Has this turned into contract law - can the licensee cancel the upcoming auto-renewal?

Licensee entered into a multi-year software usage contract with Licensor. The software license is a straight forward, "right to use" and includes no support or custom modifications. 15 days before the existing license expires, Licensee calls the Licensor to say they will not be using the software after the current period expires. Licensor says that per contract, Licensee needed to cancel within 30 days and therefor is automatically enrolled into another year period. Licensee insisted on cancelling and days later, Licensor offered the Licensee a partial year term as a reduced rate. Licensee refused this offer too. All this occurs inside the current period, before the next billing period started.

Borrowing from basic contract law, could this "partial year, reduced rate" offer be considered a counter off and does it give the Licensee an opportunity to cancel the automatic renewal terms?

  • If Licensor says "OK, we can do this instead" and Licensee says "No", that seems like a - counter offer. n. an offer made in response to a previous offer by the other party during negotiations for a final contract. Making a counter offer automatically rejects the prior offer, and requires an acceptance under the terms of the counter offer or there is no contract. dictionary.law.com/Default.aspx?selected=376 – JustinP Oct 15 '18 at 13:05
  • Short answer is no, your "partial year, reduced rate" offer does not supersede the contract unless the licensee accepts your offer. But it would help if you reproduce the clause(s) regarding cancellation & non-renewal deadlines because, by notifying you 15 days before expiration, the licensee is indeed cancelling within 30 days of expiration. – Iñaki Viggers Oct 15 '18 at 13:54
  • On expiration of the Initial Term, the Software license shall automatically renew for additional one (1) year period(s) (each a “Renewal Term”), unless either <Licensor> or Licensee provides the other with written notice of non-renewal at least thirty (30) days prior to the expiration of the Initial Term or the Renewal Term, as applicable. During Renewal Terms, <Licensor> then-current annual subscription fee and annual Support Services fee rates will apply unless otherwise agreed by the parties. – JustinP Oct 15 '18 at 16:21
  • @IñakiViggers Does it matter if all previous yearly contracts were negotiated and that the relationship never functioned like a "automatic renewal". This new automatic renewal rate is over 50% higher than any previous rate. I read about evergreen laws and there seems to be a lot of questions about them. – JustinP Oct 15 '18 at 16:43
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    All the automatic renewals I've seen do not include price increases. Those always required new agreements. Are you sure the contract allows you to automatically renew at an increased rate? Also, when did you notify Licensee about the new rates? – David Thornley Oct 15 '18 at 21:13

Based on the additional information you have provided in the comments, the matter seems more complex and more ambiguous than I first thought.

The clause starts with a reference to the initial term only, whereas thereafter it uses the disjunction "initial or renewal". Although a licensee's argument premised on the contra proferentem doctrine may seem vexatious, this time I am not sure whether the language effectively precludes the licensee's chances to prevail on grounds that automatic renewal only holds for the Initial term.

Another factor that may weaken your position is that, despite the language of the contract, the relationship never functioned like an automatic renewal. The parties' conduct reflects the actual nature of a contract, whence your intent to enforce the contract now that "the new automatic renewal rate being over 50% higher than any previous rate" could be deemed an unfair practice.

This is the first time I have heard about evergreen laws. If your jurisdiction recognizes that regulation/law and you failed to timely send the licensee the requisite reminder, your clause on automatic renewals might be unenforceable.

  • "parties conduct reflects the actual nature of the contract". So when a licensee does something reasonable like notify the vendor they wont be using the software in the next period, it's not a clear case that they should be forced to stay with it for another year, despite the auto renewal language. Especially when all previous periods were negotiated and not "automatic renewal" by nature. – JustinP Oct 16 '18 at 4:08

There is a contract in place. Any offers made to vary that contract, if rejected, leave the original contract unchanged.

The contract had a notice period to cancel its renewal - this is very common and perfectly legal. If the notice period is not observed then it automatically renews for whatever period and whatever rate the contract says it does.

A contract is a set of promises by the parties freely entered into and contract law is entirely about holding people to their contractual promises. It doesn't matter if those promises are difficult to comply with or even (in most cases) that they are unjust or inequitable - the legal position is that people are free to make any contract they wish and it is in societies best interest that such contracts are reliable.

At common law, only terms that are unconscionable or illegal will not be enforced. Consumer protection statutes may lower the bar for particular types of contracts to unfair - but probably not in the United States. However, this term is neither unconscionable nor unfair.

  • Makes sense for the initial contract.. but for the automatic renewal with an unspecified variable term, such as "current rate", especially when that rate varies by more than 50% from the initial term.. seems to leave some room to argue against its validity when the licensee notifies they wont be renewing in advance. – JustinP Oct 19 '18 at 10:35

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