As the startup ecosystem develops and increases in sophistication in Nigeria, and as more products are successfully scaled (for therein lies the golden fleece), more companies will enter into backend infrastructure agreements (“software licences”), to help them better manage their users and also help their users get the most out of their product.
Agreements are generally more complex and encompass a greater scope of issues than those stated below, so this is not intended to replace good, situation-specific legal advice. However, I think it’s a useful starting point to get a broad view of what to expect. So, here are a few things tech entrepreneurs, who haven’t yet got their $8million of funding, might want to look out for:
1. Scope of the Licence: Some licences come with geographical restrictions (ranging from outright unavailability to limited functionality) and you want to be sure that the added functionality sought works in every region of the world where you have users. The agreement should also be clear on how improvements to the software will be treated (i.e. will an additional fee be payable before the expiry of the term of the licence?)
2. Licence Fee: Many agreements require a signature fee, together with periodic payments. This is more commercial than legal and should go without saying, but if your user base isn’t large enough for you to pay off the licence fee before the next instalment is due, you might want to rethink it.
3. Intellectual Property: While most agreements will stipulate that everybody owns the property they come into the agreement with, it is useful to also clarify who owns the information or data that is generated as a result of the software integration. You need to be sure that you can always use and rely on data generated by your users and that the limit to which the software owner can use your users’ information without your consent is limited. This brings us nicely to the next point.
4. Confidential Information: The agreement/licence should be clear on what information is confidential (i.e. cannot be disclosed without the second party’s consent) and each party’s obligations on the protection of the other’s data, trade secrets, know-how, etc.
5. Warranties: In most agreements, the party licensing the software seeks to avoid giving warranties on the performance or capability of their product. Typically, your own terms of service too will have this same disclaimer. However, especially if you’re paying significant licence fees, you should try to define a period beyond which the licensor has to take some responsibility for a defective or malfunctioning program. For example, notwithstanding that no warranty is given, the licensor will pay the licensee a penalty of XXXXXXX for every hour after the XXth hour of malfunction if the software fails to function properly within XXXXX hours of notification by the licensee.
6. Jurisdiction/Governing Law: If the technology partner is also located in Nigeria, this generally shouldn’t be a problem. However, if they’re in Finland or at the international startup headquarters in San Francisco, they’re probably going to want their home law to govern the contract. Since it’s easier/quicker for you to sue and get judgment in the US against a US company than for them to come to Nigeria and do the same – and since you’re the one paying money and expecting a service in return – it’s probably better to agree to the American “forum”.
