Learn how integrating AI contract review into your Software Licensing Agreements can improve your contract negotiation, ensuring clarity, precision, and mutual understanding.
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A Software Licensing Agreement (SLC) is a legal contract between the owner of a software program (the licensor) and a user of that software (the licensee). The agreement outlines the terms and conditions under which the licensee can use the software, including the scope of use, restrictions, intellectual property rights, warranties, disclaimers, indemnification, and termination provisions.
Software Licensing Agreements are crucial in the realm of corporate law, particularly for dealings with intellectual property (IP) rights in the software industry. They are used across a vast range of industries, but are most common in technology and IT services, telecommunications, healthcare, financial services, manufacturing, and retail.
There are several key reasons why businesses should use Software Licensing Agreements:
The top provisions to consider in a Software Licensing Agreement are:
In addition to these top provisions, a comprehensive Software Licensing Agreement should also include:
To ensure that your Software Licensing Agreement is effective, comprehensive, and legally sound, use this checklist:
To give you a sense for the benefits of leveraging contract ai software trained by lawyers, we’ve selected some sample language our software presents to customers during a review. Keep in mind that these are static in this overview, but dynamic in our software - meaning our AI identifies the key issues and proactively surfaces alerts based on importance level and position (company, 3rd party, or neutral) and provides suggested revisions that mimic the style of the contract and align with party names and defined terms.
These samples represent less than 5% of the pre-built, pre-trained AI Contract Review solution for Software Licensing Agreements. If you’d like to see more, we invite you to book a demo.
For: Licensor
Alert: May be missing an article granting a license to the software.
Guidance: To ensure a comprehensive and legally sound Software License Agreement, it is vital to incorporate an article that grants a license to use the software. This article should delineate the scope, terms, and conditions under which the licensee is allowed to use the software, thus establishing the legal rights and obligations of both the licensor and licensee.
A well-defined grant of license is crucial to prevent potential disputes and legal issues between the licensor and licensee. For example, when a software company licenses its software to a business for operational purposes, the Software License Agreement should explicitly specify the permitted uses, restrictions, and duration of the license.
Relevant laws to consider in this context include copyright laws, such as the United States Copyright Act, which governs the rights of copyright holders and the licensing of copyrighted works. State contract laws may also play a role in determining the enforceability and interpretation of the Software License Agreement.
Sample Language:
LICENSE GRANT
During the term of this Agreement, LICENSOR grants LICENSEE a non-exclusive, non-assignable, non-sublicensable, revocable license in the territory designated by LICENSOR to access and use the Software solely for LICENSEE's internal business purposes.
For: Licensor
Alert: May be missing an article specifying license restrictions.
Guidance: It is essential for parties to establish well-defined and specific license restrictions. This approach ensures that both parties comprehend their rights and obligations, thus preventing potential disputes or misunderstandings.
In practice, this suggestion is particularly effective when a company licenses a software application for internal use. By outlining restrictions, such as prohibiting reverse engineering, sublicensing, or unauthorized distribution, the software owner can safeguard their intellectual property, and the licensee can avoid unintentional violations of the agreement.
Relevant statutes or laws to consider include the Copyright Act, which governs intellectual property rights protection, and the Digital Millennium Copyright Act (DMCA), which addresses circumventing copyright protection measures. State-specific contract laws may also be relevant in determining the enforceability and interpretation of the Software License Agreement.
An important exception or doctrine to consider in the context of Software License Agreements is the doctrine of fair use. This doctrine allows for limited use of copyrighted works without permission under certain circumstances, such as criticism, comment, news reporting, teaching, scholarship, or research. However, the application of the fair use doctrine in software licensing cases can be complex and fact-specific, making it essential to consult with legal counsel to determine whether a particular use of the software falls within the scope of fair use.
Sample Language:
LICENSE RESTRICTIONS
LICENSEE receives no rights to the Software other than those specifically granted under this Agreement. Except as expressly permitted in this Agreement, LICENSEE shall not:
1. Reverse engineer, decompile, or disassemble the Software, or otherwise attempt to derive any part of the Software’s source code or underlying functionality;
2. Reproduce all or any part of the Software;
3. Use the Software in any manner or for any purpose that infringes or misappropriates any intellectual property rights of any third party, or violates any applicable law; and
4. Use the Software for the purposes of:
(i) comparative or competitive analysis of the Software;
(ii) developing or providing a competing software product or service; or
(iii) harming or causing commercial disadvantage to LICENSOR
For: Licensee
Alert: May be missing a provision that provides remedies for critical errors in the software.
