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Legal Corner: The Unintended Consequence of Terminating Support

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October 01, 2012
Legal Corner
Scott Warner

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Unintended consequences are outcomes that are not the ones intended.  There are examples that abound and many have all fallen victim to them.  It is not possible to avoid them altogether, but reduce the risk of being bitten by taking time to think things through, consider industry best practices and be willing to learn from other’s experiences.  The following is an actual example of unintended consequences resulting from a hotel’s decision to terminate support for a stable software program. 

A hotel licenses a reservation system from a software vendor (product X).  The hotel pays a one-time software license fee for the perpetual right to use the software. It also purchases an annual support plan, which gives the hotel the option to terminate support at the end of each support period.  According to the terms, terminating support would not terminate the software license just support, so the hotel would not receive periodic updates and other support services.

Things go smoothly for several years. The hotel is happy with the software and the vendor and, while the software will eventually have to be replaced with a new system, that decision is still years away. In fact, things have gone so well that the hotel begins to wonder why it’s paying the annual support fee. It just doesn’t seem necessary. The software is stable, is used by a number of properties with similar requirements without major issues, and the hotel has not encountered many problems requiring support.

Action: The hotel decides not to renew support.  

Intended Outcome: The hotel saves money on support. The software continues to operate without major issue.  At a later time, the hotel successfully transitions to a new system.

Unintended Consequence: Hotel receives a notice from another software vendor (one that provides billing and related services using data outputs from product X) that it will soon be suspending its service to the hotel because the version of product X in use by the hotel is no longer the most current version available. According to the vendor, even though the products continue to work together, updates for both systems are on the horizon and it can’t bear the cost and risk of trying to maintain two disparate systems. In addition, the license agreement for its service requires the hotel to maintain the most current versions of all related/interconnected software products. Now the hotel has no way to process payments, and it is still required to pay service fees for this vendor, even though it is no longer providing the service. 

The hotel contacts the vendor of product X to reinstate support. The vendor refuses, but is willing to provide a new system for a new license fee.

Recommendation: This happens all too often. So, what could the hotel have done to avoid this problem? 
  • The unintended consequence here (there are likely others) is driven by the contract with the second vendor. The first thing the hotel could have done is to assess whether its decision might adversely impact other aspects of its system; not just product X. This would include not only reviewing the software agreements for related programs, but the interaction between those programs and product X. 
  • The hotel could have negotiated a contract for product X that permitted termination of support and for reinstatement of support services. In addition, if the hotel was comfortable with the skills of its own IT staff, it could have negotiated maintenance (updates, etc.) terms separate from the standard support terms; particularly as applied to related third-party programs. It could also have negotiated terms for a la carte support, commitments separate from support that required the vendor for product X to keep that product current with related third–party programs, or a requirement for custom programming that could have been used as an end-around support.
  • Similarly, with respect to the software billing vendor, the hotel could have negotiated terms as part of its license that either eliminated the “most current version” language or required the vendor to continue to provide support for the current and n-2 versions of product X.
While the above may help the hotel avoid this type of unintended consequence in the future, they do nothing to resolve the situation it now faces. Unfortunately, the options here are few and mostly involve moving one or more of its software services to new vendors or purchasing a new license for product X, all of which are likely far more expensive than the avoided annual support fee for product X. 

When making a decision that involves any part of a system, be sure to look at system as a whole, not a component in isolation. Had the hotel done that at the outset, it likely would have realized the contractual obligation driven by the functional link between product X and the billing software and could have considered that as it made its decision whether to terminate support for product X.  

Scott Warner represents a diverse array of clients, including software and hardware companies, chip manufacturers, video game companies, content providers, hospitals and biotech companies, medical device manufacturers, alternative energy and clean tech companies, museums, social networking and new media companies, and others. All of these clients own or use technology and other intellectual property and want to protect and make the most of their investments while minimizing the risks to businesses. Warner works with clients to achieve their goals through practical and effective solutions and, as a result, has been recognized by his peers and clients as an AV Peer Review Rated lawyer by Martindale-Hubbell, as a “Super Lawyer” by Washington Law & Politics magazine and one of “Washington’s Most Amazing Lawyer” by Washington CEO Magazine.

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