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Software licencing is (the licensor) granting or (the licensee) having the right to use software for a specified term and usually for a permitted purpose.
Whether you are a business looking to invest in business-critical software, a software developer launching a new service/software or an established software house in need of an update to your existing software licences, we are able to assist you.
There are certain variables that will affect the approach that should be taken to a licensing arrangement, including whether you are:
Both licensors and licensees will want to ensure that the rights and restrictions set out in the software licence are appropriate to the relationship of the parties and the proposed use of the software.
A licensor’s key concerns will be to ensure that:
A licensee’s key concerns will be to ensure that:
It is important to have a licence agreement in place that is appropriate for how the software is provided and can be used. The appropriate form of agreement will be dictated by the licensing model. The most common forms of licensing agreements are:
Maintaining the confidentiality in and protection of source code is paramount to software developers. However, in uncertain economic climates or where you are contracting with a business who may not have an established trading history, many licensees reliant on business-critical software require the further assurance that escrow can offer should the worst happen to its software provider.
An escrow agreement can be put in place to protect a licensee if certain specified events occur, namely the insolvency of the licensor or the inability/refusal of the licensor to comply with its support and maintenance obligations.
Licensors may be reluctant to put escrow arrangements in place if, for example, their software is developed on an agile basis. The source code can quickly become outdated and so keeping the code which is held by with the escrow agent up to date can be an administrative burden.
Where support services are available it is important for the obligations to be set out clearly, so that the licensee has assurance that support will be available when required to ensure that downtime is kept to a minimum.
A licensor needs to ensure that it is able to comply with its support obligations and that these are commercially viable, bearing in mind that it will need sufficiently skilled staff and other resources available to deal with its licensees’ support needs. The licensor will also want to ensure it can recover an appropriate fee for its support services.
In particular, the parties should consider the following:
Service descriptions and service levels are closely linked. The service description sets out how the services provided by the licensor will satisfy the licensee’s requirements. The service description must be clear on exactly what the licensor is providing and what the licensee expects to receive, and contain a sufficiently detailed description of the services, setting out each party’s responsibilities.
Licensees may also require the licensor to perform the services in accordance with a set of service levels (sometimes referred to as key performance indicators). The service levels should be incorporated into the main contract, using terminology consistent with the main contract. Service credits may be made available for any variance from the required level of performance.
Business hours, out of hours, response times (physical and virtual), reporting and disaster recovery procedures should all be considered when deciding what service levels are to be measured and what service credit regime may apply.
A software licence should clearly state its duration and on what basis either party will have the right to terminate.
A licensor should carefully consider requests from a licensee seeking to remove the licensor’s right to terminate for convenience. Although a licensee may be seeking to ensure business continuity, this is unlikely to be appealing to the licensor as it will lose a degree of control and may be tied into supporting software at a time when it is no longer commercially viable for the licensor to do so.
It is important that termination provisions are carefully drafted. It is usual to see termination rights for each party to terminate where the other party has:
A licensee should also consider whether it requires the ability to partially terminate where all or some of the service elements may be brought in-house or transferred to another licensor.
With regards to exit management, it is essential to have an exit plan in place. This plan should set out all rights that the licensee has on termination and what is to happen to the software or any data hosted by the licensor (or a third party).
Software may rely on or incorporate certain third party or OSS. The source code of OSS is publicly available for use, subject to certain licence terms.
If a third party or OSS is being used, the terms of the relevant licence should be carefully checked to ascertain:
We act for a wide range of established software developers and other businesses in the technology sector. Our specialist IT solicitors have a wealth of experience in advising and assisting with the drafting and negotiating of all types of software licences and licensing models, support and maintenance agreements and service level agreements. We can offer clear, practical and commercial advice on the most appropriate licensing structure for your software. Our specialist IT solicitors also have a vast amount of experience in acting for businesses that are looking to purchase new software.
For those who already have their own documents, we can review your current suite of contracts and advise you on how the contracts can be improved to best protect your business interests. We are also able to act as your outsourced legal team providing advice as and when you need it and becoming involved in your projects as they evolve, including contract negotiations.
Our team of Corporate and IT solicitors are ranked by the independent Legal 500 directory. In addition, Partners in our team are recommended by the Legal 500. Therefore, you can be reassured that you will deal with some of the best Commercial Solicitors in the country.
Recent examples of our work include drafting and negotiating:
Home-grown or recruited from national, regional or City firms. Our specialists are experts in their fields and respected by their peers.
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