Licensing

Licensing is a huge topic.  This is a small blog.  Nonetheless, we’ll give a go at some basic concepts that should be helpful.

A wide variety of agreements can govern software, including traditional software licenses, development agreements, hosting agreements, and hybrid agreements, such as Software-as-a-Service agreements that have become prevalent in this new age of cloud computing.  Many treatises have entire chapters devoted to each of these various kinds of agreements, not to mention the many other flavors of software agreement you may see.  Here, I have simply provided below a basic checklist[1] for some of the important provisions you should expect to see in any software agreement.

But before we get to the checklist, the most important advice is that, if you are in a business transaction where software is involved, whether off-the-shelf, custom, or under development, be sure you have a written agreement. Every IT lawyer I know has a cornucopia of horror stories about clients who have walked in the door wanting to know how to recover misappropriated software, yet lacking a written agreement.

Now, just to get you thinking, here’s a non-comprehensive checklist of things to think about in any agreement involving software.

Software agreement checklist

Definitions – important terms in the agreement, or terms that, for purposes of the agreement, vary from their common meanings, should be carefully defined.

License grants – there are many different permutations of rights to software that can be conveyed.  For example, a license can be:

  • paid-up, royalty-free, royalty-bearing, and/or lump-sum;
  • perpetual, for a period of time, for the duration of an event;
  • restricted, e.g., with respect to manners of fields of use, copying, reverse-engineering, etc.

IP Ownership – who owns any intellectual property that is created, and/or the subject of a license, under the agreement?

Term and Termination – how long does the agreement last, and who has the right to terminate it, and under what circumstances?

  • Does the agreement include one or more licenses having different term(s) than the overall agreement?

Representations and warranties – what representations and warranties (promises) are each party making?  These can include almost anything; perhaps most common are warranties (or disclaimers) concerning the operation of the software, and warranties addressing non-infringement of third party IP rights

Limitations on liability – does the agreement reasonably limit the circumstances under which each party can be found liable under the agreement, and the amount of the liability?

Indemnification

  • General liability – under what circumstances does any party have liability to the other party for liabilities incurred or threatened?
  • IP Infringement – who bears the risk that a third party will assert that the third party’s intellectual property is infringed by something licensed under the agreement?  The risk of patent infringement is the big-ticket item here.

Payment – how much, and what triggers an obligation to make a payment (e.g., delivery of software, work product, other events or milestones, etc.

Reports and audits – who has what rights to receive what information, and who has the duty to provide it, and when?

Maintenance and Support – sometimes a separate agreement, but always important to the buyer.

Deliverables/ Statements of Work – may not apply in many agreements, but in any agreement for custom software, spelling out deliverables, work schedules, etc. is crucial.

Confidentiality – many commercial software licenses require the software itself to be kept confidential; customers want vendors to keep confidential their proprietary information.

Miscellaneous

  • Assignment – licenses may or may not be assignable; be clear, e.g., if you are the buyer you don’t want to end up with a license you can’t assign if you sell your business.
  • Dispute Resolution – understand how disputes will be resolved if they arise; watch out for one-sided arbitration clauses.
  • Choice of law / jurisdiction – if you end up litigating, what will be the forum, and what law will govern?

 


[1] This website’s general disclaimer goes double for this checklist.  It’s for educational purposes only.  Seriously.  If you’re not a lawyer, and you are looking at this checklist because you are thinking about entering into some kind of agreement implicating software, then you should call a lawyer.  This is complicated stuff.