Sample software license agreement

A Software License Agreement is fundamentally a form of a copyright license that governs how a user can interact with a piece of software. It is an agreement between the software owner (often the developer or company that created the software) and the end user, typically the customer. This type of agreement gives the user specific rights, which are limited by the terms and conditions outlined in the Software License Agreement itself.

Typical rights provided under a Software License Agreement are the right to use, copy, and reproduce the software. An example of this could be Microsoft Office Suite. When you purchase this software, the Software License Agreement permits you to install and use it on your personal computer. However, if the licence is a single-user licence, making additional copies to install on multiple machines would typically be a violation of the agreement.

The right to distribute the software is another key component of the Software License Agreement. This means that the user can share the software with others, under the stipulated terms and conditions. An example might be a company purchasing a site license for a software product, which allows the company to distribute copies of the software to employees within that company. However, the company would be prohibited from distributing the software outside of the organization.

Another right often found in Software License Agreements is the right to modify, translate, or create derivative works of any part of the software. An example here could be open-source software such as Linux. The Software License Agreement (in this case, the General Public License) allows users to modify the source code of the software to meet their own needs and create new, derivative software based on the original. This has led to the creation of countless “distributions” of Linux, each customized to meet the needs of different users.

The Software License Agreement might also provide the right to display or perform in any media and through any technology the software. An example of this might be a video game streaming service, which allows users to stream video games they’ve purchased to various devices. The Software License Agreement would permit this as long as it doesn’t violate the terms and conditions (e.g., using the service for commercial purposes without permission).

In conclusion, the Software License Agreement is a critical legal document that spells out the rules for how software can be used, modified, and shared. Despite granting several rights to the user, these rights are always subject to restrictions as per the Software License Agreement.

Different types of Software Licensing Agreements

There are several different types of software license agreements, each providing different rights and limitations. Here are some of the most common ones:

Proprietary license: This is the most common type of software license. It gives the user the right to use one or more copies of the software, but ownership of those copies remains with the software publisher. Users are typically prohibited from modifying the software or creating derivative works. Examples include most commercial software products like Microsoft Office or Adobe Photoshop.
Open-source license: This type of license allows users to view, modify, and distribute the source code of the software. Open-source licenses foster collaborative development by allowing anyone to contribute changes and improvements. Examples of this include the GNU General Public License (GPL), which is used by software like Linux, and the MIT license, which is used by a wide range of software projects.

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Foundation

Parties

The typical Software Development engagement will be a work-for-hire engagement in which the Developer provides certain software development services to the Customer.

The scope of engagement can be A-Z. For example, the Developer must design, develop, create, test, deliver, install, configure, integrate, customise, and otherwise provide and make fully operational Software.

Alternatively, the Developer must integrate Software XYZ with Software DEF.

The “engagement block” creates the primary engagement. The details of what needs to be done are then added to the Schedule – Services.

Background / recitals

The typical Software Development engagement will be a work-for-hire engagement in which the Developer provides certain software development services to the Customer.

Alternatively, the Developer must integrate Software XYZ with Software DEF.

The “engagement block” creates the primary engagement. The details of what needs to be done are then added to the Schedule – Services.

Software License

SCOPE

The “License Grant” part is a central part of any software license agreement, as it details the precise scope and nature of the rights being granted to the licensee. There can be several variations or permutations to this part based on the type of software, the needs of the licensor and licensee, and the specifics of their agreement. Here are a few permutations, with examples:

Exclusivity: A non-exclusive license means the licensor retains the right to grant licenses to other parties. On the other hand, an exclusive license grant would give the licensee sole rights to use the software, barring the licensor from granting other licenses. For example, a software company might grant an exclusive license to a major client, providing them with unique access to a proprietary software product.
Territory: The territory part dictates where the license can be used. For instance, a software provider might grant a company the license to use its software only within the United States.
Duration: The duration part determines for how long the license will be provided for. A license could be granted for a limited period, such as one year, after which it must be renewed or it can be a perpetual license.
Transferability: A license might be “transferable” or “non-transferable”. In a transferable license, the licensee would have the right to transfer their license to another party. For instance, if a company was sold, they might transfer their software licenses to the new owner.
Sublicensing: Some licenses explicitly permit sublicensing, which allows the licensee to grant licenses to use the software to third parties. For example, a large multinational corporation might sublicense software to its subsidiaries.
Usage: The license might be granted for “internal business purposes”, or it could be granted for personal use, commercial use, educational use, etc. For example, a video game company might grant a “personal, non-commercial” license to end-users of its games.

Software licenses often include other limitations relating to how, where, and by whom the licensed software can be used. These limitations are designed to protect the licensor’s interests, prevent misuse of the software, and ensure proper compensation for the use of the software. Here are a couple of examples:

Limitations relating to the site where the license can be used: These restrictions limit where the software can be installed or used. For instance, the license might be limited to use at a specific physical location, such as a business’s main office, a specific department, or even a specific computer or server. This can be helpful in situations where the licensor wants to restrict usage to specific locations due to security concerns or to maintain control over where the software is used.
Limiting the license to named users: This restriction specifies that only certain named individuals are allowed to use the software. For instance, a company might buy a software license that only certain employees are permitted to use. This is often used in business environments where the software is needed by a select few individuals, and it can also help ensure that only properly trained individuals have access to the software. It also limits the licensor’s exposure to widespread use of their software without corresponding compensation.
Limiting the license to a number of seats: A “seat” typically refers to an installation of the software on a device. Limiting a license to a certain number of seats means the software can be installed on that many devices, regardless of who is using it. For instance, a business might purchase a 100-seat license for a piece of software, allowing them to install the software on 100 computers within their organization. This is a common model for business software licensing and allows for flexibility in who can use the software while still controlling the overall usage.
Limiting the license to a number of concurrent users: This restriction limits how many users can be using the software at the same time. For example, a business might buy a license allowing a maximum of 50 concurrent users. This means that while the software might be installed on many more machines, only 50 people can use it simultaneously. This can be useful for software that is needed sporadically by a large number of users, such as a database tool or design software.

