Software licenses: considerations when making a deal.

• Author: Jackson, Ric
• Position: Legal Brief

Software is often your company's most valuable asset. Perhaps it is your company's only asset! In an effort to make a return on the investment made in such software, your company may want to license it out. On the other hand, your company may wish to license software developed by another party, to save the cost and hassle associated with internal development.

Software licenses present great benefits. However, burdensome disputes can result from failure to address common issues that may arise later on. Decision makers should consider the five issues below when entering into a software licensing deal. Careful license drafting may prevent later disputes.

Access and Use

The parties should make clear the extent to which the software can be accessed by the party being granted the license, the licensee. Parties may decide that access will be limited to a certain number of users, or a certain number of users at any given point in time. Access may be limited to a specified division, department or facility of the licensee. Parties may decide that access should only be on networks running on specific operating systems or hardware platforms.

Beyond defining who can access the licensed software, parties ought to define the purpose for which the licensed software is accessed. The party granting the license, the licensor, that neglects to include the purposes for which the software may be used is often surprised, for example, to learn that the software is being used to process information or perform tasks on behalf of the licensee's customers, rather than for the licensee's "internal use only"

Third Parties

The parties to a license agreement do well to clearly define the extent of third-party rights at play. The license should clearly state whether the licensee has the right to grant sublicenses to others and if so, any applicable conditions. For the avoidance of doubt, parties should specify whether the licensee's affiliated companies or independent contractors of the licensee also receive the benefit of the license.

A party to a license may be acquired during the term of the license. Does the license run to the benefit or burden of the acquiring company if the license agreement is silent on the issue? Even if there is a clear, legal answer to such a contingency--and oftentimes there is not--parties are wise to eliminate any doubt up front.

Improvements

Software development is often an ongoing process. Disputes can crop up when the parties to a license...