NetSuite, Merchant in EBay-related Legal Row

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A company that buys and resells valuables is suing on-demand ERP (enterprise resource planning) vendor NetSuite for breach of contract, saying the software package it paid for isn't working as expected, and is inhibiting its ability to sell items on eBay.

Lindstrom & McKenney of Chesterfield, Missouri, is asking for more than US$100,000 in damages, according to a document filed in U.S. District Court for the Eastern District of Missouri.

The company signed a one-year subscription and services deal with NetSuite in May 2008 for $125,000, according to the filing.

Many of the company's allegations about issues with the NetSuite software center on an integration with eBay.

Among other problems, Lindstrom & McKenney has been unable to use multiple eBay templates; employ multiple seller accounts; "track the fees charged per item on eBay"; and automatically notify winning bidders, all of which "NetSuite represented its system would perform," according to the complaint.

L&M "has put NetSuite on notice" a number of times about the issues, demanding they either be fixed at no charge or that the vendor refund about $100,000, but NetSuite has refused, it adds.

Meanwhile, NetSuite claims that the eBay features in question aren't part of the signed contract, and has asked the court to dismiss Lindstrom & McKenney's suit.

NetSuite did agree to provide an eBay integration module that allows up to 1,500 transactions per month, lets users export items from NetSuite into eBay, and "provides real-time imports of sales transactions" back to NetSuite, according to a filing by the vendor.

However, "the functions that Lindstrom alleges NetSuite failed to provide are not in the Subscription Services Agreement or the SOW," the filing states. "The duties that NetSuite owes to Lindstrom are those delineated in the Subscription Services Agreement, the Estimate, and the [statement of work]. ... No other promises, representations or side deals -- if any were made -- are enforceable."

NetSuite and lawyers for Lindstrom & McKenney did not respond to requests for comment.

Whatever the outcome of the flap, it underscores a number of key lessons and precautions companies should take when procuring application services.

For one, it's crucial that contracts include what's known as an "entire agreement clause," Altimeter Group analyst Ray Wang writes in an upcoming report that lays out a "bill of rights" for SaaS (software as a service) customers.

"Prospects and clients should ask for this right to ensure that demos, proposals, and promises made during the selection process are included in the final contract," Wang said. "Vendors should expect clients to include documentation as exhibits in contracts."

Customers should also make sure they try the application before putting their money down. "Prospects and clients should be given access to the system and provided a sandbox to demonstrate the system," Wang said, adding that in turn, vendors should be able to charge a fee for such proofs-of-concept "as appropriate."

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