The Software License Agreement – An Introduction.
A checklist for software license agreements can help simplify the process of drafting and negotiating a software license agreement or preparing a software license agreement template. Drafting such an agreement or template involves planning for and potentially addressing a wide range of technical, economic and legal issues. Questions or comments?
There is no one form of software license agreement. A software license agreement can vary as much as the software it relates to, and software and software license models are constantly changing and evolving. Despite this fluidity, a software license agreement checklist can be a useful tool for both licensors and licensees and their internal stakeholders whether for negotiating a live deal or preparing a software license agreement template.
While no checklist can be an exhaustive list of the issues that a software license agreement will address, it can serve as a starting point for issue-spotting a software license agreement and software contract review generally or preparing a software license agreement template.
Ultimately, a software license agreement may be a product of significant negotiation between the licensor and the licensee. This is more likely to be the case where a licensee has more leverage or where the licensor has a strong economic interest in closing the licensing transaction.
In some cases, timing is a factor, and quarterly or year-end reporting deadlines may impact a licensor’s willingness to negotiate certain provisions. In other transactions, the type or intended use of the software will lend itself to a negotiated deal. This is more often the case where a licensee views the transaction as material in size, the software as “mission-critical” or where there are fewer feasible alternatives in the marketplace.
In other situations, the software license agreement is not or cannot be negotiated, in whole or in part. The following checklist is geared towards traditional business to business software licensing where the licensee will install and use the software on the licensee’s premises. If the software is in the cloud or another remote hosting environment, you may want to check out this article on SaaS contracts. If the software is being provisioned under a master services agreement that encompasses licensing through Statements of Work, check out the Master Services Agreement Guide and the Statement of Work guide.
License Scope in Software License Agreements.
Usage, Licensee and Parameters; Expansion
- Does the license grant cover all of the licensee’s anticipated usage?
- Who is the “licensee”? Should the licensee’s rights extend to affiliates, subsidiaries or other third parties? Often a definition of “control” is negotiated and used with respect to other entities.
- Consider testing and development server environments and usage, as well as back-ups for disaster recovery or emergency purposes. Do these count towards licensee’s use?
- What is “use”? This may be defined and tied into license parameters. Will all “use” be by individuals or could automatic processes (e.g., other software, integrations, bots, etc.) constitute “use”? Is “use” unlimited? Is not, is “use” limited to a number of users (or concurrent users) or tied to some other metrics, parameters or limitations?
- Where will the software be located? Designated licensee machines or locations? Third party hosting or cloud environments? On the machines of licensee’s outsourcer?
- What third parties will licensee need to access and use the software? If software use by consultants, outsourcers or other third parties is anticipated, these should be addressed. Some licensors may request a third party access agreement and other provisions making licensee responsible for third party use and misuse.
- How is documentation addressed and what is included in the definition? Does licensee have the right to make copies of documentation?
- Beyond installation and configuration (if not provided by licensor), what else will licensee need to do with the software? Make modifications?
- Are there territorial restrictions on software usage?
- What is the process for the expansion of licensee’s rights? For example, can the licensee add more users, machines, etc. upon notice and payment of licensor’s then current-fees? If a licensee is anticipating expansion, consider a price protection provision for a period of time or with respect to a particular expansion item.
- Is the license perpetual or for a fixed period? With the increasing popularity of the SaaS model, more on-premises software is now being licensed for specified terms rather than on a perpetual model. This trend is likely to increase. In this model, some licensors combine the license and support and maintenance fees into one aggregate payment paid on a periodic basis. In a term-based license, the term (and associated payment obligations) typically auto-renew for similar periods unless terminated by a party with sufficient prior notice.
- How is “software” defined? Does it include everything licensee is ordering or that licensor is delivering?
- Are there are any items excluded from the definition of software that is owned by the licensor but provided separately?
- Is licensee expecting delivery of software in any format other than object code?
