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Rebates: Who Doesn't Like "Free" Money?

Many licensors act as resellers for hardware and software vendors. In return for incorporating these third-party products into their solutions licensors receive a rebate or referral fee for doing so. Many licensors fail to disclose to their customer that they are receiving a rebates and argue that rebates allow the licensor to offer the customer a lower price. From the customer’s perspective, however, these rebates create a conflict of interest: Is the licensor utilizing the hardware or software because it best fits the customer's needs or because the third party is paying the licensor the largest rebate? As such, customers should always require the licensor to disclose any rebate or financial benefit it is receiving from any third parties so that the customer understands any potential conflict of interest and can benefit from any such payments. Model language to this effect is as follows: Credits and Rebates. The Licensor shall fully disclose all discounts, rebates, allowances and incentives received by the Licensor from its suppliers. If the Licensor receives a discount, rebate, allowance, or incentive from any supplier, the Licensor shall disclose and return to the Licensee the full amount of the discount, rebate or applicable credit that is received based on purchases made on behalf of the Licensee. The Licensor must identify the amount of each discount, rebate or other applicable credit on bills and invoices presented to the Licensee for payment and individually identify the amount as a discount, or in the case of other applicable credits, the nature of the credit.


Some licensors will affirmatively disclose that they are receiving credits or rebates to avoid any claim that the licensor had conflict of interest or wrongfully failed to provide the licensee the benefit of any credit or rebate.


Licensor and its Affiliates have alliance relationships with third party product and services vendors (“Third Party Suppliers). As part of many such arrangements, Licensor is able to resell the Third Party Supplier’s hardware, software and other products (collectively “Products”) and Third Party Supplier services (“Services”) and may receive discounts or rebates from the Third Party Suppliers in connection with the sale of such Products or Services.

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