What To Consider In A Software Licence Agreement

Whether you are purchasing or providing software it is essential that you understand the key elements of software licence agreements. Here, our IT and Telecoms Specialists offer some useful guidelines.

What is the software?

The software licence should detail what the software is and in what form it will be delivered. For example, it is important to know whether the suppliers are providing ‘Source code’ or ‘Object code’ software. This (and the terms of the licence) will determine whether the licensee of the software can easily develop the software themselves (Source code) – which is usually only the case for bespoke software – or whether they will need the supplier to maintain and develop the software (object source) which is usually the case. Alternatively, the software may be hosted by the supplier in a SaaS (software as a service) environment.To avoid future disputes, the licence should set out exactly which version of the software is being provided together with the extent to which the licence covers future versions.

What is the software supposed to be able to do?

A specification in the licence detailing what the software actually does is essential for both parties. Make sure the specification in the contract accurately covers what you think the software does (and what you need it to be able to do). This should extend to cover what additional, ancillary services are included, and how much these will cost.

What does the software licence entail?

Term: make sure you agree a term and specify what the term is within the contract. The term can vary from being perpetual to a fixed term where the licence then expires once it has reached the end date.

Ability to transfer: if the parties agree that the licensee of the software contract is allowed to transfer or sublicense the licence, then the licensor needs to consider in what circumstances they are permitted to do so; for example if it can only be done with the licensor’s written consent. Alternatively, the licensor may decide that the licence can only be between the original licensor and licensee and so the licence itself would then be non-transferable.

Number of licences/users: this can be limited according to a number of people, number of processors (for server software) or a certain company within the group (if the licensee is a larger group company). It is essential that the licence restrictions are carefully considered for suitability.

Restrictions on use: if a licensor inserts a provision to prevent the software being copied for the purpose of backing up the information, it is unenforceable under the Copyright, Designs and Patents Act 1988. It is therefore a good idea for the licence to specify how many copies the licensee may take (for back up purposes) and that further copying of the software is not allowed. An option to permit copying for testing etc. is also something both parties may want to consider.

Most licences will not allow the licensee to amend the software. If this is a requirement than the licensee must ensure that it is explicitly permitted (or even insist on an assignment rather than a licence of software).

How much does the licence cost?

Software licences are typically set as a fixed fee, and any ancillary services later provided would be priced separately. Further fees, such as maintenance or consultancy fees, may also apply. It is essential to understand the extent of these additional fees and any scope for their increase.

Testing and Acceptance

To avoid disputes, the contract should set out specifics, such as the length of time given to carry out testing, how the tests will be carried out, who will be responsible for conducting these tests and what the criteria are for acceptance.

What happens when the licence ends?

For the licensee, it is prudent to ensure an effective plan is in place for when a software licence comes to an end. A licensee should therefore seek reassurance in the licence agreement that the provider will assist in the transition by providing all relevant information, data and other required materials.

If you have any questions or would like help with a software licence or other software agreement, please call Matt Worsnop, the head of BHW Solicitors‘ IT and Telecoms Department, on 0116 281 6235.