A software license agreement is a contract between the ""licensor"" and purchaser of the right to use software.
The agreement comprehends a number of different licensing models. It may be used where software is licensed on a concurrent user basis or a named user basis; it may also be used where software is licensed on the basis of a limited number of installations.
Features of Agreements
A good agreement must include clauses covering:
1. licensor
2. licensee
3. grant of license
4. license
5. payment (including interest on late payment)
6. delivery
7. acceptance testing
8. term of license
9. licensee's obligations
10. intellectual property
11. intellectual property indemnity
12. warranty
13. indemnity
14. limitation of liability
15. insurance
16. confidentiality
17. termination
Eight Points to Remember before making Agreement
When negotiating significant software licenses, remember these eight points:
1. Make sure the license is broad enough for the intended use of the business and for anticipated growth or expansion
2. Make sure that there are clear representations and warranties concerning the expected functionality of the software
3. Make sure that the appropriate customer support exists, with prompt responses by the licensor to problems that arise
4. Make sure the licensor indemnifies you for any claims of infringement by third parties
5. Make sure the pricing for the software is clearly spelled out and favorable
6. Make sure that the licensor promptly makes available upgrades and error correction
7. Make sure the term of the license is appropriately long
Software License Agreement Terms
A license agreement should state how the software may or may not be used:
1. That the user may install the software on one machine or many, may make only one copy or many
2. That the use is exclusive or non-exclusive (whether more than one party is granted a license)
3. That the software and license agreement are transferable or assignable, or not
4. That the software may only be used in certain countries
5. That the user may not modify, reverse engineer, lease, rent or export the software
Acceptance and Installation of the Software
Depending on whether the software is customized or off-the-shelf, the agreement may have a provision stating what steps are necessary for acceptance and installation. As acceptance can be a tricky legal concept, agreeing to the procedures for testing and acceptance up front can often be very helpful.
Maintenance of the Software
Some licensors of software have maintenance programs available for annual purchase which provide bug fixes, updates and technical support paid at the beginning of each year. While the prices vary, typical annual fees are fifteen to twenty percent of the cost of the software license.
Ownership of the Software
The agreement should state that the user agrees that the licensing entity owns the software, customizations and updates. This serves both to give notice of the ownership to the user and also gain the user's legal agreement up front to this fact.
Sub-Licensing
You may sublicense the Software and your rights under this license to another party provided that:
a. You understand and agree to the terms of license agreement.
b. The Software is only sublicensed ONCE, to a single party.
c. You are not using the Software after granting the sublicense.
d. The sublicense is a valid, binding license.
e. The sublicense contains terms that are no less restrictive than this agreement (or the same terms as this agreement) and does not contain this right to sublicense.
f. The legal jurisdiction for the sublicense is defined as either that of the Vendor or that of your corporate head office.
g. You do not make any representations or warranties on behalf of Vendor.
h. You notify Vendor of the sublicense and any subsequent transfers by the sublicensed party.
Payment
The agreement should set forth procedures, timelines and amounts for the software license and maintenance fees to avoid confusion and ensure prompt payment and performance of services.
Warranties
What happens if your customer isnt too pleased with the software or it damages some of their equipment? Or indeed, it just wont work. You can decide whether or not to offer a warranty and even set an expiration date for it.
Other variables such as Acts of God should be taken into account. What if their computer breaks while your CD is in it? You cant be held responsible for that. If the software wont perform due to limitations in their own system specs.
Applicable Law
The license shall be interpreted in accordance with the laws of the Country agreed upon between the parties. Any disputes arising out of this license shall be adjudicated in a court of competent jurisdiction in that Country.
Liability Limit
The license agreement should also limit the liability of the licensor for damages of all kinds regarding use of the software, errors or viruses in the software and other items. This wording should be drafted by an attorney to be effective. Properly drafted, this is an extremely beneficial provision to lower risk in your software business.
Indemnification
In software licensing involving large sums of money, the licensor will typically be asked to provide an indemnification of the user for the software's infringement of any third party rights. This means that if the user is sued because the software included materials which infringed the rights of another party, the licensor must reimburse the user for all costs and expenses of this litigation.
Termination
Under what circumstances, either the user or the licensor can terminate the software license and/or maintenance, and procedures and results of doing so should be included so that both parties have notice and agreement of their rights.
Checklist for your Software License Agreement
1. Clearly define the Licensee
2. Use Rights for necessary third parties
3. Include Representations and Warranties
4 Include Maintenance & Support Obligations
5. Have an Indemnification provision broad enough to cover any patent infringement
6. Have an Internal Dispute Resolution clause
7. How to Terminate and is the License Perpetual
8. Definitions
9. Is the Audit provision reasonable?
Obviously this is not an inclusive checklist, but I think it will get you started and act as a valuable aid in your negotiations.
Net Lawmans Software License Agreement
Our software license agreements are written in plain English with important explanatory notes. Our documents are easy to use and can be tailored to meet your requirement.
Net Lawmans expert team of Solicitors and Barristers has drafted all the documents which comply with relevant legislation as well. You will have peace of mind while using our documents.