Guidance: It is essential to incorporate a provision that details the remedies accessible to the licensee in case of critical software errors. This inclusion ensures that both parties understand their rights and obligations, safeguarding their interests and helping to prevent potential disputes and misunderstandings.
For example, if a company licenses software for its operations and encounters a critical error leading to significant downtime and financial losses, a well-defined provision in the agreement enables the company to seek compensation or other remedies from the software provider. In response, the software provider can address the issue and limit its liability according to the agreed-upon terms.
To guarantee compliance with all relevant laws and regulations, it is crucial to consider state-specific contract laws, consumer protection laws, and any industry-specific regulations that may apply to the software in question.
Additionally, it is vital to recognize the impact of ""disclaimer of warranties"" and ""limitation of liability"" clauses commonly found in Software License Agreements. These clauses permit licensors to disclaim certain warranties, such as the implied warranties of merchantability and fitness for a particular purpose, and limit their liability for damages resulting from the software's use. This can significantly affect the remedies available to the licensee in the event of critical software errors.
Sample Language:
REMEDIES FOR BREACH OF SOFTWARE WARRANTIES
1. Remedy for Infringement. If the Software is the subject of a third-party claim of infringement or misappropriation, or in LICENSEE’s reasonable opinion is likely to be subject to such a claim, LICENSOR shall, at its expense and option, either (a) procure the right for LICENSEE to continue using the Software, or (b) replace or modify the Software so it is non-infringing. If after a reasonable number of attempts by LICENSOR neither of the foregoing remedies is possible, LICENSEE may terminate this Agreement and LICENSOR shall refund to LICENSEE the License Fees paid for the use of the Software less a reasonable amount for LICENSEE’s use of the Software up to the date of its return to LICENSOR or destruction.
2. Remedy for Nonconformance. If LICENSOR cannot correct a nonconformity after [●●] [business/calendar] days from the date it receives notice from LICENSEE detailing how the Software does not perform as warranted, then LICENSEE shall have the right (exercisable in LICENSEE’s sole discretion), to require LICENSOR to: (a) replace the nonconforming Software (provided, however, that the replacement is functionally equivalent) at no cost to LICENSEE; or (b) terminate this Agreement and promptly refund to LICENSEE all license fees paid under this Agreement.
3. Remedy for Critical Error. If LICENSEE determines, in its sole discretion, that there is any error in the Software, whether or not known to LICENSEE, that has or may have an adverse impact on its operations as a result of using the Software in accordance with the Documentation, or services provided by LICENSOR (a “Critical Error”), LICENSOR shall immediately investigate such Critical Error and will deliver to LICENSEE either a patch or workaround or code to correct such Critical Error, including the Documentation for such correction, at no additional cost to LICENSEE within [●●] [business/calendar] days after receipt of such notice. If LICENSOR fails to eliminate the Critical Error within [●●] [business/calendar] days after receipt of such notice, LICENSEE shall have the right to exercise the remedy for non-conformity, above. In the event any harmful or malicious code is found in the Software, LICENSOR will also immediately provide all necessary assistance in the handling of such code, including, but not limited to remediation, at no additional cost to LICENSEE.
To make the most of your Software Licensing Agreements and ensure their effectiveness, follow these best practices:
Software Licensing Agreements are essential for protecting intellectual property rights, defining the terms and conditions of software use, managing risks, ensuring legal compliance, and providing a framework for the licensor-licensee relationship. By including key provisions such as the scope of the license, restrictions on use, intellectual property rights, warranties and disclaimers, indemnification, termination, fees and payment terms, support and maintenance, confidentiality, limitation of liability, and governing law, these agreements create a strong foundation for the successful licensing and use of software.
To ensure the effectiveness of your Software Licensing Agreements, it's important to be specific and detailed, tailor the agreement to the software, negotiate fairly, regularly review and update, educate your team, and keep accurate records.
By investing time and effort into crafting comprehensive and balanced Software Licensing Agreements, businesses can protect their valuable software assets, mitigate risks, and foster mutually beneficial relationships with their licensees.
Our guides are for informational purposes only. Such information is not legal advice and is not guaranteed to be correct, complete, or an up-to-date representation of LegalOn's legal content. Nor is the information tailored to the unique needs or objectives that accompany each transaction. For legal advice for a specific problem, you should consult an attorney licensed to practice law in the appropriate jurisdiction for each transaction.
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