracle at all. Yeah, but if you have to if you don’t have any leverage, I’m sorry to say you won’t have any of these things changed and then you have to to really figure out, can I can I live with these things unchanged. But you probably can’t because you should not rely on Oracle not enforcing these things. There’s a reason this, uh, this audit clause is there. And it’s because they use it, they use it effectively and they use every last bit of it. Also, the things that the sales rep told you, I will never do that. You’re not unreasonable. We’ll never be that the account, you know, uh, uh, be using that, even though you could theoretically use it to extract the license fees. Do not accept that premise.

Mike Whelan [00:21:04] Right. And you’re paying for the audit. So if they find any so they’re going to find something. They’re heavily incentivized.

Martin Clausen [00:21:10] Very good at finding things. And you can you can be absolutely sure that unless you are maybe one of 25 people around the world, they know their license agreement better than you and they know where the loopholes are.

Mike Whelan [00:21:25] Well, nice work, if you can get it, I guess, for Oracle. So, Martin, if people want to follow up with you and rant about Oracle contracts and Viking related TV, what’s the best way for them to get in touch with you?

Martin Clausen [00:21:38] Well, I my company is called Syngrato that’s S y n g r a t o dot com and my initials are M A C, Mike Alpha Charlie so they can reach me on that email if they want to. I’m also on Twitter. It’s MartinClausen8.

Mike Whelan [00:21:58] Perfect. And we’ll put a link to that information as well as a link to this contract online site. Or you can actually look it up on Law Insider or if you don’t have a subscription, go to Law Insider dot com. You’ll see it there. If you want more videos like this, more ways to learn, go to LawInsider.com/Resources. We do webinars. We do blog articles. We do videos like this. We’re trying to teach as much as we can so that you don’t get screwed by contracts like this. We’ll see you guys next time on the contract tear show. Thanks again, Martin.

Martin Clausen [00:22:28] You’re welcome. Cheers.