When offering their software, vendors often seek to establish partnerships to extend their reach, tap into new markets, and leverage the strengths of other organizations in different territories or markets. Yet, while these partnerships can be mutually beneficial, vendors may wish to limit the scope of their software reselling for various reasons. These reasons can range from avoiding market saturation to ensuring the proper representation of their brand in specific territories.
In this article, we'll explore the ways in which a vendor might legally limit the reselling of its software by a partner.
1. Geographical Restrictions
One of the most common ways vendors restrict software reselling is based on geography. For example, if a software vendor is working with distributors or resellers, they can include geographical restrictions in their agreements. This can be achieved in various ways:
Country-Based Restrictions: a vendor might allow its software to be resold only in certain countries or regions, and specify that in the contract.
Postcode-Based/City Based Restrictions: especially relevant for larger countries, a vendor might grant reselling contractual rights for specific zip codes or postcodes or limit reselling to named cities or areas within a specific geographical area.
2. Field of Use Restrictions
Another common method is to restrict the reselling of software based on its field of use. This ensures that the software is only being sold and used in industries or sectors the vendor deems appropriate, for example to fields in which the partner has particular expertise or business contacts. For instance:
Industry-Based Restrictions: a vendor might allow its software to be resold only within certain industries, such as healthcare, finance, or education.
Application-Based Restrictions: the vendor might restrict reselling based on specific applications, such as research, commercial use, or non-profit use.
3. Customer Type Restrictions
Sometimes, it's not just about where or how the software is used, but who uses it. Vendors can also restrict reselling based on the type of end-customer. If products are sold to end-customer who may not receive adequate support or are not the right audience, it can damage the vendor's brand reputation. By restricting reselling to certain types of customers, vendors can ensure that their products are used in a manner that aligns with their brand image and quality standards. For example:
B2B vs. B2C: a vendor might allow its software to be resold only to other businesses (B2B) and not to individual consumers (B2C).
Organization Size: some software might be limited to enterprises of a certain size, such as SMEs or large corporations.
Government vs. Private: vendors might limit the reselling of their software to either government entities or private organizations.
4. Time-Based Restrictions
Vendors might also impose restrictions based on time, such as:
Limited-Time Offers: allowing partners to resell the software for a limited period and any extension is dependent on specific results.
Version-Based Restrictions: limiting partners to reselling a particular version of the software.
5. Training and Certification Requirements
To ensure that end-users get the most from their software and to maintain the reputation of their product, vendors might require that:
Undergo Training: before they can resell the software, partners need to be trained on its features and benefits.
Achieve Certification: partners achieve certain certifications to ensure they're qualified to represent the product.
These requirements typically help ensuring that partners have a certain level of expertise and knowledge about the vendor's products.
6. Resale exclusivity
Some of the restrictions above are often combined with resale exclusivity. For example, new partners may request a form of exclusivity in a territory, region, or field of use to maximize their sales without competition from other vendors' partners.
However, for the software vendor, granting exclusivity may not always align with their commercial interests. The market could be too large for a single partner, the partner may not have customers across all sales channels in a territory, or, quite simply, the vendor may not yet know how the new partner will perform. In such cases, the vendor may choose to begin without exclusivity and instead impose other restrictions.
If a software vendor is willing to offer exclusivity, they should set clear conditions, such as partners achieving specific sales targets. If these targets are not met, the exclusivity should be withdrawn or limited in scope.
Conclusion
The relationship between software vendors and their reselling partners is crucial for the growth and sustainability of both parties. However, for various strategic reasons, vendors might choose to limit the scope of this relationship. By understanding the parameters like geography, field of use, customer type, and others, vendors can craft agreements that align with their long-term goals while also providing opportunities for their partners to prove that they bring value to the vendor by opening up markets that the vendor could not easily access themselves.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
