Software License Agreement

A software license agreement is a legal contract entered into between the Licensor and purchaser of the software, which provides the purchaser rights to use the software.

What is Included in a Software License Agreement?

1. Overview

The beginning of the agreement will state specific language indicating the date of the agreement and the parties entering into the agreement, known as the Licensor and Licensee.

2. Witnesseth

This section is referred to as the recital and provides the reader with a preview of the software license agreement itself. For example, this section will state the type of business in which the Licensor and Licensee operate, as well as the type of software being licensed for use, what the software does, and how the Licensee will benefit from its use.

3. License

This section explains in detail the piece of software that is being licensed. It is important to speak to your client (the Licensee) to see what the Licensee’s goals are, and how much of the software is needed in order to achieve those goals. For example, you are a Licensor with several platforms that can assist business owners in maintaining proper accounting records. If the Licensee, in this case, the business owner, wishes to utilize one of your platforms, you should speak to the business owner to see if he or she may benefit from using more than one of your platforms, thereby increasing the costs associated with licensing the use of the software.

But this section should also expressly state the limits to the use of that software. So, for example, if you as the Licensor provide the business owner with a license to use the platform for business purposes, you might not want to allow the business owner to use the platform for personal use.

You can also limit the use of the software to a specific number of computers at a specific location. These limitations are considered restrictive clauses, which can also be written anywhere in the agreement itself.

4. Term

The term of the agreement is the length of time in which the software is being licensed for use by the Licensee. The term of the agreement can be for any length of time, i.e. 30 days, 1 year, 10 years, etc.

This section may also include an automatic renewal after the term has ended, but generally includes specific language regarding such automatic renewal. For example, the Licensor may provide language indicating that the license will automatically renew unless the Licensee provides the Licensor with a written intention not to renew.

5. Compensation

This section speaks for itself. It sets forth the compensation that the Licensee will provide you with for receiving the license. Be sure to have a full understanding of the Licensee’s budget to ensure that you receive as much compensation as you can for providing the license.

This section might also include the following:

  • Fee schedule, including dates/amounts of repayment
  • Conditions for late payments
  • Increased fees for usage of the software on additional computers. For example, if only 1 computer is to be used to access the software, any additional computers used will require an additional fee.

6. Confidentiality

This section is more important than one would initially think. You want to ensure that your software source code is kept confidential. If you leave this section out of your software license agreement, then the Licensee has full access to your software source code. That means that the Licensee can create the same software and utilize and/or license the software for financial gain.

You may also want to include a copyright registration clause in the agreement, which protects you even further in the event that the Licensee attempts to steal the software source code. To go a step further, you can obtain a software patent. However, keep in mind that if you choose to go this route, the patent itself will become public, but protects you in the long run.

7. Installation, Training, and Acceptance

This section explains in detail the installation process, as well as how/when the Licensee will be trained on using and navigating the software. This section generally indicates that the Licensor will provide installation and training to the Licensee. If the Licensee has employees that will be using the software, then this section will also reference such details. It is important to note that installation and training are generally an additional fee on top of the compensation being paid for use of the software.

8. Warranties

This section sets forth the warranty associated with use of the software. The Licensor represents that it has no actual knowledge that the software infringes any valid rights of any third party. In simpler terms, the Licensor is expressly indicating that it does not believe that there are any copyright infringement issues.

9. Improvements

If any improvements to the software are made, the Licensor is required to promptly advise the Licensee of such improvements, and provide additional training if need be.

10. Termination

This section identified any rights to terminate the license, either at the request of the Licensor or Licensee. Generally, this section will indicate that a termination occurs if:

  • One of the parties breaches the contract
  • The Licensee wishes to terminate the contract, providing a notice period to the termination in writing.

11. Post-termination Rights

This section simply states that, after the termination of the software license agreement, the Licensee forfeits all rights to the software and discontinues use of the software. The Licensor may also request that the Licensee provide all materials related to the software.

12. Indemnity

The Licensor agrees to indemnify, or defend, the Licensee and potential employees in the event that the Licensee is sued for copyright infringement or intellectual property claims relating to the Licensee’s use of the software.

13. Notices

In the event that the Licensee needs to provide the Licensor with any kind of written notice, or vice versa, this section provides how the notice should be mailed— certified or registered mail, specific overnight delivery services, etc. It will also provide the address for both the Licensor and Licensee where the notice should be sent.

14. Jurisdiction and Disputes

This section provides that the agreement is to be governed by the laws of the State in which the agreement is taking place. It will also indicate the venue where any disputes will be heard.

15. Agreement Binding on Successors

This section is a short sentence indicating that the agreement is to be binding on both parties, and will transfer to heirs, successors, and assigns.

16. Waiver

This section states that the default agreement and specific terms within the agreement cannot be waived by either party.

17. Severability

This portion of the agreement indicates that, if a court deems any terms of the agreement invalid or unenforceable, such invalidity does not affect the agreement in its entirety, but only that portion of the agreement that was deemed invalid and unenforceable.

18. Assignability

Assignability means that the license itself is personal to the Licensee and cannot be assigned to a third party without the prior consent of the Licensor.

19. Integration

This paragraph explains that all prior terms are integrated into the agreement in its entirety, and any prior agreements are succeeded by the current agreement.

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