- Will any source code be provided for any part of the software? If not, will licensee need any source code access for certain parts of the software (e.g., adapters, integration tools, etc.) so that it can integrate the software into its IT environment or with other software and hardware?
- Is there any third party software provided? If so, is it included within the definition of software and licensed by the licensor? If not, any third party terms and conditions should be reviewed. These may be referenced as URLs or attached to an exhibit to a software license agreement template.
- How is the software being delivered? Are there any other terms other than the software license agreement (e.g., a “click-wrap” agreement, order forms, linked documents)? The licensee should review all of the terms.
Certain Restrictions in a Software License Agreement
- The licensee is typically restricted to using the software for internal business purposes, and not for the benefit of a third party or on a leased, rental or service bureau basis.
- The licensee is also customarily subject to restrictions on copying other than what is expressly permitted, and from reverse-engineering, decompiling or disassembling the software. Modifications are typically limited to specific rights expressly set forth in the documentation (if any). Some restrictions may be impacted (and limited) by applicable law.
- The licensee is typically prohibited from transferring, sub-licensing, or providing third parties with access to the software. Consider whether exceptions should be made (e.g., licensee rights to move software between affiliates, into a new territory, etc.) and how certain organic changes may impact license usage (e.g., mergers, the sale of a business, divestitures, etc.).
Confidentiality and Data Issues in Software License Agreements.
- Both the licensor and the licensee have interests in protecting their own confidential information including their trade secrets. Each may also hold third-party confidential information which they are obligated to keep confidential.
- A software license agreement typically has broad-form confidentiality provisions that also provide that certain items fall into the bucket of one or the other party (e.g., the software for a licensor, certain data for a licensee, etc.).
- A licensee needs to know what access (if any) the licensor will have into its software environments in connection with the provision of services (e.g., warranty, support and maintenance, customizations, etc.). Licensee will want to anticipate and provide logistical as well as legal avenues of protection (e.g., limiting access to development or test environments that do not have live data or sensitive information), requiring usage of specific licensor tools or access mechanisms to enter the licensee’s IT environment, etc.
- Data protection and security provisions are often negotiated and driven by regulatory frameworks which vary by jurisdiction. Some licensors have a separate software license agreement template for each industry they target.
- Licensors often want rights to use the licensee’s name in customer lists, on their website, and in marketing materials. Sometimes licensor wants licensee to participate in a reference program. Some licensees look for strict confidentiality and do not want the licensor to even disclose that the licensor is providing software or services to the licensee.
- Determine whether there is a pre-existing non-disclosure agreement between the parties that should be addressed.
Audit Rights in Software License Agreements.
- Software license agreements often provide for the licensor’s ability to audit a licensee and its compliance with the software license agreement.
- The licensee should consider practical implications and issues, such as access to its systems and data which may affect other compliance obligations licensee has under applicable law.
- Licensees who accept audit provisions in concept typically seek to narrow them by requiring advance notice, limiting who can conduct the audit, the number of audits per a period of time (assuming no issues identified in prior audits), and requiring that any audits be conducted during regular business hours and in a manner so as to limit (to the maximum extent practicable) the impact on the licensee’s business. Licensees often request that audits be subject to licensee’s security policies and may request an independent third party auditor.
- Cost of the audit typically borne by the licensor, unless audit reveals a discrepancy in payment of more than a certain threshold (e.g., 5% of amounts due over a specified period).
- Consider whether licensee audits of licensor are appropriate or required by applicable law.
Warranties and Remedies; Acceptance Testing in Software License Contracts.
Performance & Conformance Warranties
- Some licensors license software without any warranty and on an “AS IS” and “WITH ALL FAULTS” basis. This is common with licensors that permit licensees to have a free trial or demo of the software prior to purchasing a license. A licensee typically is also purchasing maintenance and support, but these do not offer the same remedies as breaching a warranty of performance or conformance.
- As noted below, in maintenance and support, a licensee may get a service credit or other limited rights as their remedy. Licensees typically seek warranties to give them rights to terminate the license agreement if the warranty is breached. These types of warranties are typically qualified in that the software will perform or conform “substantially” or “in all material respects” to the software’s documentation.
