Ever Heard of a License Transfer Fee upon Acquisition?

Question

My employer was recently acquired by a much larger company. In the process of sorting out all the legal details around our licenses for our development software, we have learned that the vendor of our IDE charges a "nominal" fee of 25% of the cost of a new license to transfer our existing licenses to the new corporate name.

This struck me as absurd. I have not seen such a customer-unfriendly policy from any other vendor. Has anyone else seen this type of policy? Am I way off base in considering this unfriendly and abnormal?

Answer 1

Unfriendly? Yes. Abnormal? No. Its actually very common for tools with a hefty per-seat license fee to charge for a transfer after acquisition. I believe they do it because they can: the cost of transferring license is either overlooked during the M&A due diligence or is considered inconsequential compared to the rest.

The tool vendor justifies the fee because they now have one less potential customer, and the combined company will be paying a lower price per seat due to volume discounts.

Answer 2

I would say you are not, i have never seen a practice like that before.

edit : well i must be very lucky, seems that it is common. Very glad i have not run across this before :)

Answer 3

I would have expected your new overlords to have been made aware of this as part of their takeover plans. Part of the process involves checking for exactly this kind of gotcha.

Sounds like they chose to ignore the information or did not check it out.

Answer 4

I've heard of it before in regards to some high-end graphics software, but this was also back in the 1990's and only applied if you sold your license to someone else.

However, it does seem to be a bit odd to change 25% of a new license to just change the name on it. I'm not a lawyer, but isn't there some way that you could get around having to change the name on the software?

Answer 5

That sounds pretty harsh to me, but if you think about the amount of money that changes hands during acquisitions, it's probably one of those cases where your IDE vendor just gets paid without complaint most of the time, so they keep with the policy.

I can see why it shouldn't be completely free to transfer the license -- there is some (probably 'nominal') administrative work to do on the vendor's side, and they need to discourage people from transferring licenses all over the place when they really shouldn't be. But 25% seems awfully high for the amount of work and verification they need to do -- it seems like they could put some sort of cap on the license transfer fee, or have a fixed price.

It does seem like the kind of policy that would drive customers to a competitor, particularly one that does not have the same kind of draconian license transfer policy.

Answer 6

Things like this are quite common. It all depends on the agreement between the vendor and leasor. It's not limited to software either. Think about buying music, images etc. I have heard of some agreements where you can't transfer the license at all. You just have to buy a new copy. The thing that has to be remembered is that techinically when we buy a copy of a program, we don't "own" the copy, we just lease the use of it. It sucks at times, but that is the way it works.

Answer 7

It seems that something like this could be negotiable. We have never though of "fees" as a hard nonnegotiable item. If they value your business I would bet they could discount the transfer fee. It certainly seems that some kind of fee is reasonable for administrative changes that are required. To me that should be a flat fee per license. The work required to change their database is the same no matter how much the license costs.

Answer 8

This is quite common. Unless you address this issue up front when you enter into a license you are at the mercy of the licensor when a transaction like you describe happens. The licensor may or may not have a policy to come along and charge a fee, but unless the matter is addressed in your license, they will have the legal ability to do so.

The reason is this: a license is a legal contract with a specific legal entity (your employer in this case) and grants no rights in the software to anyone else (they buyer company in your example). Now your employer could have insisted on a clause in the original agreement saying that the license could be freely transferred to a possible future buyer without fee, but without such a clause, the licensor can do what they wish. Including charging the 25% fee.

This is one reason that many companies have their licenses routinely reviewed by legal counsel who are knowledgeable about software licensing.

Answer 9

There have been cases where the tools (capital) a company has purchased is worth more than the company, and the company is purchased and gutted just to obtain those tools at a discount.

This is bad for the company, of course, but the tool vender especially doesn't want this to happen - they lose a potential full-price customer for software where there is no real competitor. Further, the company that originally purchased the tool doesn't mind the contract because it helps prevent acquisitions based only on getting the capital. (Corollary: If your company is negotiating out of such a contract, get ready to be purchased...)

For tools that are very, very expensive, this is not unheard of. Think 10's of thousands of dollars per seat, and you can see why this economy becomes reality. Further, sometimes tools are purchased for the company by a client (DoD) and they are actually a small company ( a few developers that won a nice contract) - if the client does not retain the license, then the company might go bust and the license sold for pennies on the dollar at an auction to pay creditors.

Etc, etc, etc. In short, very, very expensive licenses change the economic playground enough that very strange rules apply. Note that "expensive" may also mean scarce, as in the case of liquor licenses for restaurants, or otherwise difficult to get (Qualcomm might not want to sell a given company a license for their CDMA patents, but they may not be able to legally prevent that company from acquiring such a license through legal methods).