The United States Supreme Court (SCOTUS) has granted certiori on a case  in the privacy litigation arena that focuses on the question of whether a governmental employee has Fourth Amendment rights in the contents of an employer issued pager.  The case is City of Ontario v. Quon (www.ca9.uscourts.gov/datastore/opinions/2008/06/18/0755282.pdf).  In Quon, the Ninth Circuit made several decisions.  It first decided that a third party company that provided texting services to the City of Ontario was a Electronic Communication Provider and not a Remote Computing Provider for purposes of the Stored Communications Act ("SCA").  Given the impact on liability, I think this aspect of the opinion (which was not raised on cert) is very intriguing from a technology litigation / electronic discovery perspective.  If a text message company is a ECP and not a RCP, they are exposed to more liability.  This fact can be used as a sword or a shield in a litigation arena.

The remainder of the 9th Circuit opinion focuses on Fourth Amendment privacy rights in electronically stored information.  The point that was raised on cert is whether a governmental employer has an expectation of privacy in his information transmitted electronically from a government provided device.  This has some implications for Indiana privacy litigation as well as general licensing agreement negotiations.  Interestingly, if SCOTUS agrees with the 9th Circuit, the employee would have a reasonable expectation of privacy in the information, regardless of what state public record acts say.  Thus, I, Joe Citizen, would have more access to the information than the State itself.  This has the potential for interesting results.  Maybe the state will have to ask me to find out if their employees are responsibly using the equipment provided to them.  

Additionally, if the Court agrees with the 9th Circuit, a search that was conducted when there were less intrusive means of obtaining the information would not be reasonable.  This also creates a lot of grey area and room for courts (and litigants) to maneuver.  I think it certainly raises instant triable issues regarding whether a means was intrusive and what less intrusive means existed.  

Overall, this ruling should be fun, even if I personally think the more interesting question was not raised on cert.  (ie whether a third party provider is an ECP or a RCP under the SCA [you have to love acronyms]).  I'll be watching this one.

Alerding Castor Hewitt, LLP is proud to announce the addition of Indiana technology lawyer Bill Boncosky to the firm. 

The former General Counsel for ExactTarget, Bill has tremendous experience as technology counsel for one of the most successful technology start ups based right here in the heart of Indianapolis.  A company that had just over a dozen employees when he joined, Bill has substantial experience in licensing agreement negotiations, ASP Law and Cloud Computing Law serving in that role for over seven years.  He will be able to provide significant guidance based on solid experiences to many of our clients operating within this industry.

If you're looking for SaaS legal consulting, the attorneys at Alerding Castor Hewitt, LLP can help.  The newest attorney to join the firm, Bill Boncosky, is no exception.

The other day I wrote a post on my reasons not to use the term "affiliates" in licensing agreement negotiations.  See post here.  My general point is that the term has no common meaning in the law and may create ambiguity in the contact.

I addressed several different definitions of the term in laws, but the term is not only defined differently in law, it is also used differently in business.

For accounting companies, for instance, the Interstate Commerce Commission defines the term as companies controlled by the accounting company alone or with others under a joint agreement.  So, “affiliates” falls outside of typical entity ownership structures and to companies with controlling interests through contractual relationships.

In the banking industry the term is commonly used to refer to an FIB which processes credit card data for other financial institutions or financial institutions that issue MasterCard or Visa cards.  The term here has nothing to do with ownership structures.

In television and radio industries, affiliates are companies not necessarily under common ownership which have contracted with a network to broadcast its programs.

In the Internet world a marketing affiliate refers to a company who links to another company via a weblink which then allows the hosting company to obtain a commission on sales made as a result of user’s clicking through that link.

"Affiliate" is a term that is used in contracts when the parties want to refer to an entity relationship but do not want to take the time (or don't know how) to define it.  Again, it is best to avoid this term, but if you must use it, make sure to define it clearly in the contract. 



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Alerding Castor Hewitt, LLP is an Indianapolis law firm focusing on business law, information technology law (including SaaS law and legal technology consulting), private equity consulting, and business and Internet litigation.