- Performance and conformance warranties are limited in duration, sometimes to as little as 30 days from installation. These warranties will typically be tied to an exclusive remedy in the event the licensee seeks recourse for a breach of warranty. This remedy often requires the licensee to provide prompt notice of the breach and cooperate with the licensor’s efforts to cure.
- The exclusive remedy often provides that if the licensor is unable to cure the breach, the licensee will be entitled to a refund. The licensee usually seeks a full refund and the licensor will seek to provide reductions based on the affected portion of the Software and other factors. In any event, to obtain the refund, the licensee must also give up the right to use the software and it is usually deemed a termination event under the license. Some licensees do not agree to exclusive remedies with respect to warranties and expect to have their full range of remedies under the software license agreement.
- Performance and conformance warranty remedies are also typically limited by exceptions through which a licensor’s obligations are limited if the breach is caused by licensee misuse, use not in accordance with documentation, issues caused by third-party software or hardware, etc. Licenses often contain affirmative statements that software is not “bug” or “error-free” and that the licensor is not promising that any non-conformities can be corrected (or corrected within any given period of time).
Other Software Warranties; Disclaimer of Other Warranties in a Software License Agreement
- Infringement & IP. Licensees often seek a variety of infringement-related warranties relating to the software. With exceptions, licensors usually resist infringement and intellectual property warranty requests and instead agree to provide an intellectual property indemnification provision to the licensee.
- Virus & Disabling Features. Licensees often seek warranties that software is free from viruses and disabling features. These may be provided by licensors if requested, but the language is typically limited.
- Other. There are a variety of other warranties that licensees may seek from licensors including as to specific performance capabilities, systems integration, compatibility, etc. These are often negotiated on a case by case basis and subject to limitations on remedies.
- Disclaimer of Warranties. Other than the specified warranties, a licensor will disclaim all other warranties, express or implied, in a broad-form disclaimer of warranties provision.
- Variations in Templates. If you don’t see what you are looking for in the form of software license agreement provided, oftentimes the licensor maintains alternative language in its software license agreement template. This allows a licensor to nimbly add requested language into their current form to speed negotiations and deal closure.
Acceptance Testing in Software License Agreements
In some software licensing agreements, licensees will negotiate acceptance testing provisions with specific remedies if the software fails to conform or perform according to designated criteria. Licensors resist acceptance testing and typically take the position that their performance or conformance warranty is all that is needed.
However, for some transactions, acceptance testing may be appropriate such as where significant customizations are being made (see below) to enable the licensee to use the software or integrate it into its overall IT environment. Where acceptance testing is used, the performance and conformance warranties and support and maintenance fees are more likely to kick in upon acceptance rather than when the software licensing agreement is executed.
IP Indemnification and Related Remedies in Software Licensing.
The indemnification most requested by licensees is an intellectual property indemnification provision. Licensees typically look for broad-form indemnification, defense and hold harmless provisions relating to any third party claims made against the licensee’s use of the software.
If a licensor is willing to indemnify for third-party intellectual property infringement claims, a licensor will typically offer a narrower indemnity and agree to take certain actions if an injunction is sought or obtained against a licensee’s use of the software.
Most licensors will want the indemnity and the additional actions to serve as the licensee’s exclusive remedy for intellectual property infringement and claims.Some licensees do not agree to exclusive remedies with respect to infringement issues and expect to have their full range of remedies under the software license agreement. Some things to look for when evaluating these provisions:
- Does the provision cover worldwide intellectual property or is it limited in coverage (e.g., only U.S. patents, etc.)? Intellectual property is a broad term and some intellectual property is territorial and governed country by country or jurisdiction by jurisdiction.
- Is the licensee bound by the decisions of the licensor? Can the licensor settle a matter without licensee consent? Can the licensee participate in the defense at its own expense?
