Part I of V: Restrictions on the Freedom to Operate

1. RED FLAGS IN CUSTOMER CONTRACTS
Part I of V:
Restrictions on the Freedom to Operate
August, 2012
Satya S. Narayan
SNarayan@rroyselaw.com
Royse Law Firm, PC
Copyright © 2012, Satya S. Narayan. All rights reserved.

2. RESTRICTIONS ON THE FREEDOM TO OPERATE
• Most favored customer
• Non-compete
• Non-solicitation
• Prohibitions on assignment or change
of control
• Product/ technology restrictions
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3. RESTRICTIONS ON THE FREEDOM TO OPERATE
• “The price offered by Vendor to Customer for any products or services
ordered by Customer shall not exceed the lowest price offered to any other
customer of Vendor for similar products or services, net of any rebates and
discounts, and regardless of the amount of products or services provided.”
• “Vendor warrants that it shall allocate components, materials, labor or
production capacity to products or services ordered by Customer that is no
less favorable than any allocation provided to any other customer of Vendor.”
• “The terms offered by Vendor to Customer under this Agreement shall be no
less favorable than the terms offered to any other customer of Vendor.”
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4. RESTRICTIONS ON THE FREEDOM TO OPERATE
• “Vendor agrees that it will not sell or provide, or agree to sell or provide,
products or services, to any third party that engages, or plans to engage, in
any business or activity that directly or indirectly competes with any current
or planned business or activity of Customer.”
• “During the term of the Agreement, and for *X+ year(s) thereafter, Vendor will
ensure that no employee or subcontractor of Vendor who performed services
for Customer is allowed to perform services for a competitor of Customer, as
determined in Customer’s sole discretion.”
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5. RESTRICTIONS ON THE FREEDOM TO OPERATE
• “During the term of this Agreement and for twelve (12) months thereafter,
Vendor will not directly or indirectly solicit, induce, or attempt to induce any
employee or subcontractor to terminate or breach any employment,
contractual, or other relationship with Customer.”
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6. RESTRICTIONS ON THE FREEDOM TO OPERATE
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7. RESTRICTIONS ON THE FREEDOM TO OPERATE
• No EOL without customer consent
• Reverse compatibility of upgrades
• No change in product
• Support for all prior versions
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8. RESTRICTIONS ON THE FREEDOM TO OPERATE
• Easily breached
• Interferes with new customer transactions
• Interferes with product roadmap and/or new
markets
• Red flags for investors and acquirers
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9. Questions?
Satya S. Narayan
E-mail: SNarayan@rroyselaw.com
Phone: 650.521.5745
PALO ALTO LOS ANGELES SAN FRANCISCO
1717 Embarcadero Road 11150 Santa Monica Blvd., 135 Main Street,
Palo Alto, CA 94303 Suite 1200 12th Floor
Los Angeles, CA 90025 San Francisco, CA 94105
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