Wednesday, February 8, 2012

Software – Termination and Miscellaneous Terms

Unlike the purchase of goods or services where you keep what has been provided up to the date of termination, with software if there is a termination it may eliminate your right to use it in the future.

Termination without cause. Since you pay the license fee once the software has been tested and accepted there would be no good reason for a licensee to want to terminate the license without cause. For maintenance services you could include a termination without cause right, but if you do that depending upon how the license is structured the worst case is you could be forced to stop using and return the software or certify that it has been destroyed. The second alternative is
you might be able to continue using the software, but that would be on an as-is basis with no support from the licensor. You would never want to provide the licensor with the right to terminate the license or maintenance services without
cause as that would dramatically reduce the value to you even if you could retain the software for use.

Termination for Cause. Both the licensor and the licensee will want the right to be able to terminate the license agreement for cause. As with any other thing you purchase, you need to establish:
1. What constitutes a material breach which if uncured will be cause to terminate the license?
2. What the cure period is to remedy the breach.
3. What the rights or remedies should be if there is a failure to cure the breach.

Licensor’s will want the right to terminate the license if the licensee uses the software in a manner that is not authorized by the license grant, or if the licensee
breaches other material obligations they have under the license, such failing to paying fees, or failure to maintain confidentiality obligations. In a termination the licensor will want the licensee to stop using the application and to either return or certify destruction of the media, documentation and all copies.

Licensees will want the right to terminate the license and maintenance services for cause in the event of a material breach of the license and maintenance agreement that is not cured. Material breaches would include breach of the licensor’s warranties, indemnities, failure to correct material errors during the warranty period, and failure to perform maintenance services as required. Licensees could have additional terms where the breach of those by the licensor would be cause for terminating the agreement. For example a licensee may not want their use of the application publicized and may want the breach of that obligation to be a cause for termination. For licensees an important consideration is what rights do they want or need in the event they need to terminate the agreement. For example if you needed to use the application, you may want the license grant to survive the termination so you may continue to use the application on an as-is basis. You would also want to be provided with source code needed to support the application. If you have those rights it could reduce the amount of damages you may be able to claim. The advantage of getting those rights is it allows you to continue to use the application. The disadvantage of getting those rights is they will limit some of the damages you could claim for the breach.

Miscellaneous Terms:

Just like the purchase of goods or service a traditional license will also include a number of standard legal terms
a. Governing law and jurisdiction to determine what law will be used to interpret the agreement and what jurisdiction would be used for any disputes that wind up in litigation
b. Force Majeure to excuse delays in performance caused by acts outside of their control
c. Assignment rights or restrictions for both parties. As a licensee you would not want the licensor to be able to assign the license or maintenance agreement unless there was a sale of the business, assets and transfer of personnel to a third party. Licensee’s may want the right to assign the agreement in the event
the business using is sold and assets are transferred to a third party or if the license was for an application that was used in conjunction with a piece of capital equipment where the failure to provide the software would significantly diminish the value of the equipment.
d. Order of precedence to create a priority in interpretation in the event of a conflict between the license agreement and any documents incorporated by reference into the license agreement.
e. Merger of terms to ensure that the license agreement represents the entire understanding of the parties.
f. Survival to identify any additional terms should survive the termination of the license, or the end of the term if the application was licensed for a limited term.
g. Waver to address who can waive rights under the license and what impact a waiver has on the future rights and responsibilities of the parties
h. Notices to address where any legal notices must be send such as cure notice.

Last, but most important, is making sure that you incorporate by reference the application’s specifications, acceptance and test requirements and any other documents that make up the entire agreement between the parties.

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