3 Lessons To Learn From SAP Losing a Software OEM Agreement Case

It seems like every company seeking a venture capital investment or growth capital can learn from SAP being sued under a software OEM agreement (and losing). Without going into the details of the case, here are the basic facts:

• SAP distributed and sublicensed certain AMC Technology software embedded with an SAP product.
• When the software OEM agreement expired, SAP tried to provide specific instructions to its customers on how to use the AMC software with a new version of the SAP product, yet the customers actually could not do this (the OEM agreement specifically stated that post termination SAP could only sublicense the AMC software with the ‘then current version of the SAP software’).
• SAP tried to argue that its customers could use the AMC software with the new version of the SAP software, but the court correctly said no way.

Ok, here are the takeaways:

1) You Can’t Grant More Rights Than You Have. This is a fundamental aspect of property law, and dates back hundreds of years to when people tried to grant more rights to buyers of real estate than what they (the seller) had; (it is kind of common sense too). This is the first example I saw where this legal doctrine was applied in the software OEM world. It is good to see that it is still true (at least in this context). So remember that you cannot grant more rights than you possess, and as the recipient you can’t acquire more rights than the grantor has. 

2) Plain English Matters. This agreement was clear as can be, but SAP missed it. . . thankfully the judge didn’t. 

SAP tried to argue that the customer had a perpetual license to the software and this restriction did not apply to them. The court correctly disregarded this argument, and said the agreement is clear on this point… “the then current version of the SAP Software.” Remember; try to be clear on post termination rights in your software OEM agreements, as judges will read the agreement closely to figure out what you meant. 
3) Take Ownership of Your Agreements. When you are working on a software OEM deal, dig in and don’t simply outsource it to your attorneys (too many companies do this). The details really matter, and specifics such as the rights you are granting and what rights you have after termination should be clearly outlined in the agreement. 

So next time you are on the receiving end of a software OEM agreement or the granting end, remember this blog post and use common sense, for even in the intangible world of software you can’t give someone something you don’t have! Just some thoughts from a person who serves as a venture capital advisor to the OpenView portfolio of expansion stage companies. 

Here is the actual court order, for you detailed oriented people.