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A Value Added Reseller (VAR) agreement for software is like a partnership between two companies: one that makes the software (let’s call them “Software Company”) and another that wants to sell it (let’s call them “Reseller Company”).
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Here’s how it works:
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The Software Company creates a software product. The Reseller Company sees the software and thinks it would be useful for their customers, but they also see a chance to add even more value. This could be in the form of additional features, services like training or support, or packaging it with their own products.
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They come to an agreement, which is the VAR agreement. In this agreement, the Reseller Company gets the rights to sell the Software Company’s software, usually along with their added value.
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So, to put it simply, a VAR agreement for software is a deal where one company can sell another company’s software, often with their own enhancements, and they share the revenue from those sales. This is beneficial for both companies. The Software Company gets more sales and exposure, and the Reseller Company can offer a more valuable product to their customers.
System Integrator VAR: A system integrator VAR is a company that not only resells the software but also integrates it into the existing systems of the customer. This means they make sure the software works well with the customer’s current setup and helps achieve their business goals. They often deal with complex IT projects that involve various software products and systems.
Solutions Provider VAR: A solutions provider VAR goes beyond just reselling software. They package the software with other products and services to create a complete solution for the customer’s problem. This might include hardware, additional software, or services like training and support. The goal here is to provide an all-in-one solution to meet the specific needs of the customer.
Managed Service Provider VAR: A Managed Service Provider (MSP) VAR is a company that manages and operates the software for the customer as part of their service. This often includes ongoing support, maintenance, and optimization of the software. This is often used for complex or specialized software that requires expert knowledge to manage effectively.
Consultant VAR: A consultant VAR provides expert advice and guidance on how to best use the software to achieve the customer’s goals. They might also provide services like training, implementation, and ongoing support. The consultant VAR will typically have deep knowledge of the industry or business processes related to the software.
Customization VAR: A customization VAR modifies the original software to better fit the specific needs of the customer. This might involve adding new features, changing the user interface, or integrating with other systems the customer uses. This can be especially valuable when the customer has unique needs that aren’t met by the standard version of the software.
Original Equipment Manufacturer (OEM) agreements and Value-Added Reseller (VAR) agreements are both licensing agreements in the IT world, allowing a company to bundle another company’s software with its own product. However, there are key differences between these two types of agreements.
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In an OEM agreement, the distributor is often a manufacturer of hardware equipment. This type of agreement is for a company to license its software products to an original equipment manufacturer. The OEM can then bundle the licensor’s software with its own products, which can include hardware, software, mobile devices, or other technology. The resulting integrated product is then resold to customers, typically under the OEM’s brand name.
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For example, a computer manufacturer like Dell might enter into an OEM agreement with Microsoft to include Microsoft’s Windows operating system pre-installed on its computers. When you buy a Dell computer, it comes with Windows already installed. In this case, Dell is the OEM and the computers are sold under Dell’s brand name.
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On the other hand, a VAR agreement involves a company, known as a value-added reseller, that adds features or services to an existing product, then resells it as an integrated product or complete “turn-key” solution. This could involve either hardware or software. Similar to an OEM agreement, a VAR agreement allows a software company to license its software products to a value-added reseller. The VAR can bundle the licensor’s software with other products or components and sell the integrated product to end-users, typically under the licensor’s brand name.
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For instance, a VAR might take a CRM (Customer Relationship Management) software, add custom features or integrations specific to a certain industry, and then sell the whole package to businesses in that industry. In this case, the product is usually sold under the original software licensor’s brand name.
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In summary, while both OEM and VAR agreements involve bundling and reselling products, the key differences lie in the nature of the distributor (equipment manufacturer vs value-added reseller), the type of products involved (typically hardware for OEMs and potentially both hardware and software for VARs), and the branding under which the final product is typically sold (OEM’s brand for OEM agreements and licensor’s brand for VAR agreements).
The typical parties to a Value Added Reseller (VAR) agreement are the software developer/manufacturer/provider, and the Value Added Reseller (VAR) itself.
Software Developer/Provider: This party is typically the creator or owner of the software product that will be resold. They may be referred to in the VAR agreement as the “Provider”, “Licensor”, “Manufacturer”, or “Developer”, depending on the context.
Value Added Reseller (VAR): This is the party that adds features or services to the existing product, then resells it as a combined product or complete “turn-key” solution. They may be referred to as the “Reseller”, “Distributor”, “Partner”, or “VAR”.
