If the natural conclusion is that the affiliates have become contracting parties, this raises several other questions, including: It has been infiltrating contract models for several years. If you search the Internet for the phrase “with its affiliates,” you will find many examples of agreements that include affiliates in party definitions. It is important to note that companies that are largely owned by investment companies covered by the Small Business Investment Act (1958), as amended, are not considered affiliates. This also applies to development companies qualified in accordance with the law. Some parties may require a percentage of less than 50% to establish “control”: they may have subsidiaries in which they hold less of the majority of the shares, but they feel that they still have de facto voting control. However, counterparties may not feel comfortable with less than 50% control. In these situations, consider specifying certain uncontrolled organizations that should be considered affiliates, even without a control relationship. In most cases, it is sufficient to stipulate that some companies are considered affiliates even if the corresponding legal relationships are not considered controlling. The Small Business Administration (SBA) determines affiliation in a variety of ways: Mark`s concerns are of course justified, but they are not limited to licensing agreements. Most of the transaction models used by multinational corporations, such as framework supply contracts, include general language for affiliates and are subject to the whims that Mark identifies. The only form of accuracy you ever see is in the definition of affiliate, often (but not always) in terms of 51% ownership of a parent company.
I have seen hundreds of agreements signed by two multinationals, and I do not recall a single occasion when Mark`s concerns were expressed during the negotiations. I believe the lawyers involved know that the approach for affiliates is inaccurate, but they prefer to focus their energies on other issues during drafting and negotiation – and let the courts settle the issue when a dispute arises over the affiliate`s language. In a transaction agreement where buyers and sellers each have 50 or more subsidiaries worldwide, with the number of country pair combinations numbering in the hundreds, trying to identify all potential problems could be time-consuming and perhaps inconclusive. I will give you an example, because I am currently facing this situation. My company was the internal IT department of a large company that is part of a mega multinational financial services company. We have recently established core IT services companies by region to act as the covered IT services “department” for our business units. This means that when I receive a software license or IT services, I often receive it on behalf of our business units. As you can imagine, this makes buying simple software more difficult, many of which limit licenses to the licensee`s internal business purposes and many prevent sublicense.
In this situation, it seems easier to set the customer to include affiliates. But based on this thoughtful blog post, I see the potential pitfalls of this arrangement. While I agree that it is usually “best practice” to ask the software vendor to extend the license, many software vendors are reluctant to open their license terms, and often the best thing I can get is an expanded definition of “customer” or “licensee” to include our subsidiary. I think I`ll send this blog post to my suppliers when I have the inevitable hindsight. Very informative! [UPDATED 09/12/2012: See sample language and annotations for this definition.] So how should a licensee try to extend the benefit of its license to its affiliates without making them parties to the agreement? One possibility that is seen is to change the subsidy clause to refer to affiliates, as in the following example: Do readers agree? Are there circumstances in which you consider it appropriate to include affiliates in a Party`s definition? Okay, that sounds like a one-sided definition.
