Five lock-in traps to avoid when buying software

4. WATCH FOR 'TRANSFER OF OWNERSHIP' OR EARLY EXIT FEES

It was important to look for clauses within any software contract that related to how a merger, acquisition or change of company name might affect software licensing.

Some software contracts limited or prohibited transfer of ownership of a software license, and most charged hefty transfer of ownership fees.

While it was rare, Leonidas claimed to have seen numerous examples of companies being caught out with inflexible contracts and "downright greedy actions" on the part of vendors.

"When negotiating software deals, if you get sold or bought out, or if you acquire, or if you merely change your company name, your software can become a poison pill," he said.

Leonidas claimed to know of two major US banks burned by such clauses - with the company being acquired asked to pay an exit fee and the acquiring party simultaneously asked to purchase new licenses for the merged entity.

Various State Governments in Australia have enacted legislation to protect merging departments from being charged exit fees, and the scuttlebutt in Canberra was that new Commonwealth legislation aimed at consumer contracts, which takes aim at unreasonable exit fees, may be extended to include business contracts in future.

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