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Software Licensing Agreements- The Points Not To Miss

With the expanding market of software industries all over the world, the software licensing agreements become very important to save us from unnecessary judicial hassles.

We are going to discuss the key points which have to be incorporated while drafting or reviewing a software licensing agreement (hereinafter referred as the SLA).

First of all we need to understand the need of the party we are representing and all the clauses will be designed based on that. The model agreement protecting the rights of both the parties shall have the following points:

1. The license which is granted cannot be transferred to a third party. It is only for the use of the licensee. SLA has to specifically mention if the license can be sub-licensed by the licensee.
2. The restrictions on distribution of the software have to be explicitly mentioned in the agreement. If there are any limitations put by the licensor over the usage of the software the same must be mentioned in the SLA.
3. The process of installation of the license and the duties towards the use and royalty over it should be clearly mentioned. The licensor can fix a percentage of royalty over the profit made by the licensee using the software.
4. We must mention that all the intellectual property rights will remain with the licensor at all times. The license will be for a specific time period and not perpetual.
5. A clause regarding confidentiality is important in the SLA which will set the policy about who can access the software and put restriction on the usage which is out of the scope of this SLA. The clause will also mention the duty of the licensee to keep the details of the software confidential. In case of breach the insufficiency of monetary damages provided to the licensor has to be mentioned and the remedy for the licensor of seeking injunction from court has to be mentioned.
6. Licensee’s duty to assist the licensor in solving the issue in the event of unauthorized disclosure of the software is important.
7. Warranty can be given for the product being as per specifications in the proposal given by the licensor.
8. What are the remedies for the licensee in case of errors in software have to be specified. In case of error the licensor can give partial refund or make reasonable efforts to repair the software.
9. Indemnity can be provided by the licensor on intellectual property rights infringement suits brought by a third party. Here we must see that the infringement has been regarding the original version and not altered or modified version of the software. In case of modification licensor is not bound to indemnify.
10. Duties of both the parties have to be mentioned in the SLA where an injunction has been taken by a third party for IPR infringement.
11. The applicability and the extent of limitation of liability must be elaborated where the consequential and indirect damages have to be expressly excluded.
12. The duties of the licensee in the event of termination have to be mentioned to protect the licensor from any breach of confidentiality.
13. It is also necessary to mention that which clauses in the SLA will survive the termination or in other words the termination of SLA does not relieve certain obligations of any party to this SLA relating to IPR and confidentiality.

Above are some of the points which are helpful and has to be kept in mind while drafting an SLA. The drafting of any agreement largely depends on the circumstances in each case and the position of the parties. One has to draft and negotiate the terms and conditions of the agreement according to the specific needs of that particular transaction. The business perspective shall however be given the primary importance and depending on the suitability to business requirements both parties can agree upon a mutual agreement.