Negotiating a Tech Contract with a Large Customer

For a technology provider, getting the chance to contract with a large company can be a welcome opportunity. But these opportunities come with sophisticated, demanding legal teams. Large companies tend to dictate very customer-favorable terms, and they are likely to try to replace your documents with their own. Matters such as indemnification obligations, liability caps and disclaimers of damages are really allocations of risk.

However, experience has shown that even small technology companies don’t always have to accept large customers’ proposed risk allocations. If a customer will not back down on its demand for acceptance testing rights, a compromise may work. A short-term evaluation license is usually acceptable.

Never agree to compliance with an individual customer’s information security policies, procedures and programs. If you have multiple customers, this is an unrealistic requirement. For purposes of indemnity obligations related to breaches of confidentiality, you should negotiate a “super liability cap” with which you are comfortable (typically some multiple of the general liability cap).

There are a handful of exceptions that you should build into any indemnity obligation for intellectual property infringement. For example, you should not be obligated to indemnify a customer if the basis for the claim is an unauthorized modification the customer made to your product.

If you provide a mission-critical product that gives customers a competitive edge, you probably have the clout to hold your ground on key terms, even when working with a big customer.