- Typically a licensor will agree to pursue one or more alternatives to enable the licensee to continue its use of the software – either procuring the right for it to do so or replacing or modifying the affected software with functionally equivalent software that does not infringe.
- If the licensor is not able to do either of those or deems them commercially impracticable, many licensors reserve the right to terminate the licenses and provide a refund of license fees. What kind of refund the licensee gets is often negotiated, with licensors wanting to limit the refund to only affected software and having a deduction for usage over a specified time period.
- Licensors will want their indemnity and remedy obligations to be limited in certain circumstances. For example, a licensor typically carves-out infringement claims that arise because the licensee is not using the current version of the software, or uses the software in combination with other third-party tools.
- These exceptions are often negotiated as part of the IP indemnity and remedies package, and typically no indemnity is provided with respect to any materials other than those that formally constitute software licensed under the software license agreement – and not third-party software. Thus, unless an indemnity is separately provided by the applicable third party, a licensee would have to fend for itself with respect to third-party IP infringement claims arising from third-party software.
Consider whether the licensor should provide the licensee with indemnification relating to the intellectual property and materials that the licensor provides. Note that licensees often request additional indemnities from licensors including a personal injury and property damage indemnity, especially where licensor personnel will perform services at the licensee’s location.
Limitation of Liability & Carve-Outs in Software Licenses.
- The software license agreement typically provides for a limitation on the licensor’s liability. This limitation usually comes in multiple parts. One part limits the type of damages recoverable from the licensor, such as consequential, incidental, indirect or punitive damages. Another part will limit the licensor’s aggregate liability, often to a fixed dollar figure, the amount the licensor has received from the licensee in a certain period of time or another formula.
- A licensee often requests that any dollar limitation be no less than the amounts paid or payable by the licensee under the software license agreement. In some cases, licensees seek greater amounts including multipliers of amounts paid, often using the argument that the cost to obtain substitute software may be greater than what is provided for in the software license agreement.
- In addition, a licensee often seeks to carve-out certain contractual obligations from the limitation provisions. These carve-outs often include the licensor’s indemnification and confidentiality obligations. Some licensees seek exclusion of a licensor’s gross negligence or willful misconduct.
- A licensee sometimes seeks a mutual limitation of liability provision and, if agreed to by the licensor, both parties will need to evaluate what provisions should be carved-out from the limitation and its individual parts.
- A licensee should also review other provisions of the software license agreement as they may impact the licensee’s remedies or the licensor’s obligations in certain circumstances. For example, some software license agreements may contain broad force majeure provisions that can be tightened to make sure licensor is not able to avoid performance unreasonably. Again, many licensors contain alternative provisions in their software license agreement template, and will be able to roll out suggested language if they feel it is appropriate for a particular transaction or licensee.
Assignment and Transfers.
- Licensors typically want to restrict any assignments of the software license agreement or any transfer of any rights the agreement provides. Licensors want to know who they are licensing to, where they are and what they are doing with the licensed software. Permitting a licensee to assign the software license agreement or transfer license rights contractually would not give the licensor the right to evaluate a new or additional licensee for creditworthiness or other purposes.
- As noted above, licensees can gain flexibility by ensuring that “licensee” is defined more broadly or that license rights with respect to the software extend to third parties outside of the licensed entity. Some licensees will also negotiate for expansion rights or the ability to assign the software license agreement in connection with specific organic changes, but some licensors will reject these overtures or say that they are non-starters in negotiations.
- Nevertheless, a licensee may anticipate selling off the division that uses the licensed software and negotiating for assignment and transfer in advance can help avoid complications down the road. A licensor’s software license agreement template may have a default prohibition on assignments or transfers, but alternate provisions to deal with these scenarios.
Support and Maintenance Services and Software License Transactions.
- Licensors often offer one or more support and maintenance packages that they sell together with the licensed software. These packages vary significantly with some offering only bare-bones services and others having multiple tiers including 24/7/365 worldwide support.
