Software License Agreement

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Software License Agreement

A Brief Introduction About the Software License Agreement

What is a software license?

The definition of software license is the rights to use proprietary software given to the customer by the company. There should be complete clarity with regard to copying, modification, or redistribution of the software.

How to license software

The software can be licensed in many ways such as true-open source license, where you own the code but need to give the author credit for it. There are other licenses where the original product’s name cannot be mentioned.

There are licenses where the software can be used, modified, distributed, and run by anyone.

What is a software license agreement?

This is an agreement between the owner of the software and the customer, where the latter has the rights to use the software.

The different types of software license agreement are:

  • Public domain: The software can be used and modified by anyone
  • Permissive: The software can be modified or redistributed without many restrictions
  • LGPL: The end-user can modify the source code
  • Copyleft: The code can be modified, and new work distributed provided the same software license is used
  • Proprietary: The code cannot be modified or redistributed here

Who Takes the Software License Agreement – People Involved

A software license agreement is taken by the company creating the software and the customers using it. The customers have the right to the software, and the details about how the software can be used are provided to them.

You can create an agreement using a software licensing agreement template.

Purpose of the Software License Agreement – Why Do You Need It

The purpose of this agreement is to ensure that the time and money invested by the software developer to create a particular software does not go to waste. The software developer creates the software so that there will be a recurring income from it for a certain period of time.

The reasons for having this agreement are:

  • The software will not be misused if you have an agreement in place
  • The software is licensed, not sold. You can license the software to multiple users and make a bigger profit
  • Termination of use: You can terminate the license at any point of time, and the customer cannot take legal action against you as this clause was mentioned in the agreement.

Contents of the Software License Agreement – Inclusions

There are certain important clauses that must be part of a software licensing agreement to ensure that it is effective.

The following should be part of an agreement checklist:

  • The parties to the agreement, the software developer and the customer
  • Duration of the agreement
  • Type of agreement
  • Effective date of the agreement
  • License Fee to be paid by the customer.
  • Facilities provided: The agreement will contain whether the code will be provided with the license or not. 
  • Non-exclusivity clause: This clause states that the software can be licensed to more than one customer
  • Non-transferability: As per this clause, the license cannot be transferred to another business as you will lose your client
  • Rights: The rights of the software remain with you even after the agreement is signed
  • Breach of contract: A breach of contract will lead to revocation of the license

How to Draft the Software License Agreement

While drafting a software licensing agreement, the following points need to be kept in mind:

  • Names of the parties: The parties who are involved in the agreement and their relationship
  • The duration of the contract
  • Type of agreement: Will the type of software license be a public domain agreement where there are the least restrictions or a proprietary agreement where the restrictions are the highest
  • Fee for software
  • Governing law

The key terms of a software license agreement are:

  • Non-exclusivity: This term denotes that the software can be licensed to more than one party
  • Non-transferability: This clause ensures that the license is not transferred to another party
  • Modifications: The customer should not be allowed to modify the software in any way
  • Limitation of liability: The customer will have to accept the software in the condition it is given and cannot take you to court

Negotiation Strategy

Before entering into a software license agreement, it is important for both parties to agree to decide the terms and conditions. The developer will negotiate the best rates from the customer, and the customer will try to ensure that the best benefits are available at the most competitive price.

Benefits & Drawbacks of the Software License Agreement

 Benefits:

  • The interests of both the software developer and the customer will be protected.
  • As the software developer can license the software to more than one client, there is potential for higher profits
  • Control over software: The non-transferability clause ensures that there is no transfer of the license to a third party
  • Termination of contract: You can terminate the contract, and the customer will not be able to take you to court

Drawbacks:

  • Control by developer: Though the software developer licenses the software to the client, the rights remain with the developer. The client cannot modify the software in any way as that will amount to a violation
  • The limitation of liability clause prevents the customer from taking any step against the developer should there be any problems with the software.

What Happens in Case of Violation

A software license agreement is entered into by a developer and a customer to ensure that the customer does not misuse the right or make unfair gains from it.

Any software license agreement sample can be found online, and you can see the terms and conditions of the agreement.

If the client violates any clauses in the contract, then the license will be canceled. The fee paid by the client will not be refunded. The penalty will depend on the applicable laws of the state.

Before the client signs the agreement, he or she should read all the terms and conditions in the agreement and sign the contract only when he is clear about all the clauses. This will minimize the chances of a violation.

A software license agreement is beneficial for both the software developer and the customer. The developer gets a regular income stream for the duration of the contract, and the client gets the software rights.

[Also Read: Software License and Maintenance Agreement]

Sample for Software License Agreement

A sample of the agreement can be downloaded from below.

Download Software License Agreement Template

Software License Agreement

 

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