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Lands' End, software vendor at contract impasse after 20-year relationship

An analyst says the companies' legal dispute over key software contract language contains an important lesson for all buyers

Lands' End is at legal loggerheads with its longtime payroll software vendor over how much longer the clothier can lawfully use the application, with US$1 million in potential fees hanging in the balance.

Lands' End signed a 20-year contract with Genesys Software Systems in January 1993, but the software didn't go live until Oct. 28 of that year, according to its complaint filed this week in U.S. District Court for the Western District of Wisconsin. Genesys was acquired by PeopleStrategy in 2010.

Now Lands' End is moving to another software vendor, and in August "reached out to Genesys to attempt to clarify and, if necessary, extend the license to cover the expected transition period."

Early discussions were "productive" but Genesys later broke off talks, according to the complaint. On Jan. 9, the two companies held a conference call during which Genesys officials said that Lands' End's license would be terminated on Jan. 19.

In addition, "reneging on previous offers, informed Lands' End that it only would extend the license if Lands' End paid Genesys approximately $1 million," according to the complaint.

That was apparently because Genesys' licensing policy had changed sometime during the companies' 20-year relationship.

"We no longer offer term licenses, but our perpetual license is currently priced at $999,950," wrote Colin Macdonald, director of finance at PeopleStrategy, in an email to Lands' End dated Jan. 9. Lands' End included the email in its court filing.

Genesys attorneys sent Lands' End a letter on Jan. 14, demanding that it uninstall the software and "send written certification of these activities" by the end of Jan. 19, the complaint adds. Genesys also "threatened to seek a temporary restraining order and all fees in connection with such action if Lands' End does not comply with these demands."

Lands' End, however, is maintaining that it has the right to keep using Genesys' software until Oct. 28 of this year, which would be 20 years after the go-live date, not the effective date of the agreement. "The License Agreement provides for twenty years of 'use' of the Genesys Software," the complaint states.

"For Lands' End to prematurely cease using the Genesys software and to expedite its transition to a new software vendor would cause Lands' End considerable and unnecessary damage and expense," it adds. Lands' End is asking the court for a declaratory judgment stating that it has the right to continue using the software and that the license term doesn't expire until Oct. 28.

PeopleStrategy didn't immediately respond to a request for comment Friday. As of Friday, it had not filed a response to Lands' End's complaint.

"I would love to hear the story from the Genesys side," said analyst Frank Scavo, president of the consulting firm Strativa. "Unless there are mitigating factors not mentioned in this lawsuit, it would appear that Genesys has a gun pointed to the head of Lands' End. If this was standard language in Genesys' contract 20 years ago, I have to wonder if other customers have run up against this problem and how they have resolved it."

Whatever the outcome of the case, there's a lesson to be learned for all software customers, according to Scavo.

"Twenty years may seem like a long time when you are signing a software agreement, but when you are signing a software agreement, you need to assume you will reach the end of any license period," he said.

"I would advise buyers to negotiate a perpetual license agreement whenever possible," Scavo added. "I would advise buyers to avoid limited term licenses to avoid situations like the one that Lands' End now appears to be in. If the vendor insists on a limited license period, buyers should at least negotiate the terms of extending the license agreement beyond the termination period."

Chris Kanaracus covers enterprise software and general technology breaking news for The IDG News Service. Chris' email address is Chris_Kanaracus@idg.com


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