Important clauses to be included in the Software agreement
Software as a tool is no longer a buzz! All businesses from startups to SMEs, multi-nationals, privately-owned ones are found trending towards the concept. We have reached a point where software has become an integral part of our day-to-day lives. Like it or not, businesses irrespective of their industry are bound to invest a great deal of effort, time, and money to come up with software that caters varying needs of the buyer.
Table of Content
- All about Software License Agreements
- Why is it so Important? Benefits of a Licensed Software
- What all it covers?
- Some more clauses to look forward to
4.2 Intellectual property rights
4.4 Penalty/ Breach of contract
5. Conclusion
Developing software as a tool can be insanely daunting. I mean right from knowing your needs to estimating a budget, choosing a reputable service provider, understanding the process, going through the implementation, and what not! But do you what’s the most basic yet important factor here? It’s the Software License Agreement.
Yes, seeking assistance from a reputable software development company will empower your respective business but one shouldn’t ignore the significance of a software license agreement.
The following post unveils why it is crucial to put down the software development-related details in black and white, i.e. in the form of a license agreement or an attorney-client relationship.
All about Software License Agreements
First comes first, what is a software license agreement? Buying software as a tool is an investment, I mean it’s not something you buy once and deal with it your entire life without a guarantee or warranty. In simple words, a software license agreement is an agreement between your company and your customers for use of the software you have the right to. Also, it emphasizes how customers can use it, all the details. Details like software’s price, source code, and licensing fees customers' ability to copy, modify, redistribute it are mentioned here.
Now Imagine you are using a washing machine for the first time. A washing machine is not a one-time buy, it’s an investment. I am sure you will consider going through the user manual, warranty cards again and again. Thus, making your journey with the machine easy going and smooth. Similarly, a software license agreement works wonders for businesses. It does emphasize the use of the software. The entire agreement of a licensed software comprises legal advice, governing law, intellectual property rights, basically all the details, techniques, source code, and know-how of software development.
For the most part, it is a misnomer though, this has to be answered by looking at the nature of a business. Any organization would do with a standard software license agreement where everything is mentioned. But for a technical one, software license agreements are supposed to be technically sound including coding language, and other information for it can go a long way in conceiving a well-negotiated, well-drafted agreement. It also minimizes the chances of future disputes.
Why is it so Important? Benefits of a Licensed Software
Well, normally the relationship between a manufacturer and a buyer stops once the product is delivered. But that’s not the case in the software development world. Here the relationship between the parties does not come to an immediate stop once the developer delivers the final version of the software. In fact, you are just halfway there! I mean imagine what if you face any initial glitches while implementing non-licensed software?
Therefore, you need constant monitoring and fast resolution to the issues. In some cases, the developer must take care of training and handholding the employees of the customer company to manage the software beyond the contract period(this clause might be included in the support services or the support and maintenance services), managing license fee, etc. In such cases, it has to be clearly defined as to how the parties shall fulfill the terms in the agreement without hurting the operations of the customer. Therefore, a legally sound, comprehensive software development agreement must foresee such a scenario while developing a source code and add provisions to effectively address them.
Further below I would like to mention some core reasons stating why you need a software license agreement. Many of you ask me whether it states how to use the software or not? Well, up to an extent.
#1 Avoid Software abuse — Yes, anything can be easily copied or replicated for one’s benefit in today’s digital era. Even worse, without a software license agreement, they might end up selling it in their name. In fact, some people copy and get it on all of their computers for the cost of one copy. Though it’s not fair for you as a business and as a developer, it is a lose-lose situation. But software license agreements can turn the table entirely.
#2 You can license but not sell — Using software and selling one are entirely two different things. Let me explain in detail when you allow users to purchase a license by paying a reasonable license fee, it means you still have all the rights. All the threads are in your hand and you are in the position of control. But once you sell it, you are in the place of compromise. Having a software license agreement is a kind of applicable law that enables you to keep control of the usage as well as the distribution in a seamless way.
#3 Disclaim warranties — Of course, you won’t be able to meet the expectations of every customer. Something will always be off for them no matter what you do. Now you must be thinking what has a software license agreement to do with this? Well, there is legal advice called a disclaimer of warranties. Here the user needs to accept it whether they like it or not. It says if the software servers go down then because of the license granted your users cannot use it for some time as it will prevent them from trying to blame you for their lost data. They will have to bear their own expense.