- The cost of these packages often is tied to a percentage of the initial licensing fee, and the packages typically entitle the licensee to receive updates and upgrades to the software along with specified support services. Especially with enterprise software, discounting is prevalent and licensees often seek provisions to maintain their discounts for future purchases if only for a period of time and limit further increases by a specified metric.
- Depending on their needs and the type of software involved, some licensees decide to forego support (or discontinue support early) if a product release cycle would make it more economically feasible for the licensee to just license the new product every three or four years rather than licensing a product, paying maintenance and support for three or four years and still having to pay for the new product when it is released.
- These decisions are often made by a licensee’s internal technology team who look at an organization’s internal capabilities and present and future software requirements holistically. In some cases, by negotiating some of the definitions involved, a licensee may be able to obtain rights to successor products without the payment of an additional fee.
- Licensees should review support and maintenance services definitions and provisions carefully, especially if the software is mission-critical. While most licensors will not commit that any specific error will ultimately be fixed, many will commit to a level of effort and to specific response and resolution times once proper notice is received from a licensee.
- These response and resolution times are often tied to severity levels, with the licensor’s responsibilities decreasing with lower severity levels. In some cases, licensee’s remedies under support and maintenance provisions are limited to obtaining limited monetary credit against future services. In these cases, a licensee may also want review applicable termination provisions to determine if changes are needed to give the licensee an exit right if there are repeated issues that the licensor fails to resolve.
- Licensees often negotiate caps on increases to the cost of support and maintenance services, and licensors may commit to these if the licensee commits to ordering the support services for a specified period or if they otherwise want to close the deal.
- As part of its diligence on the software and the software provider, a licensee should make sure that it examines the software roadmap and whether the software (or related support) may sunset after a period of time.
- Some licensees will request the right to renew support for a minimum period of time, or negotiate for rights to continue support in the event licensed software is discontinued by the licensor, often at increased costs. Some licensors may also agree to caps as concessions when a licensee is ordering additional software licenses for its organization.
- Licensees should consider the impact of “catch-up” provisions if they decide to discontinue support and maintenance services. These provisions require a licensee who has previously discontinued support to pay all support and maintenance fees that would have been payable during the period when support and maintenance were discontinued plus a reinstatement fee.
- Licensees should also consider what specific needs it has or may have in the future that it expects support and maintenance to provide. For example, a licensee may have a specific operating system and database environment that it uses with multiple pieces of interrelated hardware and software. Continued support of specific software and hardware may be something the licensee wants to request to decrease the likelihood of future issues.
- When should support and maintenance fees commence? Even if a warranty is provided, most licensors will insist that support and maintenance fees commence on the date of signing as the licensee is getting a broad suite of services (e.g., help desk, knowledge base access, etc.) as part of support and maintenance. What if there are significant customizations (see below)? If the licensed software is not yet in use due to customizations in progress, a licensee may be able to negotiate a delay in the commencement of support and maintenance fees until “go-live” is achieved.
- What level of support is provided and are there other options? In many cases, licensors have different levels of support and separate software license agreement template for each. If you do not see terms that match what you feel should be provided, ask if there is another tier or support level available at a different price level, or a different software license agreement template to use as a starting point for the level of service required.
Term and Termination in Software License Agreements.
- Many software license agreements provide for a specified term during which orders may be placed by the licensee, subject to agreement on the specific order. This avoids having to have separate agreements every time the licensee wants to order additional licenses. A licensee should review the “term” of the software license agreement, the software licenses themselves and the support and maintenance obligations as they may differ and may need adjustment in negotiated transactions.
- Termination provisions address other issues that arise in commercial transactions generally. Termination for breach and convenience may be addressed depending on the particular circumstances, and a licensee may seek affirmative language regarding its rights in the event of licensor’s bankruptcy.
- A licensee should examine the termination provision to determine the impact of the termination of the software license agreement on its licenses. When the software license agreement is terminated by the licensor for breach, these license rights typically terminate, but they should not terminate if the licensee terminates the software license agreement for breach.
