As a franchisee you will probably come across a technology agreement. Technology agreements come in all shapes and sizes. It could be a software licence agreement, a point of sale licence agreement or a website development agreement.
Raynia Theodore, principal, and Jack Newton, lawyer, corporate advisory and franchising team at MST Lawyers consider what you need to know.
If you are a franchisee looking to enhance your business through technology, there are four key issues that you must be aware of when dealing with a technology agreement.
1. Privacy
Any kind of technology agreement carries with it serious privacy risks. In recent years, privacy has become a significant concern for both individual and business consumers. Unauthorised leaks of personal information have become commonplace in news reports which means that businesses must prioritise their consumers’ privacy.
The technology agreement must make clear that a specific party is responsible for privacy related issues.
The risks of privacy non-compliance are considerable. From a legal perspective, fines for serious or repeated breaches can be as much as $1,700,000. From a commercial perspective, a business that suffers a significant privacy breach will almost always suffer reputational damage and reduced custom as a consequence.
It is important that in any technology agreement, each party’s privacy obligations are clear and unequivocal.
2. Intellectual property
The value of intellectual property (IP) continues to rise as business has begun to realise its worth. So it is critical that all businesses, and particularly those operating within a franchise network, take every available step to protect their IP.
A franchisee is typically required by their franchise agreement to protect the franchise network’s IP. For this reason, it does not matter that the franchisee does not own the IP as it will be contractually required to protect it.
Even without those contractual obligations, this safeguard is in the franchisee’s interest as any IP infringement by a third party may have adverse consequences for the franchisee’s own business.
It’s important not to overlook the agreement details: even ownership of the IP created as a result of the technology agreement needs to be dealt with in the document itself.
3. Warranties
Technology, despite all of the improvements it brings to everyday life, has its limitations. Given how critical technology has become to most, if not all, businesses in Australia, it is important to take steps to protect the business in the event the technology does not achieve its aims.
For example, if a point of sale system was to fail, every single franchise within the network would be unable to process sales and unable to generate revenue. What would happen in this scenario?
Ideally, the technology agreement providing the point of sale (POS) program would include warranties regarding matters such as, the POS system is:
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fit for its purpose;
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of acceptable quality; and
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free from defects and errors.
Some of the above guarantees are taken from the Australian Consumer Law (ACL). But the ACL warranties may not necessarily apply and contractual warranties should be included by the technology provider to ensure there are some binding promises regarding the quality of the product.
4. Indemnities
One final observation relates to indemnities for any losses that result from a breach.
Should the individual or company responsible for any of the above (for example, protecting customers’ privacy or the franchisor’s IP) indemnify the other party for any losses sustained as a result of a breach?
This ensures that if a breach occurs, the innocent party has a mechanism available to it to recover any losses.
Finally, the unfair contract terms regime will apply to all small business standard form contracts that are entered into, varied or renewed after 12 November 2016. Assuming the agreements are standard form, small business owners may be able to use the regime to their advantage in negotiating amendments to technology agreements, as well as if an unfair term is sought to be enforced.
If franchisees keep these issues in mind, they will be far better off if a problem arises down the track.