Preamble sections offer a glimpse into the background and aim of the Value Added Reseller (VAR) agreement. While they’re not a legal necessity and don’t carry direct legal consequences, they can be invaluable in clarifying the interpretations of the agreement’s active terms should a disagreement arise.
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This VAR agreement outlines fundamental preamble elements pertinent to any software reselling arrangement. Given the specific nature and terms of the arrangement, the parties might decide to include more detailed information or choose to omit the fundamental preamble elements.
There are a number of different parts making up the foundation block of a VAR. These parts include –
Appointment: This is where the agreement formally designates the VAR as a reseller of the software. It outlines the rights and responsibilities of the VAR, and sets out the terms under which the VAR is allowed to sell the software. It’s important because it establishes the official relationship between the two companies.
Software and Documentation License Grant: This section gives the VAR the rights to use the software and related documentation. It’s usually necessary so the VAR can understand the software, demonstrate it to potential customers, and provide support.
Restrictions: This part details any limitations on the VAR’s use and resale of the software. This could include restrictions on selling in certain regions, to certain types of customers, or in certain ways. It’s needed to protect the software company’s interests and control how their software is sold and used.
End User License Agreement (EULA): This outlines the rights and responsibilities of the end users of the software. It’s often provided by the software company and must be agreed to by the customers of the VAR. It’s crucial for setting out the legal terms of using the software and protecting the rights of both the software company and the VAR.
Marketing Guidelines: This section explains how the VAR is allowed to market and advertise the software. This can include rules about using the software company’s trademarks and branding. It helps ensure the software is represented accurately and professionally.
Integration: This part details the rights and responsibilities of the VAR in terms of integrating the software with other systems. This is often relevant for system integrator VARs or customization VARs. It’s important because it sets out what the VAR is allowed to do in terms of modifying or connecting the software to other systems.
Testing: This section can outline any requirements for the VAR to test the software, particularly if they’re integrating it with other systems or modifying it in any way. It helps ensure the software works correctly and meets certain standards.
Change to Software: This part outlines the software company’s right to make changes to the software and the requirements relating to notice which needs to be given to the VAR.
New Versions: This part describes how the agreement applies to new versions of the software released by the software company. It’s necessary to ensure that the VAR and their customers can benefit from updates and improvements to the software.
Maintenance Releases: This part details how maintenance updates (bug fixes, security patches, etc.) are handled. It might specify whether the VAR or the software company is responsible for providing these updates to the end users. It’s vital for keeping the software secure and working correctly.
[View detailed guide on limitation of liability provisions ↗]
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In the realm of Value Added Reseller (VAR) agreements, limitation of liability blocks play a crucial role for both software companies and VARs. These blocks provide a mechanism to manage risk and limit potential financial exposure that could arise due to the execution of the contract. Let’s delve into why both parties might want to include these blocks in their VAR agreements:
Why Software Companies want Limitation of Liability Blocks in VAR Agreements:
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Why VARs want Limitation of Liability Blocks in VAR Agreements:
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To summarize, limitation of liability blocks are advantageous for both software companies and VARs within VAR agreements. These blocks help manage risk, foster trust, and provide financial certainty for both parties, ultimately leading to a more successful and efficient software reselling process.
[View the detailed guide on indemnities ↗]
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In the realm of Value-Added Reseller (VAR) agreements in the tech industry, indemnity clauses perform a crucial role. They control risk, provide protection against potential liabilities, and establish the foundation for managing unexpected issues during the resale of technology products and services. Here’s a high-level overview on why a reseller would want to include indemnity blocks in their agreements:
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[View the detailed guide on termination provisions ↗]
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Incorporating detailed termination provisions in Value Added Reseller (VAR) agreements in the tech sector is crucial for an array of reasons. These blocks offer a well-defined structure for addressing potential concerns, safeguarding the interests of all parties involved, and ensuring a systematic and cordial end to the business relationship. Here are the critical reasons to include termination provisions in tech VAR agreements:
[View the detailed guide on warranties ↗]
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Including warranty blocks in a value-added reseller (VAR) agreement in the tech space is crucial for a multitude of reasons. These provisions play a pivotal role in forming a robust basis for the business relationship, safeguarding the interests of all parties involved, and ensuring the successful provision of tech products and related services. Here are several reasons why warranty provisions are significant in a VAR agreement:
[View the detailed guide on intellectual property ↗]
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Including intellectual property (IP) provisions in a value added reseller (VAR) agreement is pivotal for several key reasons. These provisions offer clarity on IP ownership, safeguard the interests of all parties involved, ensure correct use and governance of the IP, and create a framework for resolving any potential disputes.
