AT&T vs. Broadcom and VMware – are you ready for renewal?
As arguments between AT&T and VMware continue, what can be learnt from the revelations of the case - and how to avoid a similar situation.
Published on 2nd October 2024
In the latest move in an interesting (and now very public) dispute, Broadcom has responded to AT&T’s claim against it in the New York courts.
AT&T, the Fortune 500 telco giant, has a perpetual licence of VMware virtualisation software. It is seeking a mandatory injunction from the court which would force Broadcom to accept AT&T’s exercise of its renewal rights for vital support and maintenance services in respect of that software (such as security patching).
Without such services, AT&T claims it would not be able to guarantee stable and secure services for its customers (including critical national infrastructure) – what Broadcom terms in its response “the parade of horribles that will allegedly ensue”.
This dispute is a serious escalation in the negotiations, and provides an insight into the high-stakes discussions that are likely taking place between VMware and many of its existing customers seeking contract renewal.
Focus on renewal
Organisations have been focusing on their VMware arrangements ever since the announcement of Broadcom’s takeover of VMware (completed in November 2023) and subsequent announcement in December 2023 that it would restructure VMware’s software licensing model.
The move, from perpetual licences to subscription licensing products (with such products sometimes being “bundled products”, where a customer does not necessarily require all of the bundled software), often results in increased pricing.
Here we focus on some specific practice points (which this claim and response highlight) for those customers seeking to rely on renewal rights against a technology vendor pushing hard to change the existing licensing and financial model.
Do you have all the relevant T&Cs?
VMware and AT&T have executed a number of relevant agreements over the course of decades working together – the claim references an older End User License Agreement (EULA) and a newer Enterprise License Agreement (ELA), along with more than 10 contract amendments. It can be hard to keep track of all changes to live contracts, and a contract audit may be needed to uncover all amendments over time.
Relevant terms may also be incorporated into the contract by reference – e.g., hyperlinks to a website or vendor portal with standard-form terms or policies. AT&T noted that Broadcom were relying on “VMware support policies, which permit the end of availability of the product offerings”.
It is important for customers to understand what is tucked away in the small print, and to have a clear understanding of the basis on which these terms can be amended (including whether a software vendor has the right to change these unilaterally).
Are your renewal rights clear?
Broadcom appears to be relying on ambiguity in the AT&T renewal provisions (along with the “End of Availability” provisions discussed below) to deny renewal of the support and maintenance services for the current software products.
In this case, a question has arisen over whether AT&T had to give notice for three annual renewals in 2023 (at which point AT&T only renewed for 1 year), or if it could give three consecutive annual renewals on successive years.
To stress-test your renewal rights, customers should put themselves in the shoes of their counterparty – if they were the vendor, where in the terms could they create doubt? Even if it’s not a slam dunk, any ambiguity can give ammunition to a vendor in this position.
How do you resolve inconsistencies?
A large part of Broadcom’s argument in the AT&T case appears to revolve around an “End of Availability” clause in the (older) EULA document. Broadcom describes this clause as “unambiguous” and claims it clearly allows VMware to pull support for certain products. As such, it argues VMware is not required to honour the renewal right (which is referenced in a later amendment to the ELA) for support and maintenance services for those products.
While AT&T argued in its original claim that the later renewal right implicitly overrides the older “End of Availability” clause, Broadcom in its reply has pointed to some express provisions which appear to provide for the EULA (and “End of Availability” clause) to take precedence over at least some other contractual documentation.
While we await the court’s verdict on this, it is a useful reminder to ensure your suite of contract documents has a clear “order of precedence” clause which clarifies which document or provisions should prevail in the case of conflicts or inconsistencies. These clauses become even more important if your vendor relationship is governed by a significant number of contractual documents (as is the case here).
Can implied terms help you?
AT&T also sought to rely on breach by Broadcom of an implied duty of good faith and fair dealing (under New York law) – the availability of this kind of implied term will vary from jurisdiction to jurisdiction, but may be able to assist if particularly aggressive tactics are being employed.
Perpetual licences may not always be forever
As AT&T (and many other VMware customers) are finding, having a licence which is theoretically “perpetual” is only useful for as long as the vendor is willing to provide support and maintenance services. We’ve long seen vendors limit support services after a period of time, in part (some would argue) to ‘encourage’ customers to enter into new arrangements.
AT&T clearly foresaw this risk, and tried to mitigate by negotiating extension rights before the sale to Broadcom completed, to give a runway to migrate off the software. As Broadcom said in its reply, “AT&T also could have spent the last several months or even years “migrating away” from VMware software, which it has admitted it intends to do”.
However, this case shows that even foresight and bargaining power may not fully protect a customer in circumstances where their vendor is looking to change software licensing models. Whatever the contract says, lock-in risk is compounded where the expected cost and complexity of migrating to a rival software provider is significant.
