Exit Rights and Flexibility in Broadcom Agreements
Why Exit Rights Matter
Broadcom’s standard contracts are notoriously one-sided, designed to lock customers into long-term commitments. Without negotiated exit clauses, you carry all the long-term risk if your needs change.
This lack of flexibility can cripple your budget flexibility and operational agility.
In short, if you don’t secure exit rights up front, Broadcom holds all the cards – and you could be stuck in an expensive commitment with no easy way out. Read our overview, Key Contract Terms to Negotiate in Broadcom Agreements (Commercial & Legal Clauses).
Mistakes to Avoid (and What to Do Instead)
When negotiating with Broadcom, beware of these common missteps. Each mistake comes with serious risks, but there are tactics to fix them:
- Mistake: Accepting a contract with no termination flexibility. Risk: You’ll be stuck paying for the full term even if your business needs change or the product underperforms. Fix: Push for a termination-for-convenience clause with a reasonable penalty cap (for example, you only owe fees through the current year, not the entire remaining term).
- Mistake: Ignoring license true-downs. Risk: You may end up paying for shelfware – licenses you don’t use as your usage declines – with no way to reduce costs. Fix: Negotiate annual rights to true-down your license counts (e.g., allow a reduction of up to 10–20% at each anniversary). This ties costs to actual usage (see Pillar 12 – True-Down for a deeper strategy on license reduction).
- Mistake: Letting an auto-renewal roll forward silently. Risk: Broadcom’s auto-renewal clauses can kick in without warning, locking you into another term (often at a hefty uplift in price) if you miss the notice window. Fix: Eliminate unilateral auto-renewals – require that any renewal must be explicitly agreed and signed by both parties. If Broadcom insists on keeping an auto-renewal, extend the notice period (90–120 days) to give you ample time to opt out, and cap any renewal price increase to protect against surprises.
- Mistake: Overlooking M&A and divestiture scenarios. Risk: If your company merges, is acquired, or spins off a division, strict Broadcom assignment clauses could leave the new entity without rights to the software. This creates stranded licenses that cannot be transferred – meaning a spun-off unit might have to stop using the software or repurchase it. Fix: Secure assignment rights upfront. Include language that licenses can transfer to affiliates or successor organizations “not to be unreasonably withheld” by Broadcom. This way, a corporate reorganization won’t invalidate your licenses.
- Mistake: Not planning for product end-of-life. Risk: Broadcom could retire or sunset a product you’re using, and without an exit clause, you might be forced into a costly upgrade or stuck paying for a dead product. This often leads to Broadcom pushing you toward a more expensive replacement on their terms. Fix: Insert a product EOL exit clause. For example, if Broadcom discontinues a product, you should have the right to terminate that portion of the agreement or receive credit to migrate to a successor product at no additional cost.
Sample Clause Snippets
To illustrate the above points, here are sample contract clauses (in plain language) that you should aim to include in your Broadcom agreement:
- Termination for Convenience (Ask): “Customer may terminate this agreement for convenience with 90 days’ written notice. In such an event, Customer’s liability shall be limited to fees due through the end of the current contract year.”
- True-Down Rights: “Customer may reduce the number of licenses by up to 20% annually on the anniversary date, with fees adjusted proportionally to the new license count.”
- Auto-Renewal: “This agreement shall not auto-renew. Renewal requires a written agreement signed by both parties.”
These clauses provide much-needed escape hatches and flexibility. Even if Broadcom’s first response is “we don’t do that,” it’s worth negotiating – large customers have obtained terms like these by pressing the issue.
Protect against FX changes – FX Clause Negotiation in Broadcom Global Agreements – Managing Currency Risk.
Quick Checklist
Before signing a Broadcom deal, ensure you have protections in place. Use this quick checklist to ensure you’re covered on all fronts:
- Termination flexibility: Do you have a way out if needed (at least a right to terminate early with minimal penalty)?
- True-down rights: Can you reduce license counts (and fees) if your usage drops or business contracts?
- Auto-renewal protections: Is automatic renewal removed or at least tightly controlled (long notice period and capped increase)?
- Assignment/divestiture rights: Are you allowed to transfer licenses to affiliates or new entities in mergers, acquisitions, or divestitures?
- Product EOL exit language: Do you have provisions to terminate or get credits if a product is discontinued or no longer supported?
If any of these are missing, go back to the negotiating table. It’s far easier to get these rights now than to beg for mercy later when you’re trapped in a bad contract.
How to negotiate the audit clauses, Compliance and Audit Clauses in Broadcom Agreements – How to Limit Audit Risk.
Mini-FAQ
Q: Can I really get a termination for convenience with Broadcom?
A: Broadcom strongly resists termination-for-convenience clauses in its standard contracts, as it wants to lock in revenue. However, it’s not unheard of – some customers (especially large enterprises or public sector clients) have negotiated a limited termination right. You may not get Broadcom to agree to a pure “walk away anytime” clause, but you can often at least cap your liability for early exit (for example, paying only through the current year of the term). Even a limited termination option is better than none, and it sets a precedent for flexibility.
Q: How do true-down rights work in practice?
A: True-down rights allow you to adjust your license volume downwards during the contract. In practice, this usually means at each annual anniversary or renewal date, you can reduce the number of licenses (often by a certain percentage) to align with your actual usage. Your fees for the next period are then reduced proportionally. For example, if you have 1,000 licenses and find you only need 800 next year, a true-down clause might let you drop 20% of the licenses, so you’d renew for 800 and pay 20% less. This prevents paying for unused licenses (shelfware) and ensures you only pay for what you actually need over time.
Q: What’s the safest way to handle auto-renewals?
A: The safest approach is to remove auto-renewal clauses entirely. Ideally, the contract should end at the end of the term, unless you choose to renew and sign a new agreement. This forces Broadcom to seek your agreement on renewal terms, rather than binding you by default. If you absolutely must have an auto-renewal (for example, Broadcom won’t budge on it), then negotiate protections around it: extend the notice period to 90 or 120 days so you have plenty of warning and time to evaluate your options, and put a firm cap on any price increase at renewal (e.g., “no more than a 5% uplift”). Also, diary the notice deadline internally so it’s not missed. These steps ensure an auto-renewal can’t sneak up on you or stick you with an exorbitant fee hike.
The Playbook
In summary, never accept Broadcom’s default of being locked-in without recourse. Always push for a termination option to keep an exit in your back pocket.
Insist on true-down language so you can scale down if needed, just as easily as Broadcom will let you scale up. Never allow silent auto-renewal – renewals should occur on your terms, not automatically.
And future-proof your contract for business changes: make sure mergers, divestitures, or product end-of-life events don’t leave you trapped.
By negotiating these exit rights and flexibility clauses upfront, you transform a Broadcom agreement from a potential shackle into a balanced partnership.
The goal is to maintain control over your IT strategy – and that means having the freedom to adapt, exit, or pivot when your business demands it.
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