RESTRICTIONS

Software license agreements often contain a number of other restrictions to protect the rights of the software’s creators and maintain control over the software’s use. Examples of these restrictions include:

Sublicense, lease, rent, loan, disclose or otherwise make available the Software and Documentation: This restriction is about controlling the dissemination of the software. The licensee cannot provide the software to another party through any means, such as sublicensing, leasing, renting, or loaning. For example, if a company has a license to use a specific software, they cannot then rent out access to this software to another company.
Access, read, analyze or otherwise use any part of the Source Code: This restriction is designed to protect the intellectual property of the software developer. The source code is the ‘blueprint’ of the software and contains proprietary algorithms and information. So, an analytics company, for instance, wouldn’t be allowed to read and analyze the source code of the licensed analytics tool they use to uncover its algorithms.
Use the Software for service bureau or time-sharing purposes and allow third parties to exploit the Software: This restricts the licensee from using the software in a manner where they would effectively be reselling the service to third parties. For example, a cloud service provider can’t use licensed software to provide a SaaS-based offering to its clients without express permission from the licensor.
Reverse assemble, decompile, disassemble or otherwise attempt to derive Source Code or the algorithmic nature of the Software: This restriction refers to the active attempt to break down the software to understand its working and underlying algorithms. For example, a software development company can’t decompile a licensed game engine to see how it handles graphics rendering.
Produce its own version of the Software: This part is to prevent the licensee from creating a software product that essentially mimics the licensed software, even if they don’t directly copy the source code. For instance, a technology company can’t study a licensed project management tool and then produce their own tool that has the same features and interfaces.
Remove or circumvent any protection of the Software: This is to prevent the licensee from tampering with the software’s built-in security features or protective mechanisms. For example, a user can’t bypass a software’s license key mechanism to use the software on more machines than allowed.

UPDATES

Including provisions in a software license agreement that address updates to the software is critical for several reasons:

Technological Advancements: Software technology is always evolving. As new technologies become available, software needs to be updated to keep it current and effective. The agreement should specify who is responsible for performing these updates and when they should occur.
Security: As new threats emerge, it’s essential that software is regularly updated to address potential vulnerabilities and to protect against security breaches. A software license agreement should clarify the responsibility of providing these security updates.
Compatibility: As other systems and technologies change, software may need to be updated to remain compatible. An agreement can specify how and when these updates should be made.
Enhancements and new features: The license agreement can clarify how enhancements and new features are provided, whether they are part of regular updates or require additional fees.

Generally, the Software License Agreement will differentiate between “maintenance releases” and “new releases”:

Maintenance Releases: These are updates that generally focus on resolving issues or bugs in the software, improving security, and ensuring the stable operation of the software. They are usually incremental updates that don’t add significant new features or functionalities but are essential for the smooth functioning of the software. For example, a maintenance release might address a security vulnerability or fix a bug that causes the software to crash under certain conditions.
New Releases: These often contain substantial changes, such as new features, improved user interface, enhanced performance, or entirely new functionalities. New releases typically come with a change in the major version number of the software. For instance, when Microsoft moved from Windows 7 to Windows 8, that was a new release.

Typically, under a software license agreement, maintenance releases are provided to the licensee at no additional cost during the term of the agreement, while new releases might be offered at an additional cost or under a new license agreement. This is, however, dependent on the specific terms agreed upon between the licensor and licensee.

CUSTOMER OBLIGATIONS

Often you will also find certain obligations placed on the licensee regarding the Software. For example, the Customer must:

Ensure the Software and the Documentation are protected at all times from misuse, damage, destruction or any form of unauthorized use, copying or disclosure: This part requires the customer to implement adequate security measures to protect the software and its accompanying documentation. For instance, this may mean storing the software and documentation securely, restricting access only to authorized individuals, and implementing network security measures to prevent hacking or unauthorized access.
Maintain all proprietary notices on the Software and the Documentation: This requires the customer to keep intact all copyright notices, trademarks, or other proprietary notices within the software and documentation. For example, if the software starts up with a screen that says “Copyright (Year) by (Company)”, the customer is not allowed to remove or alter this notice.
Not transfer, assign or otherwise deal with or grant a security interest in the Software, the Documentation or the Provider’s rights under the Agreement: This part prevents the customer from transferring their rights to the software or documentation to another party. For instance, the customer cannot sell or lend the software to another person or company. This also prohibits the customer from using their rights to the software as collateral for a loan.
Not challenge the Provider’s ownership, or the validity, of the Software, the Documentation or any other item or material created or developed by or on behalf of the Provider under or in connection with the Agreement: This part requires the customer to accept the provider’s ownership of the software, documentation, and any other intellectual property provided under the agreement. The customer cannot, for example, claim that they have the right to modify the software because they’ve paid for it, nor can they dispute the validity of the provider’s copyright or patent rights.
Notify the Provider in writing immediately after it becomes aware of any circumstance which may suggest that any person may have unauthorized knowledge, possession or use of the Software or the Documentation: This part requires the customer to promptly notify the provider if they become aware of any unauthorized use of the software or documentation. For instance, if the customer suspects that a former employee retained a copy of the software after leaving the company, they would need to notify the provider of this situation.

These obligations are designed to protect the provider’s intellectual property rights, ensure proper use of the software, and maintain a clear line of communication between the provider and the customer.