Software License Agreements

What to Look for in a Software License Agreement
Protect Ownership and Profits

How to Write a Software License Agreement

What Does a Software End-User License Agreement Indicate?
Potential violation of your software license agreement makes you wonder how to create a software license agreement that works for you. Negotiating, reviewing or updating your software license agreement may cause you to question whether you’re getting a fair deal. Below, you’ll find general information about software license agreements, including EULAs – end user software license agreements. To learn more about avoiding aggravation, claim your free lawyer consultation.
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EULA and Software License Agreement Essentials

Software license agreements and EULA (end user software license agreements) are contracts that protect owners of software from theft. Without good contractual protections, software users might freely take steps to strip you of profits by copying and distributing your software in ways you have not permitted. Below, you’ll find an brief overview of EULA and software license agreements and some of the issues that may be on your mind.

EULA – End User Software License Agreement

End user software license agreements (EULA) allow you to distribute your software to many users while maintaining software ownership protections. Software EULA are also known as “click through” end user license agreements. The EULA software user license grants users limited rights after they perform an action that confirms acceptance of the EULA. In New York, a EULA end user license agreement for software is a binding contract (Moore v. Microsoft Corp. 293 A.D.2d 587 (2nd Dep’t 2002)) so long as the user has an opportunity to review the EULA (Jesmer v. Retail Magic, Inc., 55 A.D.3d 171 (2nd Dep’t 2008)).

EULA software user agreements only gives access to compiled code. Source code is not made available under the EULA. Typically, a EULA end user license agreement prohibits the user from copying or distributing your software. Encryption may be used to further strengthen protections and make it more difficult to violate the EULA.

EULA software usage agreement protections cover software copyrights and other intellectual property protections including patents covering processes. If a user tries to copy or distribute the software, your EULA protects you. The user will be in breach of the software user license. Relying on the EULA, you will have a claim for breach of contract.

To distinguish software license agreement vs EULA, remember that a EULA click-through, or “shrinkwrap,” software use agreement solves the problem of allowing volume access to your software. The user is provided limited rights, for limited purposes, without access to your source code.

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Software License Agreement – What is Software Licensing?

Your software license agreement is a contract that protects your property rights and right to profits. The software license contract also give the software user specified rights that you will determine. Unlike the EULA discussed above, even a simple software license agreement may involve access to source code. You may need your software licence agreement to protect you while giving others the right to modify source code or incorporate it into another application. To cover you, your software licence would grant rights in copyright, possibly patent(s), and trade secret, while clarifying ownership, confidentiality and ultimate control. A standard software license agreement would include limiting the scope of use and prohibitions on copying and distribution. Your license agreement for software may go beyond the typical software license. The important thing is that you remain covered and reduce your risk of profit loss and total theft.

Before giving someone a license to use software, be sure your software contract is solid on these three things: (1) your license for software must be personal, meaning directly between you and the other party, so that there is no leakage of rights to other persons not bound by the agreement; (2) nontransferable so that the other party cannot sign over your license software agreement to someone else, especially without your permission; and (3) nonexclusive so that your licensing of software to one person doesn’t restrict your ability to profit by selling multiple software licences to others

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Software License Types

There are many different software license types. Below is a list of software license types that will help you figure out which software license to use.

  • Commercial software license agreement: license proprietary software in a commercial, usually for-profit context.
  • Computer software license: typically understood to refer to software license agreements covering personal computer software.
  • Software development license agreement: a combination of a software development agreement and a software license agreement, a software development license agreement covers the creation of software covered by an exclusive license in the created software.
  • Free software licenses: the Free Software Foundation defines a free software license as giving users freedom in using, studying, sharing and modifying the software. In this context, “free” is analogous to freedom of speech, not being free of cost.
  • Software license and maintenance agreement: a combination of a software license agreement and a software maintenance and support agreement, a software license maintenance agreement directly packages maintenance and support services into the license. Services could include software updates, replacement copies, telephone and/or internet support, and technical assistance.
  • Master software license agreement: when parties to a software licensing agreement will be entering into multiple licensing agreements, with the same underlying terms, on an ongoing basis, those parties may agree to a master software license agreement. All of the base terms are negotiated and documented under the master software license agreement. This leaves only deal-specific terms to be negotiated under future software license agreements.
  • Open source software license agreement: software license agreements that comply with the Open Source Initiative’s Open Source Definition are known as open source software license agreements. Under these licenses, users may freely use, modify, and share the software.
  • Proprietary software license: a proprietary software license agreement grants specified rights to the user, and holds-back specified rights that can only be exercised by the owner. Ownership of the underlying intellectual property rights remains with the owner.
  • Software license reseller agreement: also known as a software distribution agreement, a software license reseller agreement gives a third-party the right to sell software to end users subject to the terms and conditions of the owner’s software license agreement. The third-party distributor does not get any rights in the software.
  • SLA software license agreement: “SLA” is sometimes used as an abbreviation for software license agreement. In the software as a service (SaaS) context, SLA refers to a service level agreement that covers the services that the SaaS provider sells to end users.
  • Software license transfer agreement: if your software license agreement allows the transfer of the license to a third-party, you would use a software license transfer agreement to document that transfer. The key thing is to ensure that license scope and other benefits aren’t inadvertently broadened (or dropped off) during the transfer.

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Software License Terms and Conditions

Software license terms and conditions focus on key areas of protection. In general, your software license terms will cover the grant of license that limits use of the software and protects your intellectual property. You will want to forbid disassembly of the code to protect your trade secrets. The software terms of use are also like to prohibit transfers or, where transfers are permitted, insure that copies and/or transfers are subject to the restrictions in your software license agreement. You may also want to limit the use of the software to specified machines or users. Choice of law and place of dispute resolution can also be specified. To protect your profits, terms and conditions of the software license include limitations of liability, limitations on warranties, specified damages where appropriate, and payment protection.

