Data Usage Rights Series Part 1: Ambiguity in Contracts

By Richard Clements

Every vendor manager we speak with tells us the same story: Data Usage Rights are at the forefront of the issues they deal with daily. This article looks at a primary challenge faced by the market data industry, with very expensive ramifications: the lack of language in a contract that directly defines permissioned or prohibited uses. Our company has processed thousands of vendor contracts for our clients and has analyzed a considerable amount of permissible use and non-permissible language. One of the major issues we have encountered, however, is simply the lack of language.

When a contract is silent regarding a specific use, is that use permissible? Most of the contracts we have digitized for clients lean on the constrained use – what cannot be done with data. The language is specific: “Client/user may not, must not, cannot utilize the data” in specified ways. But what happens when the user has a question about whether the data can be used in a specific way, for example, blended in a benchmark for internal use? If the contract constrains the data in other specified derivative works, e.g., pricing feeds, blending in portfolio management tools, but does not mention benchmarks for internal reports, is that a permissible use?

The vendor would approach this specific usage with numerous questions. Is this a one-off report, or will this report be published on a scheduled basis? How many other contributors will there be for this benchmark? What will be the weighted average standards for the benchmark? Will there be attribution for the benchmark, and how will that be published?

The vendor would argue that the data was not purchased originally for this particular use case. The consumer of the data would argue that the data was purchased to make decisions in the marketplace and that this is one way that those decisions are validated.

The real problems surface with audits. We spoke with a senior executive at one of the largest vendors who was adamant that their data was being misused at client sites and justified audits and the hefty fines imposed by vendors. No one would argue that there are no cases of misuse, whether from a blatant disregard for contractual terms or from end users who may or may not have been privy to the usage terms delineated in contracts. Most of the market data managers we have spoken with, however, are truly looking for solutions that would eliminate ambiguity.

I attended a WFIC event where a market data manager for an institution truly believed that vendors enjoyed the audit process because it enhances their profits. Of course, there are players (on both sides of the contract) who may stretch the rules, but in our experience of working with both vendors and consumers, most are genuinely good actors.

Ambiguity in contracts is not limited to omissions: there is ambiguity in the contract language itself. During a pre-pandemic FISD meeting hosted by Refinitiv, there was a presentation on codifying language for Open Digital Rights Language (ODRL). At that meeting, a lawyer was quite vocal in highlighting the potential problems arising when lawyers do not agree on the codified definition of a term.

In general, lawyers try to use exacting language to reduce or eliminate ambiguity. A lawyer drafting a contract could view their language as well defined, but the opposing lawyer reading the same contract literally brings a different set of eyes and potentially a different interpretation, with unintended consequences to follow.

The industry is keen to move forward with the digitization of the contract process. Projects such as the technology launched by the ODRL working group are making headway. Similarly, VendEx Solutions is building technology with the industry, as a for-profit industry utility. Working with our clients, and having processed thousands of vendor documents, we have created a waterfall for:

  • Data usage constraints – user may not, cannot, or must not utilize the data in this fashion
  • Permissions – user may, can utilize the data in this fashion
  • Required actions – if the data is used in this permissible fashion, the user or entity must or must not do the following

As VendEx Solutions continues to digitize the industry, our goal is to apply these waterfalls of data usage rights to digital contract creation.

This is our future and the future of the industry. By applying a structured waterfall of data usage rights to contracts, both consumers and vendors will benefit from a clearer view of what is and what is not permissible in a contract. This development is augmented by VendEx’s patent-pending Usage Rights Code, the alphanumeric taxonomy that captures this entire chain of permissible and constrained data usage rights. The clients that are working with us to create these waterfalls intend to implement our identifier throughout permissioning systems and allow end users to access our library, creating a self-help model where an end user can instantly see what they can and cannot do with the data.

These solutions may not solve all the ambiguities in complex industry contracts, but VendEx will keep working toward our mission to reduce the frictions that exist in today’s marketplace. As always, we welcome thoughts on these subjects from our colleagues!

Juli Morris

[email protected]