IACCM Contract Management Forum

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2018-05-07 14:51:46

Limitation of liability Clause in License Agreement

Our customer is not accepting limitation to direct damages stating that "failure of the Software means we won't be able to fulfill our obligation towards customers and our liability to them. Also any limitation to direct damages is not acceptable." They are demanding 150% CAP for LoL.
Can you suggest some argument or some standard guidelines on the same? How can I secure my organisation interest?
 •  World Commerce & Contracting  •   2018-05-10 00:03:33
It would be great to understand the situation and learn more about this position. It seems that you´re the Licensor and that you want to figure out how to negotiate with the Licensee.
If that is a correct summary of the scenario, you, as the Licensor, could probably provide the Licensee two options:
-Continue to offer their standard offer as an option. For illustration, let's assume the license would be priced at $1000 under that offer.
-Provide an alternate offer, which integrates the Licensee's requested language changes - but at an adjusted price. For illustration, let's assume that license fee would be priced at $1500.
This would mean that the requested language modification represents a $500 difference in the license fee, and the licensee needs to decide whether their requested changes to the language are worth the added cost.
The IACCM Maturity Model has identified the following practices as leading practices:
It is well understood that there is a link between terms and conditions and price / cost. This is evident in our contract development and negotiation process.
Regular analysis of the economic cost of terms and conditions occurs as part of strategic review.
Those who are responsible for terms and conditions are also responsible for their impact on price and cost.

Please, your company should consider undertaking the broader Maturity Model assessment, and pursue the establishment of these three capabilities in that undertaking. Feel free to contact me and/or any other member of the IACCM for further details about this assessment.

 •  Neptune Marine Service Ltd  •   2018-05-11 02:20:21
I tend to agree with Pablo that in most of the risks can be quantified objectively and the cost impact of the same can be added to the pricing.

Quote "Also, any limitation to direct damages is not acceptable. They are demanding 150% CAP for LOL" - I am not clear if they are rejection or proposing a new cap? Anyways, just for a note that the Cap on Liability needs to be clearly drafted from the perspective of the party seeking to rely on the cap.

Also, It is not clear from your question that the contract has clarity on the hold harmless on the consequential, loss of profit and indirect losses (keeping in mind that the loss of profit and other losses in some jurisdictions can be considered as a direct loss).

Gaurav Seth
Replies: 2
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