Software license terms and conditions may also include one or more of the following specific provisions:

  • Addendum to software license agreement: an addendum adds something to your existing software license agreement. Your software license agreement may specifically include a procedure for requesting an addendum.
  • Amendment to software license agreement: an amendment changes your existing software license agreement. Your software license agreement may specifically include a procedure for requesting amendments.
  • Assignment of software license agreement: an assignment allows a party to sign-over rights and obligations under the software license. Your software license agreement is likely to strictly regulate assignment and limit potential loss of control over assets and profits. If assignment is permitted, the assignment creates a separate agreement.
  • Software license agreement audit clause: an audit clause allows the owner of the software to periodically verify that the user remains in compliance with the terms of the software license agreement. The audit clause may include substantial penalties for lack of compliance.
  • Breach of software license agreement: failure to stick to the agreed terms and conditions will result in breach of the software license agreement. Some breaches, such as technical breaches, may be fixed and the parties can go on as before. Other breaches may not be so easily resolved and may result in immediate claims for damages.
  • Software license agreement choice of law: you may prefer that your software license agreement be governed by the law of a particular jurisdiction (State). You can then specify that your software license contract be interpreted under that set of laws. You may also choose to resolve any disputes in a specified jurisdiction.
  • Software license agreement derivative work: your software licence agreement may specifically forbid derivative works. In the alternative, you could permit derivative works, but require that the derivative work be subject to your software license agreement.
  • Software license agreement indemnification: you may offer to protect your licensee from a third-party’s infringement of your copyright or patent intellectual property rights. This indemnification may only apply to infringement as a result of the licensed use of the software. Indemnification from harm due to trade secret violation or other proprietary rights may also be requested. Dollar amounts and other limitations can be used for downside protection.
  • Perpetual software license agreement: you may limit the life of your software license to a particular time period, including until the licensee discontinues use. A perpetual software license agreement theoretically grants the license until the end of time.
  • Software license agreement pro-licensee: a pro-licensee software license agreement is more favorable to the person receiving the license (licensee) as compared to the person granting the license (licensor).
  • Software license agreement representations and warranties: your software license agreement may totally exclude all warranties, offer the software “as-is,” or include a limited warranty. If warranties are offered, they may extend to suitability, security, privacy, data integrity, and even technical support. Any such warranties are typically limited to protect from losses due to unforeseen situations. Software license agreement representations may be best addressed through indemnifications (see above).
  • Software license agreement with source code: the software that is licensed may include the source code form of the software. Software in object code form may also be made available. However, you may restrict access to the source code or refuse to make it available. If source code is made available, you may specify the form of delivery including hard copy or electronic format. Delivery of software documentation may be another issue your software license agreement covers.
  • Software license agreement source code escrow: if source code is made available under your software license agreement, you may require that a third-party hold the source code in a separate, secured location (escrow) until specified events take place, including instructions to release.
  • Software license agreement with right to sublicense: you may agree to permit the party receiving the software license (licensee) to grant others licenses under the original software license agreement. These additional licenses usually allow a limited set of the original rights in a pre-approved form. Because the licenses come under the terms of the original software license agreement, any such license is a sublicense. Usually the licensee is an original equipment manufacturer, dealer or distributor.
  • Termination of software license agreement: your software license agreement will be in effect for a specified period of time. However, you may also include language that cancels the software license if certain events happen or one or the other party fails to stick to the agreement.
  • Transfer of software license agreement: a software license agreement may be transferable if certain conditions are met. In the alternative, you may specify that the agreement is non-transferable and limit the other party’s ability to sign-over the agreement to someone else.
  • Violation of software license agreement: failure to stick to the terms and conditions results in a violation of the software license agreement. This violation could result in various damages, including refunds, specified damage amounts, and costs (including attorneys fees) awarded if you’re forced to take action to remedy the violation.

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Software License Agreement Template Form

A software license agreement form can be a good way to begin getting a grasp of the issues that impact your particular situation. Because your software license agreement will govern your ability to maintain control of your software and prevent theft of profits, it makes sense to make a checklist. You can then compare your software license agreement template to your checklist and plug any gaps. This page may help you prepare your checklist and analyze your software license agreement template.

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Software Licensing Models

Software licensing models represent different ways that software owners profit from their intellectual property while avoiding loss. One way to group software licensing models is by the level of access allowed. The traditional vendor-client licensing model provides fixed access limited to one or more named users for a stated period of time. A classification software licensing model groups users into categories based on usage rights and restrictions. The pay-per-use software licensing model relies on a mixture of fully-paid license and temporary licenses available for variable use. Under pay-per-use, usage is logged and billing occurs at the agreed frequency. Usage could be calculated based on length of use or per transaction.

Another software licensing model is the remix model. This model is based on the long-term value of a relationship between the parties. The remix model could be as simple as the license purchaser being able to change the mix of purchased software on a period basis. Alternatively, each piece of software could be assigned a relative value in tokens. A software license manager could then be used to monitor checkouts and checkins of tokens. This model allows continuous change in the mix of software covered by the license.

In terms of access, the technology partnership licensing model provides the highest degree of access. The purchaser of the software license pays an annual fee for unlimited access under the software licensing agreement. Good structuring and monitoring help avoid cheating.

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Software Licensing Policy

A software licensing policy can be used to protect you from unauthorized use of software that does not comply with your organization’s stated practices. As a compliance measure, your software licensing policy informs stakeholders, including employees, of measures you’ve taken to avoid installation, uploading, downloading, or use of unlicensed software. Because proprietary software is, at the least, protected by federal copyright laws, even inadvertent use of unlicensed proprietary software could cost you. Your software licensing policy limits the damage and protects you.

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