May 29, 2011

Drafting And Negotiating Software License Agreements: Checklist

This image is taken from Here
I.          Rights Granted under the License[1]
A.        Exclusive vs. non-exclusive - primarily an issue for custom-made software
B.        Revocable vs. irrevocable - more a breach issue
C.        Right to use the user manual and related documentation

                              Exclusive Software Licence
II.        Term of License
A.        Perpetual or defined time period?
B.        Renewal rights and terms

III.       Scope of License[2]
A.        Licensee internal operations only?
B.        Number of users - named users/concurrent users and variations
C.        Number of sites/number of computers ("boxes")
D.        Copying rights/backup - copyright rights
E.         Use by subsidiaries and affiliates
F.         Right to modify and combine with other products/who owns modifications?/Copyright issues
G.        Prohibited uses

IV.       Transferability and Sublicensing Restrictions
A.        Typically, license may not be assigned, transferred, sublicensed, or pledged
B.        Typically, licensee may not use the software for third party training, commercial time sharing, rental, or service bureau use
C.        Restrictions on use at a particular location?

V.        Right to Source Code
A.        Does licensee need to obtain or have access to source code? How practical even if obtained?
B.        Stability of licensor
C.        Source code escrow and alternatives
D.        Limitations on when source code could be accessed or used
E.         Updating the source code available to the licensee

VI.       Ownership of the Software
A.        Express statement that licensor owns and retains all title, copyright, and other proprietary rights in the software and documentation
B.        Trade secret acknowledgement
C.        Limiting access of employees, consultants, or third party
D.        Representation of licensor as to ownership of the software
E.         Ownership issues with respect to licensee modifications
F.         Ownership of user-created copies

VII.     Payment Provisions[3]
A.        Schedule of payments
B.        Discounts
C.        Payments linked to licensee accepting test of the software
D.        Late fees
E.         Shipping charges
F.         Sales, use, property, value added or other taxes to be paid by licensee, other than tax based on licensor income

VIII.    Acceptance Procedures
A.        Right to test for some designated period of time
B.        Right to reject software and results of rejection

IX.       Training
A.        Scope of training to be provided by licensor
B.        Cost
C.        Location of training sessions
D.        Number of trainees
E.         Training of new employees after initial training

X.        Warranties[4]
A.        Licensor will want to give very limited warranties, e.g., the software media is free from physical defects in material and workmanship for a 90 day period
B.        Licensee may demand a warranty that at least the software performs the functions described in the related documentation
C.        Length of warranty
D.        Procedure for notifying licensor of defects
E.                 Procedure and response time for licensor correction of problems
F.                  Modification of software terminates warranty?
G.        Explicit disclaimers by licensor as to:
1.         Merchantability
2.         Fitness for particular purpose
3.         Error-free operation
4.                  Any other warranties, express or implied, except as explicitly set forth in agreement

XI.       Limitations on Licensor Liability
A.        No liability for indirect, special, incidental, consequential damages, whether in tort, contract, or product liability
B.        No liability for loss of profits, revenue, data or use or cost of substitute software, whether in tort, contract, or product liability
C.        Limitation on the total amount of damages, e.g., all or a portion of the license fee paid
D.        Shortened statute of limitations to commence action from when damage occurred (e.g., six months or one year)
E.         Enforceability issue

XII.     Inspection Rights of Licensor to Monitor Licensee's Compliance with Agreement

XIII.    Support and Maintenance Services
A.        Scope of support and maintenance
B.        Response times by licensor to cure problems
C.        Payment
D.        Price increases allowed
E.         May be subject to separate agreement or support policy

XIV.    Nondisclosure of Confidential Information[5]
A.        Agreement to hold various information confidential
B.        Period of confidentiality
C.        Scope of protected information - terms of agreement, pricing, other information identified or marked confidential
D.        Exclusions:
1.         Information that is or becomes part of the public domain through no act or omission of the other party
2.         Information that was in the other party's lawful possession prior to the disclosure
3.         Information that is lawfully obtained from a third party without restriction on disclosure
4.         Information that is independently developed
E.         Covenant to use reasonable steps to make employees comply with confidentiality restrictions

XV.     Indemnity for Infringement
A.        Scope of indemnity
B.        Notification to licensor of claim of non-infringement
C.        Control of action and settlement by licensor
D.        Option of licensor to replace or repair software

