Friday, January 27, 2012


As I am running out of regular subjects to post I decided to start doing posts on software. The differences between licensing software versus purchasing a good or service stems from the difference in intellectual property rights. With goods you buy and own them, With software you have the rights it use it. I wrote a post called “Differences between tangible property and intellectual property that highlights some of the differences.

Just like purchases of goods or services where there is a variety of templates and terms depending upon what you are purchasing, software has a variety of templates and terms that are based upon what is being licensed and how it is being licensed. For example a software license for a standard software product may be different in a number of aspects than a license for software that is licensed in conjunction with the purchase of a piece of capital equipment that needs the software to operate, The needs of the parties are different and the risks are different..

To start to blog about software I decided to first post a checklist of the types of terms that a buyer who will be negotiating terms for the “licensee” would be looking for in either drafting a license agreement or in reviewing a software developer’s (the “licensor”) standard template.

In future posts I will explain each of those focusing on terms that are unique to licensing software.If a term is common with one that’s used with the purchase of goods or services, I’ll refer the readers to the existing post.

Software License Worksheet for Standard Products

1. Definitions
Derivative Works
Designated Installation(s)
Internal Use
Licensed Product
Licensed Software
Object Code
Source Code
Material Errors

2.Scope of license
A) Software License
Is it revocable or irrevocable?
Is it exclusive or nonexclusive?
Is it transferrable or non-transferable?
Is it for a limited term or is it a perpetual license?
Is it for worldwide use or for a limited scope?
Dou 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 3rd party or potential competing uses?

B) Documentation
License to documentation.
Do you have rights to make copies?
Rights to prepare derivative works for internal training?

3. License fees, Payment, Taxes
What is the cost of the initial license?
Do you need options to purchase additional licenses? If you do, how long will the price remain firm?
What are the payment terms for the license, maintenance fees and other services?
Obligations of the parties to pay any applicable taxes.

4.Delivery and Responsibility to Install.
What is the lead-time for delivery?
Whose responsibility is it to install the software (licensor or licensee)?
If responsibility is with the licensee, what are the requirements for customer installation?
If the licensor will install, is the installation cost included in the license fee or is that a separate charge?
What is the lead-time for the installation?

5. Acceptance / Acceptance Test:
After installation is complete how long do you have in which to commence the acceptance testing?
What is the agreed duration period for the testing?
What is the agreed acceptance and test criteria that will decide whether the software meets it defined specifications?
If there are material errors discovered, how long does the Licensor have to correct them?
What rights does the licensee have if the licensor fails to correct them within the period to correct?
If Licensor corrects the defects, does the duration to perform the acceptance and test restart?

A. Warranties
When do the warranties start and what is duration of the warranty period?
What are the responsibilities to correct minor errors versus material errors?
Are you relying on the software product to be fit for a particular purpose? Does the specification define that purpose?
Are you relying upon representations made by the Licensor? If yes, have you made those part of the agreement?
B. Legal warranties
>Right to enter the license agreement
>Sufficient rights in the licensed product to make the grants and commitments
>Conform to the specifications when used unmodified.
>No security measures, restrictions or limitations have been incorporated
>No harmful code
>No open source code unless advised and agreed
C. Warranty on services (such as maintenance). Use reasonable care and skill in performing,
D. Warranty redemption rights and remedies
How long does the licensor have to correct material errors?
What remedies does the licensee have if the licensor fails to correct material errors within the agreed time frame?

7.Infringement & Indemnities:
General Indemnification
Intellectual property indemnity
Licensor’s options to cure infringement of intellectual property claims.
Licensees remedies if Licensor fails to cure.

Standard of confidentiality Licensor is obligated to use with licensed product.
Obligation to return or destroy materials upon termination (except for termination by licensee for cause)
Limits on copying: basic rights vs. expanded use; e.g. disaster recovery.
Obligations to include copyright and proprietary legends on licensed copies.
Licensee exemptions for maintain the licensed product as confidentiality

9.Limitation of Liability:
Any limitation on types of damages that may be claimed by either party?
Any financial limitations for both parties on the amount of the allowable types of damages that may be claimed.

10. Insurances Required of Licensor

11. Maintenance
Scope responsibilities and services provided
Error correction responsibility during maintenance period?
Response times?
Escalation process?
What hotlines or on-line help is included and what are their hours of operation?
Does maintenance include enhancements?

12. Enhancements:
Planned and rights to planned
What constitutes an enhancement
Scope of enhancements
Cost or enhancements

13. Training
a. Recommended levels of training required?
b. What training is included in the price?
c. What are the locations and costs for additional training by course?

14. Documentation, Media and Method of Delivery
a. What documentation is provided with the initial license fee?
b. What is the cost to purchase additional documentation?
c. Can you reproduce excepts for internal training?
d. Do you have the right to make derivative works of the documentation?
e. What is the media or authorized manner for delivery of the code?

15. Source Code
a. Is source code provided or will it be escrowed?
b. If escrowed: Who is escrow agent and location?
c. Do you have agreed triggers where you can demand the release of the source code?
d. What are the provisions for release?
e. What rights and obligations do you have in using the released source code?
16. Rights to Archival Copies
17. Term of the Agreement
18. Termination
Rights, if any, to terminate the license without cause. Licensee’s remedies in the event of termination.
Rights of licensor to terminate for cause by Licensor.
a) Causes that allow termination rights.
b) Licensee’s rights to cure and cure period.
c) Licensee obligations in the event of termination.
Termination by Licensee for Cause,
a) Causes for license termination.
b) License Grant in the event of termination.
LICENSEE termination rights without cause, licensee obligations in the event of terminating.
19. Electronic Self Help
Rights or prohibitions against licensor being able to electronically be able to reposess or disable the software in the event of breach or failure of the licensor to pay fees or maintenance charges,
20. Purchase Orders

21. Licensor’s Commitment Period to Support Multiple Releases
This establishes how long the licensee can plan to use an existing version of a product and have the supplier provide maintenance services before being either forced to either
either operate without the supplier support, terminate the license without cause and return the software, or purchase an upgrade version of the product

20. Miscellaneous Terms:
a. Governing law and jurisdiction
b. Force Majeure
c. Assignment rights for both parties
d. Specifications made part of contract
e. Compliance with laws
f. Merger of terms
g. Survival
h. Waver
I. Notices
J. Publicity Restrictions

Other things to check:
Operating systems and revision levels supported
Planned Future Releases and rights to future releases
Hardware and software pre-requisites
Additional consulting services and costs
Local language variants