[View the detailed guide on confidentiality ↗]
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Incorporating a confidentiality block in a Value Added Reseller (VAR) agreement is critical for a variety of reasons. This block safeguards sensitive details, retain a competitive edge, protect intellectual property rights, and foster trust and cooperation between the involved parties. Here’s why confidentiality clauses are vital in a VAR agreement:
Securing sensitive information: VAR arrangements often involve sharing valuable and confidential details, such as product features, technical documentation, pricing structures, and business plans. A confidentiality block obliges both parties to guard this information against unauthorized exposure or misuse, thus mitigating the potential risk of harm or misappropriation.
Preserving competitive advantage: A company’s competitive advantage often hinges on the privacy of its proprietary technologies, processes, and strategies. By integrating a confidentiality block into a VAR agreement, parties can protect their unique offerings and trade secrets, helping them retain their competitive stance in the marketplace.
Protecting Intellectual Property Rights: A confidentiality block contributes to the protection of the intellectual property rights of both parties in the VAR relationship.
Promoting trust and collaboration: Confidentiality clauses help cultivate trust and collaboration between the VAR and the software provider. By mutually agreeing to safeguard each other’s confidential information, parties can freely exchange insights, knowledge, and expertise, cultivating a cooperative environment that is conducive to innovation and mutual success.
Legal recourse for breaches: In the event of a confidentiality clause breach, the affected party can pursue legal action, including damages and injunctive relief, to remedy the harm caused by unauthorized disclosure or use of confidential data. This offers a safety measure for both parties and underscores the importance of adhering to confidentiality responsibilities.
[View the detailed guide on dispute resolution ↗]
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Including a dispute resolution block in a Value-Added Reseller (VAR) agreement within the tech industry is vital for a multitude of reasons. It provides a distinct structure for solving disputes that may materialize during the agreement’s term, assuring that all parties comprehend their rights and responsibilities in the event of a disagreement. Below are key reasons why incorporating a dispute resolution block is critical in a VAR agreement:
[View the detailed guide on force majeure ↗]
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Incorporating a force majeure block into value added reseller (VAR) agreements in the tech industry is crucial due to the various risks and uncertainties that can arise in this dynamic sector. These provisions help manage the rights and responsibilities of the involved parties should unexpected circumstances beyond their control arise, potentially affecting their ability to fulfill their obligations under the agreement. Here are some reasons why it’s important to include force majeure provisions in VAR agreements:
[View the detailed guide on source code escrows ↗]
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Value added reseller (VAR) agreements in the tech space, much like software development agreements, involve a key element of dependency.
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If the VAR agreement includes an source code escrow block, it offers an added layer of protection for the end user. In this case, the source code of the software will have been stored with a neutral third-party escrow agent. Should the VAR cease operations or fail to meet its contractual obligations— events typically specified as triggers in the agreement—the escrow agent would release the source code to the VAR. They could then engage other developers to maintain and update the software, ensuring the continuity of their operations.
[View the detailed guide on non-solicitation of key employees ↗]
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A non-solicitation of key employee block incorporated into value-added reseller agreement (VAR) aims to deter one party from trying to hire or recruit the other party’s essential personnel during the contract period or for a predetermined time following its conclusion. These provisions aim to safeguard the interests of both parties involved in the software development project and ensure the continued stability of their respective businesses.
[View the detailed guide on sub-contracting ↗]
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This block outlines the terms and conditions under which a party can engage third-party contractors or subcontractors to perform specific obligations under the agreement. It may include requirements for notifying and obtaining approval from the other party and may define the primary party’s liability for the work of the subcontractor.
[View the detailed guide on financial stability ↗]
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This block refers to the financial health of the parties involved in the value-added reseller (VAR) agreement. It may require each party to maintain a certain level of financial stability to ensure the project’s successful completion and mitigate risks associated with insolvency or financial distress.
[View the detailed guide on audits ↗]
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An audit block allows one party to inspect and review the other party’s records, processes, and systems related to the contract. This is done to ensure compliance with the agreement, identify issues or discrepancies, and verify the quality of work. The block may specify the frequency, scope, and requirements for conducting audits.
[View the detailed guide on insurance ↗]
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This block requires the parties to maintain adequate insurance coverage to protect against potential risks and liabilities arising during the course of the agreement. It may specify the types and minimum amounts of insurance, such as professional liability, general liability, or cyber liability insurance.
[View the detailed guide on compliance with laws ↗]
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This block requires the parties to adhere to all applicable laws, regulations, and industry standards related to the value-added reseller (VAR) agreement. This may include data protection laws, intellectual property laws, and employment laws.