There are several scope of license issues to work through when handling license agreement negotiations.  In my SaaS law (SaaS legal consulting) practice I often see licensees wanting to open the scope of the license to its “affiliates”. 

For many larger SaaS customers this makes sense as these businesses often operate as families of companies rather than single operating entities.  The customer may need to open the license to its other companies in order to properly use the software.  Just last week I was negotiating a Software License and Services Agreement with a Fortune 100 company that has over 50 companies in its U.S. operations alone.  They needed SaaS user seats for most of these companies.

The problem with the term “affiliates” is that it is not precise and may mean different things to different parties.  Some contract terms have clear legal meanings.  For example, “subsidiaries” commonly means companies which are owned and controlled by another company.  “Parent” commonly means the company that owns the subsidiary.  “Joint venture” commonly means a contractual relationship between two companies to engage jointly in a particular operation. 

“Affiliates” does not have a common meaning for most contractual purposes.  At the highest level the term points to a working or organizational relationship between two companies, but it is unclear how related the two companies have to be in order for them to be considered affiliates.  For example, are joint ventures affiliates?  Are management companies or consulting companies affiliates?

The term is defined differently in Federal and State laws and by legal dictionaries. 

The Banking Act of 1933, for instance, contains a very broad definition as any organization that a bank owns or controls by stock holdings, or which the bank's shareholders own, or whose officers are also directors of the bank.  This definition is probably much broader than most licensees intend and most licensors are willing to accept. 

The IRS defines the term much more narrowly (for purposes of consolidated tax returns) as a group of companies whose parent or other inclusive corporation owns at least 80% of voting stock.  This definition may be more narrow than the licensee intends.

The Investment Company Act defines “affiliates” as a company in which there is any direct or indirect ownership of 5% or more of the outstanding voting securities.  I am not sure if any licensee or licensor is intending that precise scope when using the term.

Black’s Law Dictionary defines the term broadly as a corporation that is related to another corporation by shareholdings or other means of control.  By that definition a management or consulting company could arguably be considered an affiliate.

The Ninth Circuit court recently adopted the Black’s Law Dictionary definition as it applies to the TCPA (an opt-in privacy law related to telephone marketing), but interestingly, the court also determined that because there was no direct contractual relationship between the two companies, they were not affiliates.  Thus, the court apparently also needs to see a contractual relationship between the businesses for them to be affiliates.

Finally, a note for Indiana technology companies – Indiana Code 23 (the Indiana business statute) does not define “affiliate” and Indiana courts have not yet addressed the definition in a business structure context. 

You see the point.  The term is messy – which is why it should be avoided.  The point of contracts is to be clear and avoid ambiguity.  This term can create ambiguity and lead to unnecessary disputes down the line. 

A client asked me today if it is more usual for customer payments to be in advance or in arrears in Software-as-a-Service (SaaS) license agreements.  It is a great question as this is a common point raised in licensing agreement negotiations. 

The nature of a SaaS law license is that it is a subscription transaction.  There is a guaranteed term with a right to some use of the technology.  What makes SaaS transactions unique is the collaborative support services that support the license.  Some attorneys want to treat these transactions as service engagements rather than software licensing - but true to the heart of any SaaS transaction, it is a license to use the technology.  There is scope of use, restrictions on use, user seats, types of seats, IP restrictions and other common licensing terms.

This is key when chosing a pricing model as it should be priced as a software license (which requires the water to be turned on) rather than a services engagement (which requires delivery and acceptance).  Regarding the guaranteed term, most SaaS licenses are either on-demand (client pays as they use) or term subscriptions (e.g., monthly or annual rates regardless of amount of use).  For the on-demand licenses, payment terms are easy - they pay as they go. 

For the installment payments, payment terms should be set based on the nature of the SaaS tool itself.  If the payment is based on some variable component, such as a savings level acheived through the technology, it should be in arrears.  If it is a structured payment schedule, it might as well be in advance.