Software License Agreements

Computer software enjoys statutory protection based on copyright, if the software exceeds the invention threshold, i.e., if it is the product of independent and original creative work.

In a software license agreement, the licensor grants the licensee the right of use to the software. The licensor retains the title, but the scope of the right of use may vary significantly. To achieve best results, it is important to establish intended use of the software. If the software is needed as part of proprietary software, which is to be commercialized, a broad right of use is often necessary. In this case, it must be ensured that the agreement allows, among others, further development and sublicensing of the software. It is also important to bear in mind that it is not possible to grant a greater right to the licensed software to the licensee’s customers than permitted by the agreement with the licensor. However, if the license is only required, for example, for a company’s internal use, a more limited right of use may often be sufficient. For instance, it is unnecessary for the licensee to pay for the right to sublicense or further develop the software, if there is no need for it. The different circumstances of each case should, accordingly, be taken into account when drafting the license agreement.

Software license agreements should precisely define the nature and scope of the rights being granted, in other words, which methods of use are permitted, and which are prohibited. It should also be evident from the agreement, whether the software in question is standard software, or whether it has been specifically customized for the customer. The rights granted to customized software are usually more extensive than rights to standard software, and the licensor’s right to use customized software as a basis for development work for other customers is often limited. Through such restrictions, the customer aims to ensure that the software, the development of which the customer has paid for in order to gain a competitive advantage, will not be offered to competitors as a standard software package after only a short period of time. The licensor, on the other hand, must take into account such limitations when determining the price of the product.

A software license may either be granted for a fixed term or until further notice. Software licenses may also be perpetual. It is, however, preferable to always agree upon right of termination and terms applicable to such termination.

The agreements may also set out provisions applicable to infringement procedures. When considered appropriate by the licensor, the licensee can be granted the right to receive future software upgrades free of charge, or for a specified fee. It is also common that license agreements between corporations require the licensee to use the licensor’s trademark in a particular way.

Closely related to proper software license agreements is the printing of license terms of standard software on the packaging or user registration material. The binding effect of such terms cannot, however, be relied upon. Nevertheless, for cost reasons, this is a commonly used method in software offered to large user groups. Using a clear-cut agreement is, however, more secure: adhesion contracts in respect of standardized products, and standard terms and conditions as a part of the contract.