[View the detailed guide on boilerplate ↗]
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Boilerplate bocks, while often considered standard, play a vital role in shaping the overall legal framework of a contract. As such, it is imperative to give these provisions careful consideration and ensure they align with the parties’ intentions and objectives. Neglecting the importance of boilerplate block can lead to unforeseen consequences and potential litigation.
Often the cause of disputes, the obligation schedule is likely one of the most important aspects of the value added reseller agreement. These schedules must be specifically tailored to the relationship with the aim to create clarity in respect of the various intricacies involved with a value added reseller agreement. Here are a couple of obligations generally addresses as part of the obligation schedule-
Marketing Obligations: The VAR is usually responsible for marketing the software to its customers. This could include obligations to use the software company’s trademarks correctly, to represent the software accurately, and to comply with any advertising or marketing guidelines set by the software company. The purpose of these obligations is to ensure that the software is marketed professionally and consistently.
Business Operations: This could cover a wide range of obligations, such as maintaining adequate staffing levels, complying with relevant laws and regulations, providing a high standard of customer service, and maintaining the necessary infrastructure or systems to sell and support the software. These obligations ensure that the VAR is capable of selling the software and providing a good experience for the customers.
Customers: The VAR might have obligations related to its customers, such as ensuring the customers agree to an End User License Agreement (EULA), providing adequate support and training to the customers, and maintaining a certain level of customer satisfaction. These obligations protect the rights of the software company and the customers, and ensure that the customers have a positive experience with the software.
Financial Matters: This could include obligations for the VAR to pay the software company certain fees or royalties, to report on sales, and to manage any financial risks related to the resale of the software. These obligations ensure that the software company is compensated fairly for the software and has visibility into the VAR’s sales.
Reporting: The VAR might be required to provide regular reports to the software company about sales, customer issues, market trends, or other relevant information. The purpose of these obligations is to provide the software company with visibility into how their software is being sold and used, and to ensure that the VAR is meeting its other obligations.
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It’s important to tailor the obligations in a VAR agreement to the specific relationship because every VAR relationship is unique. The VAR might be selling the software in a different market, to different types of customers, or in combination with different services or products. The VAR’s capabilities, resources, and business practices might also vary. By tailoring the agreement to the specific relationship, both parties can ensure that their interests are protected, that the agreement is fair and realistic, and that they are setting the foundation for a successful partnership.
The fees and payment schedule in a Value Added Reseller (VAR) agreement lay out the financial terms of the relationship between the software provider and the VAR. Here are some parts that are commonly included:
Reseller fees: This is the amount the VAR pays to the software provider for each copy of the software that they sell. It’s often a percentage of the software’s list price, but it could also be a flat fee. The purpose of this fee is to compensate the software provider for each sale.
Payment terms: This specifies when the VAR must pay the reseller fees to the software provider. For example, the VAR might need to pay the fees within 30 days of the end of the month in which the software was sold.
Reporting requirements: The VAR might be required to provide regular reports to the software provider detailing their sales of the software, which would include information like the number of copies sold, the price at which they were sold, and the total reseller fees owed.
Late payment terms: If the VAR doesn’t pay the reseller fees on time, there might be late payment penalties, such as interest charges.
Audit rights: The software provider might have the right to audit the VAR’s records to verify that the VAR has been reporting sales accurately and paying the correct amount of reseller fees.
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The purpose of having a clear fees and payment schedule is to ensure that both parties understand their financial obligations, to compensate the software provider fairly for the use of their software, and to provide a mechanism to resolve any disputes about payments. This part of the agreement needs to be carefully negotiated to ensure that the relationship is profitable for both parties.
[View the detailed guide on service levels ↗]
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Error correction service levels are critical in value-added reseller (VARs) agreements because they establish a clear process and timeline for addressing and rectifying any defects or malfunctions in the software product once the warranty and software maintenance phase is entered.
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The nature of software is such that even with rigorous testing and quality assurance, errors can still occur once the software is in use. These errors can disrupt the VAR’s operations, resulting in potential financial loss and damage to their reputation.
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By establishing error correction service levels, both parties agree on the expected response times and corrective actions, thereby minimizing the impact of any software issues on the customer’s operations. Furthermore, these service levels provide assurance to the customer about the provider’s commitment to maintaining the quality and reliability of their software product, which can foster trust and confidence in the business relationship.
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Often a then current EULA relating to the Software is attached to the value-added reseller agreement. This is the EULA contains the terms that the end-users agree to when using the Software.
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