Can Third-Parties Access or Use Your Software?

From time to time this question may arise for any company seeking growth equity or a venture capital investment, so I thought I would address it.

If you have a software product or an SAAS service, you should think about whether third-parties can use or access your software, rather than granting access to only your customers (and their employees of course). A recently reported court case addressed this issue, so I thought I would share the result and some takeaways.

Without diving into the details (which I know you really would like to skip), the court held that when the customer granted access to a third-party to use the software they violated the license agreement. Oh and by the way, the third-party was even using the software for the benefit of the customer, and the court said no anyways.

So what can you learn from this case?

1) Depends on the Your Value Proposition. Some companies care whether a third-party will use or access their technology, and others really don’t.

– For example, if you measure usage on say the number of transactions, maybe you don’t care if a third-party can access it, for they will use more transactions under your customer’s account. But if you are concerned with the possibility of a customer (or the third-party) receiving significant value that you did not take into account when pricing your technology, maybe you do care. So figure it out and tell your customers if they can or can’t allow third parties to access your technology.

2) How You Do It. If you plan to allow third-parties to access or use your technology, state this specifically in your agreement. Because these third-parties by nature do not have a contract with you regarding the software. You should either (a) make your customer responsible for their actions (and omissions) or (b) require that the third-party sign some kind of use and access agreement with you and your customer (yes, a three party agreement). If you plan to disallow this access or use…most agreements do not address the issue of allowing this access or use, and state that the software or SAAS company reserves all rights not expressly granted. This should be one of the reserved rights. You could even go further and specifically prohibit it (maybe in the confidentiality section).

– By the way, you can even split ‘Access’ and ‘Use’ rights, so you may allow a third-party to ‘Access’ (i.e. view only) your software but not ‘Use’ it. In fact, in this particular case, (the one mentioned above) ‘Access’ was ok, but ‘Use’ was not.

Take a look at what your agreement states on this topic, at least before your customer does. Just a few thoughts from a software attorney who also works as a venture capital adviser to the OpenView portfolio of expansion stage companies.

Legal Disclaimer: This is for informational and educational purposes only, and does not constitute legal advice. Contact an attorney for legal advice, which should be provided after review of the facts and applicable law.