- Licensees should consider what needs they might have in the event the software license agreement is terminated. A licensee may need certain transition assistance with respect to the software or its data, especially if it moves to a new system that requires inputs in specific formats. In any event, a licensee should include the software and any data as part of its disaster recovery and business continuity plans, if applicable.
- Licensees should also determine what, if any, refunds it is entitled to if the software license agreement terminates.
- For mission-critical software, licensees often seek to significantly narrow any right of the licensor to terminate the licenses granted.
- Generally, a licensee will want to prohibit the licensor from suspending the provision of any services (or the software, if possible) unless the licensor has terminated the software license agreement according to its terms.
Other Issues to Consider in a Software License Agreement or Template.
- Due Diligence-General. At the outset, the parties need to determine what due diligence they need to perform on one another and, in the case of the licensee, on the software itself and present and future cost projections based on anticipated usage.
- Due Diligence-Cost. With respect to cost, a licensor’s terms and conditions and defined terms may not readily inform a reader of what can be expected in the future. Often initial work on tying down defined terms, variables and the licensee’s potential future needs can help flesh out cost issues that may hit the licensee down the road.
- Due Diligence-Performance. As to performance, if a trial or demo is not available for the software, a licensee may want to check with similarly situated customers and request references from the licensor.
- Due Diligence-Know Your Counterparty. Both the licensor and the licensee should also consider the creditworthiness of the other party. In many cases, this can be self-evident or obtained through public information. In others, it is not clear whether a party has the assets or financial strength to support its contractual obligations such as intellectual property indemnification obligations. Many licensors and licensees are part of groups of companies, and a guaranty or other mechanism to provide security for payment and performance may be appropriate.
- Source Code Escrow and Escrow Agreements. A licensee may seek to have the licensed software escrowed with a third party escrow provider as part of its security. This is more important with smaller providers or providers with a limited customer base. If an escrow release is triggered, the licensee would get access to the source code and other materials held in escrow for the purpose of supporting its licensed use of the software. Many larger licensees have escrow agreements in place with well-known providers and are amenable to adding the licensee as a beneficiary to the agreement provided licensee pays an administrative or other fee to do so. Licensees who want the protections afforded by software escrow should review the underlying agreements. In many cases, software escrow agreements provide narrow triggers for the release of the source code and related materials. In others, it is not clear what is to be escrowed and how the escrow is to be updated. A licensee should also consider, however, what it will do if there is a release event under the software escrow agreement. Many licensees do not have the technical expertise to take an escrow release and use it, nor do they have the desire to negotiate source code escrow agreements unless the software is mission-critical in nature due to the time and expense involved.
- Installation, Implementation and Training. Where appropriate, the software license agreement should contain provisions relating to any installation, implementation or training services that the licensor may provide. Licensees may want the right to record and duplicate training sessions and materials for later use with other groups of users.
- Customizations. Nearly all licensed software requires basic configuration, which is often addressed in the documentation. Some customers, however, require customization of the licensed software itself to fit the licensee’s specific needs or to enable the licensed software to function with the licensee’s systems. These services should be carefully evaluated by a licensee as a licensor will typically provide them on a time and materials basis. Often, a licensee has an IT department with expertise in evaluating scope and time estimates and can adequately evaluate any estimates that a licensor may provide. Even so, and especially in larger transactions or those involving significant customization, a licensee will want to negotiate monetary caps as well as exit and refund rights if the customer is not able to “go-live” within a specified period of time. These are especially important where blueprinting or a thorough requirements analysis has not been conducted in advance. Licensors and licensees may also negotiate ownership or exclusivity provisions with respect to specific customizations. For example, the parties might agree that while the licensor will own all of the customizations, they will not license them into a particular sector for a period of time.
- Entire Agreement; Changes to the Terms. A licensee should make sure it is reviewing the software license agreement in its entirety and not bits and pieces with schedules and exhibits omitted. If there are linked items (often policies, etc.), the current version should be incorporated into the final software license agreement and provisions included that protect licensee or provide it with specific remedies in the event material changes are made that could adversely impact licensee. The final agreement should include the entire agreement. A licensee should examine whether the licensor has the right to unilaterally change certain terms and conditions of the agreement itself and negotiate these changes out of the agreement or limit them to specified areas that can be subject to licensee’s approval. A software license agreement template should have a placeholder for any prior or pre-existing agreements that a company may have entered into with a potential licensee prior to the transaction (e.g., earlier transactions, confidentiality agreements, etc.
- Insurance; Taxes. A licensee should consider what insurance the licensor should be required to maintain during the term of the relationship. In some cases, insurance may be a crucial funding source for certain third-party claims. Separately, a licensee should discuss all software license agreements with its tax advisor. The taxation of software is complex and varies by jurisdiction. In some transactions, only components of what a licensee is paying are taxable and in other deals, a transaction may not be taxable at all depending on the jurisdiction and the particular facts and circumstances involved.
- Down-Sizing Software Usage. Whether due to organic changes or a strategic transaction, a licensee may want to down-size its usage of licensed software or related services. Software license agreements often do not contemplate down-sizing and, if they do, do not provide the licensee with any economic benefit for doing so. If the licensee anticipates down-sizing its needs, it should negotiate for the appropriate refund or surrender rights. It may be easier, however, to right-size the initial software license order and provide for price protection for expansion. Sometimes both concepts are desired by a licensee, and both are dismissed by licensors unless a deal is of significant value.
- Negotiation Strategies. There are various negotiation strategies employed when negotiating software license agreements. Some work better with different types of licensors. In other cases, timing or leverage are key factors. Depending on the deal size, some licensors will not come to the table to negotiate. Sometimes “we do not make any changes to our form” changes to “how can we help you license our software if you sign today?”, the latter usually being the end of a quarter or reporting year. Whatever the case, when negotiations do commence, licensees should determine their objectives and what they can and cannot live without in the deal. Regardless of deal size or industry sector, negotiation often focuses heavily on warranties, remedies, indemnities and limitations on liability (and related carve-outs and exclusions).
- Industry-Specific Considerations. When licensing software, a licensee has to consider the regulatory environment in which it operates and whether the software and services it will receive from a vendor will enable it to stay in compliance. For software targeting specific regulated industries, this is often the key focus of the software and the licensor’s business. For other software, such as general business applications, a licensee must evaluate whether the software and the vendor are compatible with the licensee’s obligations. In some cases, regulatory issues are addressed through additional provisions in the software license agreement or a separate agreement that deals with specific issues (e.g., HIPAA issues for licensees in the healthcare industry, etc.). Many licensors may have a separate software license agreement template for different regulated industries.
- General Contractual Considerations. Software license agreements are contracts. As such, a licensee should consider all of its provisions as part of its review. These often include attorneys’ fees and interest provisions, governing law and jurisdiction terms and other provisions that might not even be applicable to licensee but were left in the licensor’s draft from a prior transaction. In addition, a licensee should also review any restrictive covenants carefully. A software licensing agreement often contains provisions prohibiting a licensee from soliciting or hiring licensor personnel. Many of these terms may be embedded in a licensor’s software license agreement template, but sometimes they are negotiable depending on deal size and licensor’s desire to a close a deal quickly. The licensor’s software license agreement template may have a variety of permitted variations of what appear to be standard terms and sometimes all a licensee needs to do is ask for a particular change.
Comment on this Software License Agreement Checklist
Do you have any comments on the information presented? Have you thought of other items that should be addressed in this software license agreement checklist or in a software license agreement template? Let me know and I’d be happy to consider addressing your thoughts in an updated version.
Copyright 2018, 2020 Geoffrey G. Gussis, Esq.. All Rights Reserved.
Shared by Geoffrey G. Gussis, Esq., a business attorney and technology attorney licensed in New Jersey and New York. Learn more about me, the legal services I provide, and articles I have written. Contact: firstname.lastname@example.org or (732) 898-0549 for a free consultation.
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