Software License Agreement Essentials

Essentials of a Software License Agreement

Essentials of a Software License Agreement

software license agreement is a legal agreement outlining the rights and responsibilities between the owner of software (the “licensor”) and a person or business wanting the right to access or use the software (the “licensee”).

Whether the software license agreement is hand-signed or signed electronically (including being “accepted” as a “click thru” agreement), it contains important terms and conditions relating to the permissions granted to the user. Moreover, when a software license agreement is signed on behalf of a business, the terms can be binding on all employees and owners of the business. See our post Software Reseller Agreement Essentials for a discussion of terms to include in those agreements.

Although each software license agreement will vary depending on a variety of criteria, here are some key terms that will need to be addressed:

Ownership: Software License Agreement versus Software Assignment

First, the software license agreement must state clearly that it is a license for the right to use the software, but it is not a transfer of ownership of the software, itself. If the ownership of the software is to be transferred from the current owner to someone else, a software assignment agreement would be more appropriate.

Exclusive or Non-Exclusive Software License 

 Most commercial software license agreements are non-exclusive, meaning that the licensor may grant others the right to use the software. In some situations, a software license agreement may be exclusive, which would prohibit the licensor from allowing anyone other than the licensee to use the software.

The terms of exclusivity are often limited by geography (“the United States”) or by industry or “field of use” (e.g., education, healthcare, etc.) Thus, the licensor would be permitted to grant licenses to people outside the scope of the exclusivity.

Revocable or Irrevocable Software License 

An irrevocable software license means that, once it is granted, the license is permanent. A revocable software license means that licensor may terminate the license in certain situations, such as failure to make future payments, end of a specific time period, etc.

Transferable or Non-transferable Software License 

A transferable software license means that the licensee has permission to transfer or delegate some or all of its rights under the license to others. By contrast, a non-transferable software license prohibits the licensee from transferring their license rights or sharing the software with others.

Software License Agreement Payment Terms

Payment for the license rights is typically addressed in the software license agreement, except where the license is a one-time payment that is made prior to the grant of access (for example, when you buy a CD of a software program or video game off the shelf from a retailer). For many years, most software was sold this way. However, the more common model these days is a subscription-based system whereby the software license is granted for a specific term, and continuing access is subject to future additional payments. This is especially true of Software as a Service (or “SaaS agreement”).

Software Updates and Maintenance

The software license agreement should address whether the licensor is obligated to provide maintenance or upgrades to the software and, whether an additional fee is required for any such maintenance or upgrades.

Software License Agreement Term and Termination

The term of a software license agreement describes the period of time in which the license is granted to the licensee. For permanent or irrevocable software license agreements, the term never expires absent some breach or other extraordinary event. For other types software license agreements, the terms can be specific (e.g., one year, 5 years, etc.), or indefinite but subject to periodic additional license payments.

Regardless of the length of the term, the software license agreement should address what happens when the term expires or is otherwise terminated. Obviously, once the license expires, the licensee will no longer have the right to use the software. However, in some instances, some post-termination matters must be addressed. For example, if the software program collects data and other material, the software license agreement should address what access (if any) the licensee will have to the data after the license is terminated.

Conclusion

Depending on the situation, the software license agreement may need to address other terms, such as: Service Level Agreement (“SLA”), software modifications by the licensee, software resellers, ownership of data, software escrow, etc.

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For more information regarding software agreements, please visit our Software and Copyrights service page.

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