The Hidden Risks Inside Broadcom’s Contracts
Ever since Broadcom began acquiring software companies like VMware, CA, and Symantec, their contracts have been fine-tuned to favor Broadcom’s interests.
Customers negotiating a Broadcom enterprise license agreement – especially a VMware ELA – should prepare for terms that maximize Broadcom’s revenue control. These agreements sharply limit customer flexibility and make it difficult to exit early.
For additional insights, read our Broadcom Legal Strategy and VMware Litigation Risks.
Many of these clauses look “standard” at first glance but carry hidden pitfalls that heavily tilt leverage toward the vendor. Below, we expose the most one-sided clauses lurking in Broadcom’s post-acquisition contracts and explain how you can push back on each one before signing.
Broad Audit Rights – Expansive and Unrestricted
Broadcom often includes extremely broad audit rights in its contracts, with minimal safeguards for customers. The language typically lets Broadcom audit your software usage at any time, sometimes with little notice and no defined scope.
Risk:
Constant compliance exposure and disruption. Without limits, you could face surprise audits at Broadcom’s whim. These unannounced inspections divert IT resources, disrupt operations, and create pressure to quickly resolve even minor compliance issues.
Buyer Insight:
Insist on boundaries around audit terms. Negotiate a requirement for at least 30 days’ advance written notice before any audit, limit audits to at most once per year, and confine each audit’s scope to specific agreed-upon products or time periods. This prevents audits from becoming ambushes.
Recommendation: Include language requiring Broadcom to provide a valid reason for any audit and to respect confidentiality. Also negotiate that if an audit finds no significant compliance issues, Broadcom bears its own audit costs. This discourages frivolous or punitive audits and keeps the process fair.
No Price Cap on Renewal – Open-Ended Cost Escalation
Broadcom’s contracts often omit any cap on price increases at renewal. After your initial term, Broadcom can raise your licensing or support fees arbitrarily – even dramatically – once you’re locked in as a customer.
Risk:
Open-ended cost escalation. Without a renewal cap, you have zero price protection. Broadcom could double your fees at renewal, crippling your IT budget. You’re essentially betting that they won’t exploit your dependency – a risky bet.
Buyer Insight:
Negotiate firm limits on any renewal increase. For example, stipulate that your renewal price cannot rise by more than a fixed percentage (say 5% annually) or tie it to an inflation index like the Consumer Price Index (with a reasonable cap). This keeps future costs predictable.
Pro Tip: Try to lock in renewal rates upfront. If possible, have Broadcom commit in writing to a renewal price schedule or maximum percentage increase for your next term. The more you fix now, the fewer nasty surprises later.
Fight or settle? – The Broadcom Audit Showdown — Settle or Stand Firm?.
No Termination for Convenience
Broadcom often eliminates any “termination for convenience” option for the customer. In their multi-year agreements, you typically cannot exit the deal early unless Broadcom itself breaches the contract.
Risk:
Multi-year lock-in with no escape hatch. If your business needs change or a project fails, you’re still on the hook for the full contract term. You could end up paying for software you no longer use or need.
Buyer Insight:
You likely won’t get a full “terminate anytime” clause, but negotiate partial exit options. For example, ask for the right to drop certain modules or reduce license counts (with notice) after the first year if they’re not needed. This creates some flexibility if circumstances change.
Recommendation: If Broadcom refuses a standard termination-for-convenience, propose a compromise: “termination for convenience after Year 1 upon paying a capped fee (e.g. 25% of remaining fees).” This provides a defined buyout path – a safety valve – if you absolutely must exit early.
Read how to build your audit team, Building an Internal Software Audit Defense Task Force.
Co-Term & Forced Renewal Clauses
Broadcom often aligns all your product licenses to co-terminate on the same date, frequently with auto-renewal baked in. On paper, a single renewal date sounds convenient – but it can severely limit your flexibility.
Risk:
Co-terming eliminates modular flexibility: all products renew as one bundle. You either renew everything (even components you no longer need) or drop everything at once. If the contract auto-renews, missing the cancellation notice means you’re locked in for another term.
Buyer Insight:
Insist on flexibility to renew or cancel components separately whenever possible. Avoid bundling all licenses under one co-terminating renewal date. Instead, negotiate independent renewal cycles for different products or business units.
Recommendation:
At minimum, remove any automatic renewal clause or add a generous opt-out window (such as 90 days’ notice) for each renewal. That way, you’re not unintentionally trapped in an extension without a chance to renegotiate or opt out of specific products.
Pro Tip: A “co-term” contract may sound efficient, but it actually strips you of leverage. Staggered renewals let you negotiate each component on its own merits, whereas a single bundled renewal hands Broadcom all the cards.
Mandatory Bundling – The Suite Trap
Broadcom has started selling many acquired products only as part of big bundles. In practice, this means you can’t buy certain VMware, Symantec, or CA software à la carte anymore – you have to purchase a larger suite that includes a bunch of other products.
Risk:
Wasted spend on unused products. Broadcom’s “mega-suites” often force you to buy multiple products as a package, even if you only need one or two. This means you’re paying for components you don’t use – essentially a shelfware tax on your IT budget.
Buyer Insight:
Insist on transparency and options. Ask Broadcom to itemize the price of each product in the bundle. Knowing the cost breakdown helps you push back on paying for pieces you don’t want or need.
