Enterprise License Agreement: Everything You Need to Know
An enterprise license agreement is issued to a large corporation to allow it to use a particular product, such as a software program.5 min read
What is an Enterprise License?
An enterprise license usually permits unlimited use of a product or system throughout an enterprise, although some limitations and restrictions may apply. An enterprise license eliminates the need to register a software program every time it is installed on a new device or used by a new person in the enterprise. Sometimes an enterprise password is set for those in the company to use the program.
Also referred to as an enterprise license, an enterprise agreement allows a customer to purchase software for an entire company at a discounted rate. The agreement is typically restricted to a set period of time.
How Do I Design an Enterprise License Agreement?
Most software program corporations have a licensing template that they use to design an enterprise license agreement, whereby they supply their software program to clients based on some licensing metric (users, devices, revenue, system, division of an organization, and so on). Licensing typically works effectively for small and medium-size clients, however, less so for large clients.
Enterprise agreements and their terms can vary, depending on the needs of the customer and software provider. Before designing or providing an agreement, it's important to define what the terms will mean for both large customers and the software company. Enterprise prospects need an agreement that provides added flexibility, low cost/predictable pricing, and ease of administration. An enterprise license agreement should be designed to fit the needs and requirements of the prospective client.
What Factors Should be Considered in Designing an Enterprise License Agreement?
Several important factors should be considered when designing an enterprise license agreement for your client. What do they need the software program to do? What limits would be burdensome? What kind of flexibility would allow them to be more effective in their business operations? Proper pricing can only be done after these initial requirements are outlined in the agreement.
After outlining the needs of the customer, you can determine the best pricing model. The pricing aspect can be one of the most challenging parts of designing an enterprise license agreement, but it's important to make sure the agreement provides adequate compensation.
What Should be Avoided When Designing an Enterprise License Agreement?
There are some pitfalls to avoid when designing an enterprise license agreement. These pitfalls can devastate a software company. First, taking the easy approach and just providing full access to a website or unlimited use of a software program is not recommended. Some companies elect for this model, but it can be problematic. This approach will restrict your ability to be adequately compensated for the use of your product.
For example, what happens if the client firm is bought out or merges with a larger company? All of a sudden, many more people are using your product, and support may need to be increased. However, you're trapped within an unlimited-use license agreement. To manage issues related to acquisitions and mergers, a software company may need to assess any “change of control” clauses included in the original agreement. An agreement can quickly become substantially more complex.
In this particular example, it is important to include a “change of management” clause. Another approach is to include a specific time period for your enterprise license. Most larger software vendors steer clear of unlimited licensing unless they provide term options. Although this type of agreement doesn't have to be too challenging, it is important to spend the time needed to design it correctly.
What are the Pitfalls of an “Unlimited” License?
There are several pitfalls to consider in an unlimited license. An “enterprise” or “limitless” license can be devastating if not properly constructed. Each software program license should have limits. Misunderstanding the boundaries of what is put forth as a “limitless” license erodes the deal's value and could be costly, in addition to being embarrassing, when justifying the extra expense needed to pay for any rights that were not covered in the agreement. An “enterprise settlement” typically meant that anybody within the enterprise can use the product anyplace within the geographic footprint of the enterprise, as long as the software program was solely used on a particular machine.
Some actual difficulties can come up within the definition of “enterprise,” due to the decentralized material of an enterprise's information technology operations. An enterprise can also be thought of in terms of utilization by a particular firm or by a particular enterprise unit inside an organization. Limiting the potential geographic footprint could further constrain the definition of the enterprise's reach.
Therefore, it is important to understand how an enterprise is structured and what rights you want actually to provide. When you understand how the “enterprise” is outlined, it is very important to comprehend that enterprise rights typically don't translate into limitless utilization or deployment rights.
Terms for Utilization and Deployment Rights
Consider terms that provide for precise utilization and adequate deployment rights. The license could allow anybody in the organization to make use of the product throughout a number of geographies. However, it might permit use only by a specific type of customer (or processors, or an outlined degree of enterprise revenues). Utilization rights are another additional constraint that can be effective. For example, an enterprise license settlement could allow for limitless deployment rights for a product (e.g., a database). However, total utilization might be used as a metric to provide some limits.
It is rather uncommon for unlimited utilization rights that allow product deployment in an unlimited fashion. Most unlimited license agreements outline a specific list of products that apply, usage terms, and deployment boundaries. A well-intentioned end-user might construe unlimited in simpler terms, so it is important to be clear about this with customers.
Risks of Licensing Violations
The company may be responsible for fees or face exposure to license violation remedies. Failure to secure additional rights or licenses is common, but it can be problematic. In terms of database products, it is important to be clear about the limits of a license, and what additional charges or remedies become activated it those limits are surpassed.
What to Consider
Many licenses will also include an audit clause that allows for regular review that the product is being used within the licensing agreement terms. Failing to specify such audits and additional license terms weakens the benefit of a license. Additionally, most licenses have a set time period. If a company intends to purchase software-licensing rights to cover an ongoing business function or project, it's important to confirm that the term of the deployment includes the time frame of that initiative or project.
When designing a license agreement, it is important to consider the time period that it will be in effect. Will the license cover the expected lifetime of the initiative, or allow for product updates and adequate support? These terms should be clearly presented in the agreement. Make sure you fully understand the limitations and scope of the software product before you sign an agreement. You can typically negotiate with a software provider if the terms don't meet your company's needs.
There are many details to consider when designing an enterprise license agreement. Get some help by posting your legal need on UpCounsel's marketplace. UpCounsel provides a platform that allows small businesses access to top lawyers. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google and Airbnb.