RED FLAGS IN CUSTOMER CONTRACTS         Part I of V:         Restrictions on the Freedom to Operate          August, 2012 ...
RESTRICTIONS ON THE FREEDOM TO OPERATE• Most favored customer• Non-compete• Non-solicitation• Prohibitions on assignment o...
RESTRICTIONS ON THE FREEDOM TO OPERATE•    “The price offered by Vendor to Customer for any products or services    ordere...
RESTRICTIONS ON THE FREEDOM TO OPERATE•    “Vendor agrees that it will not sell or provide, or agree to sell or provide,  ...
RESTRICTIONS ON THE FREEDOM TO OPERATE•    “During the term of this Agreement and for twelve (12) months thereafter,     V...
RESTRICTIONS ON THE FREEDOM TO OPERATE                  6
RESTRICTIONS ON THE FREEDOM TO OPERATE  •   No EOL without customer consent  •   Reverse compatibility of upgrades  •   No...
RESTRICTIONS ON THE FREEDOM TO OPERATE  • Easily breached  • Interferes with new customer transactions  • Interferes with ...
Questions?                          Satya S. Narayan                 E-mail: SNarayan@rroyselaw.com                       ...
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Red Flags in Customer Contracts Part I

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Part I of V: Restrictions on the Freedom to Operate

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Red Flags in Customer Contracts Part I

  1. 1. RED FLAGS IN CUSTOMER CONTRACTS Part I of V: Restrictions on the Freedom to Operate August, 2012 Satya S. Narayan SNarayan@rroyselaw.com Royse Law Firm, PCCopyright © 2012, Satya S. Narayan. All rights reserved.
  2. 2. RESTRICTIONS ON THE FREEDOM TO OPERATE• Most favored customer• Non-compete• Non-solicitation• Prohibitions on assignment or change of control• Product/ technology restrictions 2
  3. 3. RESTRICTIONS ON THE FREEDOM TO OPERATE• “The price offered by Vendor to Customer for any products or services ordered by Customer shall not exceed the lowest price offered to any other customer of Vendor for similar products or services, net of any rebates and discounts, and regardless of the amount of products or services provided.”• “Vendor warrants that it shall allocate components, materials, labor or production capacity to products or services ordered by Customer that is no less favorable than any allocation provided to any other customer of Vendor.”• “The terms offered by Vendor to Customer under this Agreement shall be no less favorable than the terms offered to any other customer of Vendor.” 3
  4. 4. RESTRICTIONS ON THE FREEDOM TO OPERATE• “Vendor agrees that it will not sell or provide, or agree to sell or provide, products or services, to any third party that engages, or plans to engage, in any business or activity that directly or indirectly competes with any current or planned business or activity of Customer.”• “During the term of the Agreement, and for *X+ year(s) thereafter, Vendor will ensure that no employee or subcontractor of Vendor who performed services for Customer is allowed to perform services for a competitor of Customer, as determined in Customer’s sole discretion.” 4
  5. 5. RESTRICTIONS ON THE FREEDOM TO OPERATE• “During the term of this Agreement and for twelve (12) months thereafter, Vendor will not directly or indirectly solicit, induce, or attempt to induce any employee or subcontractor to terminate or breach any employment, contractual, or other relationship with Customer.” 5
  6. 6. RESTRICTIONS ON THE FREEDOM TO OPERATE 6
  7. 7. RESTRICTIONS ON THE FREEDOM TO OPERATE • No EOL without customer consent • Reverse compatibility of upgrades • No change in product • Support for all prior versions 7
  8. 8. RESTRICTIONS ON THE FREEDOM TO OPERATE • Easily breached • Interferes with new customer transactions • Interferes with product roadmap and/or new markets • Red flags for investors and acquirers 8
  9. 9. Questions? Satya S. Narayan E-mail: SNarayan@rroyselaw.com Phone: 650.521.5745 PALO ALTO LOS ANGELES SAN FRANCISCO1717 Embarcadero Road 11150 Santa Monica Blvd., 135 Main Street, Palo Alto, CA 94303 Suite 1200 12th Floor Los Angeles, CA 90025 San Francisco, CA 94105 9

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