Checklist for your Software License Agreement
Once again I have been the beneficiary of an excellent lead due to my membership in LinkedIn and the group Software Licensing Professionals. Jennifer Junitz Keenan was kind enough to share a link to an article written by Steve Mullins in which he reported on a white paper by Budd Larner of the The Technology Executives Club. The article is entitled Top Ten License Negotiation Concerns, and oddly enough Mullins points out at the outset that the Budd Larner white paper actually contains twelve (12) points. This article is directly on point to one of the stated goals of this blog “… to discuss software licensing and … the legal nuances involved in the contract negotiation process …” I thought it an excellent idea to share the link with my readers and also to provide a brief synopsis on the salient points as follows:
1. Clearly define the Licensee: The article does not discuss in-depth the importance of this first point, but allow me to point out the need to consider Affiliates and Subsidiaries and providing use rights to such entities.
2. Use Rights for necessary third parties: Larner points out that “Scope of Use” is the most important part of any license. I suggest that you not rely on the licensor’s blanket representation that other necessary third parties may have access, but rather call out specifically those that are known to you such as lawyers, accountants, banks, and other financial investors without limiting your right to add others as they become apparent.
3. The use of Addenda to revise the base agreement: Here Larner presents both agreements on whether to use addenda or not. I have seen both methods either an almost complete re-write of the base license agreement or the addition of amendments, riders, schedules, and other forms of addenda. A good lawyer should be able to function in both worlds. Realize that the license will be revised. Discuss the revising process with the licensor upfront and proceed accordingly.
4. Include Representations and Warranties: Develop procedures to track your warranties.
5. Include Maintenance & Support Obligations: Often these result in a separate agreement. Whatever the form, make sure all obligations are clearly defined.
6. Have an Indemnification provision broad enough to cover any patent infringement: Also include language to cover any liability caused by use of the software.
7. Insert “Carve-Outs” to any Limitation of Liability clause: Except out breaches of confidentiality and indemnification.
8. Have an Internal Dispute Resolution clause: Such a clause clearly defines the process and procedure to notify the other party of a discrepancy and how it will be resolved. The procedure usually has stages and time limits for varying degrees of executives within each organization. I find this more apropos in MSA’s (i.e. consulting agreements and their accompanying SOW’s) rather than in a software license agreement.
9. How to Terminate and is the License Perpetual: How does this affect maintenance and note any language on renewals and the necessary notice provisions. Who carries that burden?
10. Definitions: Define ALL key terms. Not sure about the placement of this section. I am more comfortable with it being placed in the front, but I have seen it placed in a section in the back and/or a separate schedule. This is a matter of drafting preference.
11. Is the Audit provision reasonable: Make sure it is done in a non-disruptive manner and limit the times it may be conducted and sufficient notice must be provided the Licensee.
12. Number of Instances allowed and effects of partitioning and dual processing: This is the point that I call in the “techies” and they tell me exactly what they want and what they know to be fair and standard in the industry.
Obviously this is not an inclusive checklist, but I think it will get you started and act as a valuable aid in your negotiations.
