Last month this blog posted an article here outlining 5 Key Points when Purchasing Software. This article focuses on key points for the other side, the seller of the software, typically a developer or licensor. Although the seller/licensor typically provides its own form license, sometimes a purchaser will suggest using a different form or change the terms of the licensor’s agreement. Below are five important points to look out for, from the perspective of the licensor.

  1. Uses Permitted. A licensor should never simply grant a license “to use” software; instead, the license grant should provide additional limitations such as whether it is exclusive or non-exclusive, limited to particular servers/sites/internal use of the licensee, limited to a specific number of users and whether sublicensing is permitted. Being specific in the license grant helps avoid surprise “uses” by the licensee later on.
  2. License Restrictions. A corollary to the uses permitted in the license grant is the restrictions placed on the licensee’s use of the software. This clause should alert the licensee as to what he cannot do with or to the software, such as reverse engineer it, make additional copies, let third parties use it, or modify it to make derivative works. Other restrictions may apply.
  3. Protect Intellectual Property Rights. The licensor should be careful to reserve all IP rights not specifically licensed to the Licensor, so there is no question that it retains ownership of the software and all other IP rights. The agreement should specify that all IP rights to any changes to the software by the licensee are owned by the licensor and subject to the limitations in the license grant, and that the software is licensed, not sold.
  4. Representations & Warranties. The license should identify what representations and warranties the licensor is making with respect to the performance or use of the software, and expressly negate the existence of all others. Alternatively, if no warranties are being made, the agreement should state that is being licensed “as is” without any warranties. The Uniform Commercial Code can imply some warranties as to the software that need to be expressly disclaimed to avoid their application.
  5. Limitation of Liability. The limitation of liability clause often disclaims the licensor’s liability for certain types of damages, typically consequential or punitive damages, and places a cap on the liability of the licensor if the software fails to perform as represented. The licensor will want to bargain for a low cap amount, typically measured by the license fees paid at the time of the failure or over the life of the license.

This is by no means an exhaustive list. Software licensors and developers should retain experienced legal counsel to minimize the risk of losing control over the use of their software or worse, their ownership rights when licensing their software. Legal counsel should be consulted concerning the impact and risk of changes requested by software purchasers to their license agreements.