XVI.    Termination[6]
A.        Right of licensor to terminate
B.        Right of licensee to terminate
C.        Failure to pay and disputes concerning whether payment required
D.        Effect of termination - survival of rights and payment obligations
E.         Return of software, documentation, and copies to licensor on termination
F.         Obligation of licensee to cease using software after termination
G.        Certification by licensee regarding the cessation of use of software after termination and the return of the software, copies and documentation

XVII.  Other Special Issues
A.        Most favored nation clause
B.        Price protection
C.        Installation
D.        Hardware configuration

XVIII. Miscellaneous
A.        Governing law
B.        Jurisdiction, e.g., causes of action may only be brought in the county where the licensor's principal office is located
C.        Notice
D.        Severability
E.         Waiver
F.         Export laws
G.        Relationship between the parties
H.        Integration/complete agreement
I.          Agreement to be construed as to its fair meaning and not strictly for or against either party
J.          Attorneys' fees
K.        Force majeure

[1] Sample pro-Licensor language:

License. Subject to the terms and conditions herein, Licensor hereby grants to Licensee a limited, revocable, non-exclusive, non-transferable license to use the software listed on the first page hereof (the “Software”) for Licensee’s own internal business uses at the localities identified on the first page hereof, together with the associated manual and other related printed material (“Documentation”) provided with this package for the term indicate don the first page hereof. The fees for the license hereunder are set forth on the first page hereof.”

[2] Sample pre-Licensor language:

Prohibited Uses. Licensee may not (a) make copies of the Software, Documentation or program disks, except for back-up proposes, which back-up copies are subject to the terms of this Agreement; (b) re-sell, loan, rent, pledge, assign, sub-license or otherwise transfer the Software, Documentation , or any related data, except as provided above; (c) alter, modify or adapt the Software of Documentation, including, but not limited to, translating, reverse engineering, decompiling, disassembling or creating derivative works; (d) utilize the Software in conjunction with any automated valuation software system, or (e) use the Software for commercial time-sharing, rental, or service bureau use.”

[3] Sample pro-Licensor provision:

Payment and Taxes. All fees and other charges stated herein are due and payable within fifteen (15) days after the date of invoice. A charge of no more than one and one-half percent (1-1/2%) per month will be assessed on the late payments until paid in full. Amounts payable to Licensor as specified are payable in full to Licensor without deduction and are net of taxes; in addition to such amount, Licensee shall pay sums equal to all taxes (including, without limitation, sales, use privilege, ad valorem or excise taxes) however designated, levied or based on amounts payable to Licensor under this Agreement or on Licensee’s use or possession of the Software and/or Documentation under this Agreement, but exclusive of United States federal, state and local taxes based on Licensor’s net income.”

[4] Sample pro-Licensor provision:

Limited Warranty. The sole warranty regarding the Software and Documentation is that the original disks (or CD-ROMs) are free from physical defects in material and workmanship, assuming proper use, for a period of thirty (30) days after delivery, and provided Licensee returns the item within thirty (30) days of delivery. Licensor will either, at its discretion, (I) replace the defective media or Documentation or (ii) refund the license fee paid for the defective disks. These are the Licensee’s sole remedies for any breach of any representation or warranty.”

[5] Sample pre-Licensor provision:

Nondisclosure. The Software and the Documentation are agreed to be Licensor’s proprietary information, intellectual property and trade secrets, whether or not any portion thereof is or may be validly copyrighted or patented. Licensee shall take all reasonable steps necessary to ensure that the Software and Documentation, and any portion thereof, are not made available or disclosed by Licensee or by any of its employees to any other person, form or corporation. Licensee agrees that all those individuals having access to the Software under this Agreement shall observe and perform this nondisclosure covenant, and that, upon Licensor’s reasonable request, it will advise Licensor of the procedures employed for this propose.”

[6] Sample pro-Licensor provisions:

Termination. This license and Licensee’s right to use the Software and Documentation automatically terminates if it fails to comply with any provision of this Agreement. Upon termination. Licensee shall immediately return all Documentation and the Software.”

Survival. Termination of this Agreement shall not affect any of Licensor’s right, remedies, and protections hereunder.”

No comments: