Scope of the License Grant

Unlike goods that when you purchase them you can pretty much use them any way you like once you have purchased them, software is different. Under a license you are being provided with a right to use the software in accordance with the license grant. The scope of that license grant can vary and the scope of the grant is one of the most important parts of the license agreement. As you are getting rights to both the software and documentation the scope of the license grant should cover both.

For the software grant the common variables are:
Is the license revocable or irrevocable?
Is the license exclusive or nonexclusive?
Is the license transferrable or non-transferable?
Is the license for a limited term or is it a perpetual license?
Is the license for worldwide use or for a limited scope?
Do you have the right to sublicense?
Will the licensor provide both object code & source code under the license or just object code?
Is the use limited to a site, and individual CPU, a cluster or network, is it for another use such as SAAS (Software as a service) or cloud?
Is there any limit on its use such as internal use only? Does it allow consultants or contractors to use it? Does it prohibit potential competing uses?
Do you have the right to make and keep archival copies?

For the license to documentation the common variables are:
Do you have right to make copies?
Do you have the rights to prepare derivative works such as for internal training?
Do you have the right to make and keep archival copies?

Let’s look at each of these from a licensee’s perspective.

Is the license revocable or irrevocable? As a licensee you want the license to be irrevocable. The reason for that is you will normally have made an investment in using it and may be depending upon it, so you don’t want to provide the licensor the ability to simply stop its use. Most license agreements also will include provisions where the licensor can terminate the license for cause if you fail to meet your obligations under the license. If you allowed the license to be revocable, it would be equivalent to providing the licensor the right to terminate without cause and without liability.

Is the license exclusive or nonexclusive? Unless the software is being created exclusively for you (in which case you should own it) you normally wouldn’t want the grant to be exclusive. The licensor may not be able to do that if they previously licensed copies. If they didn’t it would dramatically increase any license fee you would have to pay as they couldn’t license it to others.

Is the license transferrable or non-transferable? Most licensors do not want licenses to be transferrable. Whether it’s important to the licensee will depend upon the circumstances. If you were purchasing it for a customer as part of a customer solution you definitely need to be able to transfer it. If you purchased it in conjunction with a piece of capital equipment you would want it transferable so it doesn’t decrease the residual value in the equipment when you sell it. In other situations you may not need to have it be transferrable but you may want the right to assign it in conjunction with the sale of a business unit that used it.

Is the license for a limited term or is it a perpetual license? Most licensees would want a perpetual license for many of the same reasons you don’t want the license to be revocable. You invested in it, you trained your people and it may be an integral portion of your business. Do you want to negotiate a new term when you have little leverage and much invested? You only want to pay the license fee once.

Is the license for worldwide use or for a limited geographic scope? The answer to this depends upon what type of license you are negotiating. For example if you were negotiating a master license for potential use by all the operations you have around the world, you would want it to be worldwide.
If you were negotiating it for an operation where the work could be transferred to another location and would want to change the installed location you would want it to be worldwide. If you had neither of those concerns you probably could agree to a limited scope. The licensor would want to limit the scope of geographic use for two main reasons. The licensing fees may be significantly different in different locations or licensor may be restricted by other business agreements. For example, they may not be the developer buy may simply have a license from the developer to license in within at specific geography or they may be the developer and may have given exclusive rights in certain areas to another company.

Do you have the right to sublicense? For licensees, unless you are licensing the software for resale to a customer, you would not need the right to sublicense the software.

Will the licensor provide both object code & source code under the license or just object code? The first thing you need to take into account is if you want source code, licensors consider their source code as confidential information and will require protection as such. With the acceptance of confidential information comes potential liability if you fail to protect it or were to use any of that information without authorization. Where source code may be needed is if the licensor is unable to or fails to provide the licensor with the support that is need. That is usually addressed through escrow requirements where source is placed in escrow and released to the licensee in the event certain things occur. Based on this the grant probably should be only for object code.

What will be the licensed installation location? Normally what may occur here is the licensor may have different licensing options with different fees associated. This could be things like individual user, seats, concurrent users, etc.. It is up to the licensee to determine which of these options best meets their needs.

Is there any limit on its use such as internal use only? While licensors don’t want the licensee allowing other companies to be using the software, licensees need to think about who may need access to the software. Many companies have outsourced suppliers performing functions on their locations. They may have contractors and consultants that need to access and use the licensee’s systems. As long as internal use takes into account the use by those parties, an internal use restriction may be acceptable.

Does it prohibit potential competing uses? Whether this type of restriction would be acceptable to a licensee would depend upon what the restriction is and how they intend to use the licensed product.
A licensor may need to put a restriction on competing uses as some, if not all of the product may have been licensed from a third party that wants to restrict it from being used by its competitors.

Do you have the right to make and keep archival copies of the software and documentation? This is a right that the licensee should absolutely have as archival copies in remote locations are critical to disaster recovery. As the only time you use those copies is when you can’t use the original or the original has been destroyed, you shouldn’t have to pay anything. You are still using the license in accordance with the original grant.

Do you have right to make copies or make extracts of the documentation for internal use such as training? For the licensor the answer to this will depend upon how much they want documentation to function as a revenue source. With the movement to electronic documentation that has dramatically reduced the cost, and the buyer’s ability to put that on line for people to read, the issue of copies of documentation has become less. If a supplier is unwilling to agree to that it will increase you life cycle cost to use the product.

Do you have the rights to prepare derivative works such as translating the documentation for use by employees in other locations or for internal training? Many licensors are sensitive to allowing the licensee to create derivative works. If you want the right to prepare derivative works of the documentation many suppliers may in turn what a royalty free license to use and sublicense such derivative works. If you feel that you may need it and are willing to agree to restrictions such as it can be used for internal purposes only and you are willing to license the supplier, there aren’t too many good reasons why they shouldn’t agree.