Technology: The Dark Side of Sunsetting
Information technology ("IT") plays a key role in the day-to-day operations of most organizations. Purchasers annually invest trillions of dollars in hardware, software, and consulting services and expect to utilize such IT products and services for many years after the date of purchase. However, unless the purchaser has negotiated adequate protections into a written contract, its investment and the future use of its IT products and services are at risk.
A standard IT contract requires the vendor to maintain and support the product. Such maintenance and support ("support") may consist of telephone support during certain hours of the day, infrequent on-site visits, or even stationing a vendor's employee(s) full-time on site during business hours. In addition, support usually entitles a purchaser to receive updates -- minor "fixes" or enhancements to the product -- at no additional charge. When critical issues arise, the vendor may be required to modify the source code of the product as part of its support obligations; the source code is considered the "dna" of an IT product and is proprietary to the vendor.
Unfortunately for purchasers, most vendors want to retain the option to discontinue ("sunset") support of an IT product. With luck, the purchaser will receive advance notice of such planned sunsetting from the vendor. A vendor may sunset support for a number of reasons, but its reasoning usually boils down to the desire to redirect its internal resources to another, more lucrative product line or service. Most recently, the trend has been for vendors to sunset support for software installed in the purchaser's environment, replacing such software with an application hosted remotely at the vendor's site and accessed by the purchaser via a direct link or the Internet (Application Service Provider "ASP" models). Whatever the reason, sunsetting support can prove disastrous for purchasers who have not negotiated adequate contractual protections.
The Dark Side
When a vendor elects to sunset support, it means the IT product in question has been targeted for extinction. Purchasers who have negotiated a perpetual license to use the product are legally entitled to continue using it. However, sunsetting support will likely make the purchaser's continued use of the product, practically speaking, impossible. This is so because problems arise in the use of IT products that often require maintenance or minor updates to those products. Simply put, a purchaser cannot run the risk of using an IT product after it has been targeted for extinction because the product cannot be fixed once it breaks. Accordingly, a purchaser is forced to begin the IT acquisition process all over again when a vendor sunsets support of an IT product.
Not surprisingly, the vendor that sunsets support is likely anxious to sell its "new and improved" -- and costly -- IT product that the vendor claims will solve all of the purchaser's problems. Adding to this cost is the fact that a purchaser's present IT environment may have to be reconfigured, at great expense, to utilize a replacement IT product. In addition, most standard contracts do not allow the purchaser to receive a refund of the monies spent on the IT product that is targeted for extinction. As a result, , that multimillion dollar IT system purchased two years ago that the vendor will no longer support is of no value, and the purchaser is forced to spend additional millions to replace it.
While purchasing the vendor's "new and improved" IT product is costly, it may be the purchaser's best option to ensure a smooth transition from the product targeted for extinction. The purchaser may have become reliant on certain features of the installed product and be at risk of losing these features when the vendor discontinues support. The "new and improved" product may not include those features. While such a material degradation of the functionality of the software may be unacceptable to the purchaser, the purchaser may have no viable alternative if the vendor sunsets support and the purchaser failed to negotiate certain protections into the written contract.
Protecting Your Investment
A purchaser can take several steps to ensure that it is adequately protected in the event a vendor desires to sunset support. Such steps include the following contractual protections: (1) setting forth in the contract that the vendor does not have the right to terminate the offering of support services for a certain number of years; (2) setting forth appropriate refund language in the contract that is tied to the vendor's obligation to provide support; and (3) setting forth appropriate language in the contract concerning the source code of the IT product.
The only winning scenario for a purchaser of an IT product is for the vendor to provide adequate support for the useful life of the product. However, if a vendor sunsets support, the strategies set forth above will serve to minimize the damages.
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JEN C. SALYERS is an attorney at the law firm of Thomas & Bonnabeau in Minneapolis. Thomas & Bonnabeau concentrates its practice in the area of computer and information technology law and its website address is www.tblegal.com.