Rules to Live By in Licensing Software

FRAMINGHAM (03/20/2000) - Software is protected by copyright law, which says the copyright holder has all the rights and you don't have any, except those you have been specifically granted. So, to do a user-friendly software deal, all we have to do is accurately predict all the uses we may have for the software and what changes we will make as an organization. We also have to figure out all the ways the vendor will try to charge us new fees for what we already paid for and build appropriate rights, remedies and flexibilities into the contract to effectively deal with those. Really straightforward, really simple, but not really easy.

To help make it easier, here are seven key issues to protect yourself in a licensing agreement:

License type. Most suppliers' standard agreements offer only a nonexclusive, nontransferable license. What's missing are the words perpetual and irrevocable. There may be restrictions concerning the number of computers or number of users, but the right to use the software should be perpetual without any additional license fees, as well as irrevocable - short of some major default on your part.

Warranties. Supplier warranties are usually very limited, guaranteeing only that the software will conform to published specifications for a short period of time (usually 30 to 90 days). In return for the license fee that you're paying, you should secure stronger - and longer - warranties. The software should be warrantied for a year to ensure that it conforms to specifications, is compatible with the hardware platform, operating system and associated networks (if any), and excludes keys, locks or other devices to control use of the software.

Remedies. If the licensing vendor doesn't live up to a specific warranty or fails to support the software, a remedy should be available. Software remedies should, at a minimum, require the vendor to fix the problem at no charge - and right away. Support remedies should give you the right to obtain the source code if the vendor discontinues support of the software.

Support. It's important to obtain a commitment of support for a certain period of time, say, five years. This provides a comfort level so you won't be forced into a relicensing mode for a "new" product. Also, make sure the support fee covers enhancements (point releases such as from 2.0 to 2.1) and upgrades (products with new major functionality). The maintenance and support fee should cover both.

Divestiture. Given today's business climate, where business units are bought and sold regularly, divestiture should be an important part of license agreements. Obtain the right for any unit that might be divested to continue use of the software for a given period of time (usually six to nine months) without extra charge. Or gain the right to use the software on the unit's behalf for the same time frame. Such a license provision makes for a smoother ownership transition.

Indemnity. The software licensor should protect you against any and all claims made by another licensor, who could allege that the software you licensed infringes on its legally protected intellectual property. If this were to happen, this licensor would sue your licensor and all its customers. To protect yourself, obtain an indemnification clause in the license agreement stating that your licensor will defend you in court, pay any costs you incur and obtain the right for you to continue using the software if it loses the suit.

Assignment. Such provisions give you the right to transfer the license to another entity. Assignment provisions usually limit this right to business entities under the same corporate umbrella. Without such a provision, you could face a relicensing fee if the software is transferred to another business entity as a result of a corporate reorganization, or if you outsource your technology.

Sticking to these basics will give you a solid software license foundation and eliminate the heartburn potential from the most frequent "gotchas."

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