Recommendation: Negotiate a future exit for unused components. For example, secure the right to drop or swap out certain parts of the bundle at the next renewal if you aren’t using them. Broadcom should earn your money for each product – not force you to fund perpetual shelfware.
Data Access & Audit Cooperation Clauses
Broadcom’s contracts often include provisions requiring full customer cooperation during audits. This can include allowing Broadcom (or its auditors) to access systems, pull data logs, and gather other information to verify compliance.
Risk:
Exposure of sensitive data and potential disruption. If Broadcom’s auditors have open access to your systems, they might view confidential information unrelated to licensing. Their scanning or data-gathering could also impact system performance or stability.
Buyer Insight:
Set strict parameters for audit cooperation. Insist that any audit use only pre-approved methods or tools. Ideally, you perform the data extraction using agreed-upon scripts, rather than Broadcom directly accessing live systems or raw data.
Recommendation: Keep audits controlled and confidential. Require that audits occur on-site under your supervision (or in a similarly controlled environment) – not via unfettered remote access into your network. And ensure every Broadcom auditor or subcontractor signs a strict NDA to protect your information and any data they see.
No True-Down or Reduction Rights
Broadcom often prohibits any “true-down” of licenses during the contract term. Even at renewal, you might not be allowed to reduce your license counts. Once you commit to a number of licenses or subscriptions, you’re stuck paying for that full amount regardless of actual usage.
Risk:
Wasted budget if your needs shrink. Under Broadcom’s no-reduction rule, even if your usage drops significantly, you get no cost relief. You must keep paying for the original high-watermark of licenses you bought. Over a multi-year term, that means funding non-existent users or idle systems – pure waste.
Buyer Insight:
Fight for some true-down flexibility. For example, negotiate the right to reduce license quantities at renewal by a set percentage (say, up to 10–15% fewer licenses without penalty). This ensures you can adjust costs downward if your requirements decrease.
Pro Tip: True-down rights can easily save six figures over a typical 3-year term. Regaining the ability to trim, say, 10% of your licenses each year means you only pay for what you actually use – not yesterday’s peak usage.
Restrictive Data Ownership & Exit Terms
Broadcom’s contracts often come with tricky post-termination conditions. You might find clauses that let Broadcom retain control over certain data or require you to pay for assistance if you want to migrate away from their software.
Risk:
Data lock-in and costly exits. If Broadcom’s terms let them withhold your data after termination, switching to another vendor becomes risky. You could lose access to critical information or have to pay Broadcom hefty fees for migration help. In short, you might be trapped or forced to pay extra just to leave.
Buyer Insight:
Plan your exit strategy during negotiations. Insist on a clause that you retain ownership of your data and can retrieve it when the contract ends. For instance, ensure you can export all relevant data or configurations upon termination.
Recommendation: Include transition assistance terms. Require Broadcom to give you a reasonable post-termination access period (e.g. 90 days) to wind down or migrate off the product. Having this in writing guarantees you can leave Broadcom’s platform without paying surprise fees or losing your data.
Broad Indemnity & Liability Limitations
Broadcom’s contracts heavily limit the company’s liability. Typically, Broadcom’s total liability is capped at no more than the fees you paid, and many types of damages are excluded entirely.
At the same time, the contract often puts significant liability on you. For example, you might be held fully responsible for any compliance violations and even third-party claims related to your use of the software.
Risk:
Unbalanced exposure. Broadcom’s liability for issues on their side is kept tiny – often just a refund of what you paid. Meanwhile, if you have a compliance miss or license breach, you could face hefty costs with little protection. Back-dated license fees, audit charges, and third-party claims could all fall on you alone.
Buyer Insight:
Strive for balanced liability terms. For instance, insist Broadcom fully indemnify you if their software infringes someone’s IP, with no cap on that indemnity. You shouldn’t be left paying for Broadcom’s mistakes if their product causes an issue.
Recommendation: Also limit your liability. Negotiate mutual liability caps (for example, both parties’ liability capped at the contract value). Strike any clause that imposes punitive damages or unlimited costs on you (such as double-fee penalties for license violations). The goal is to ensure risk is shared fairly – not piled entirely on the customer.
Five Buyer Recommendations
To protect your organization, keep these five tactics in mind when negotiating with Broadcom:
- Get Legal Review Before Renewal: Run every Broadcom contract draft through internal or external legal counsel familiar with vendor-heavy clauses. A fine-tooth legal review can catch hidden traps before you commit.
- Insert Mandatory Price Caps: Lock in renewal price protections (e.g. a max 5% increase or CPI-tied cap) to avoid surprise jumps after the initial term.
- Add True-Down Flexibility: Build in rights to reduce your license counts periodically (annually or at renewal) so you don’t overpay for unused licenses.
- Limit Audit Scope and Frequency: Demand written notice, defined scope, and at most one audit per year. Setting these limits upfront prevents audits from becoming an open-ended fishing expedition.
- Document Exit Path Early: Ensure the contract includes clear exit terms – data export rights, transition assistance, and fair post-termination conditions. Plan how you’ll disengage before you sign, so Broadcom can’t trap you later.
By recognizing these Broadcom contract “gotchas” and addressing them in negotiations, you can rebalance some of the leverage back to your side. A bit of upfront vigilance and firm negotiating will protect you from unpleasant surprises over the life of your Broadcom agreement.
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