#4 Terminate the use — For a better perspective, it is always advisable to consult a law firm prior. Having a software license agreement also means you have a chance to state that you can revoke licenses at any point in time. It’s not just limited to revoking but it gives you the freedom to do it whenever required. You get to maintain complete control over the software at all times.
What all it covers?
Now comes the interesting part, what all is covered in a software license agreement? Now a standard software license agreement template would comprise of mainly four sections:
- General information — Here, you will find all information about when the agreement will get into effect. Plus, this is not how long the terms of the agreement will be active for, legal counsel, license fees, and the type of agreement. While this is very general information, it is important because it sets the tone for the entire agreement.
- Parties Involved — In a software license agreement template, this is a very crucial section. Do you know why? It defines both the parties to a great extent who are entering into the agreement. This also includes all the details of the person or company that is purchasing the license. All you require is the full name as well as the address and contact information that the customer owns.
- Terms of agreement — Another aspect of a software license agreement is the terms of the agreement. Right from what price is to be paid for the license to whether you will be including the code along with the license, some information about maintenance, support, or refunds that will or will not be offered by your company through the agreement.
- Fine Details — This section of a software license agreement includes details that are not covered by the other sections. These terms tend to be more specific to your situation instead of broadly expected terms. Also in this section will be the location for signatures and dates. Ask your software provider to add in the requirement to have it notarized if you wish to do so.
Some more clauses to look forward to
#1 Terms of Confidentiality
Here while creating a license agreement, businesses must seek whether all information is mentioned or not. I mean every small detail about the enterprise software, defining how to use the software, confidential information, and documentation, methods, operating system, processes, critical data, third-party claims, such services must be mentioned. Also, every piece of information holds some importance therefore, it must not be shared by any third party.
Technically speaking, the licensee shouldn’t use the service for any purpose not expressly permitted by this agreement. Disclosing of the services to any person other than the employees of the licensee whose access to service is necessary shall be avoided.
#2 Intellectual property rights
The Intellectual property clause offers an integral part of the intellectual property license. The Licensor should retain the ownership of the IP that is being granted through the license. This clause should also state that the Agreement cannot be construed as an Assignment or transfer of ownership of IP. An example of an IP clause is given below:
- All intellectual property rights on the licensed materials must exclusively vest with the licensor and nothing under this agreement shall be deemed to transfer any rights on the licensed materials from the licensor to the licensee or any third party.
- All rights must be held by the licensee, prior to this agreement or independently created during the subsistence of this agreement shall be the exclusive property of the licensee. Nothing under this agreement shall be deemed to transfer any rights in such Intellectual property from the licensee to the licensor.
#3 Limitation of Liability
Till now we have discussed the basics, let’s get through some core stuff. The limitation of liability. As per common definition, it says that Licensor shall not, in any manner be held liable to the licensee or any third party for special, punitive, incidental, or consequential damages including loss of data, business, or profits, arising out of or in connection with this agreement.
Now to enjoy these benefits, make sure to include such a clause in your software licensing agreement. In layman terms, such an agreement states that the software licenses will accept the product as is, will not be able to sue for damages, and make no warranty for the software and the usage.
#4 Penalty/ Breach of contract
This clause is extremely important in a license agreement. This clause states that in case, any terms are not being followed then it will ultimately result in a breach of contract where you can revoke the license as a result. You do not want a breach of contract to occur, but in the case that it does, you should have this in place so you can take back control of your software and better protect it.
#5 Terms of Termination
Last but not least, in case there is a situation of licensee’s breach or where you need to terminate the license agreement make sure somehow your software licensing agreement allows you to do it without much hassle. This clause mentions confidentiality obligations. I mean all the fine details regarding what actions must be taken as per the licensee. Both the parties include their terms like no one can destroy the software on-site or uninstall it from the device. Including this will exemplify the conditions of termination or revoke the software without repercussions at any given time and for any given reason.
Conclusion
Getting a software license done is the wisest decision ever taken! After software development is not just meant to be developed, it must be developed in such a way that it brings income as a result. And after thinking about all the time, money, and effort you have spent on it. I am sure you must look around for ways to protect it as well. And nothing works at its best than a software license grant featuring infringement claims, applicable laws, and such provisions.
So that’s all for now! Keep watching the space for a free consultation or to get a better perspective regarding the same.
