Software Licence Agreements: What Is Included And Why

Software Licence Agreements are a critical safeguard in protecting software providers and customers who utilise software both personally and for their business.

Software is becoming an essential tool for business development, management and growth.

Intellectual property is at the core of this arrangement. For the software provider, the intellectual property they’re seeking to protect is the software that they’ve developed and are licensing to their customers. For businesses obtaining the benefit of these various technologies, the important intellectual property is their business data that they’re inputting to the software, which is often confidential or sensitive.

A Software Licence Agreement ensures clarity between the parties around who owns what, the terms under which the customer can access the software, and how data will be dealt with. 

What Terms Are Included In A Software Licence Agreement?

Intellectual Property

As the intellectual property in software is usually the software provider’s most valuable asset, it is imperative to protect this asset contractually with customers.

A strong intellectual property clause will grant the customer a non-exclusive, non-transferable and revocable licence to use the software provider’s intellectual property in the software. This allows the software provider to also licence their software to other customers, restricts the customer from transferring the licence to other parties, and enables the software provider to cancel the licence at any time.

While it might seem obvious, the Software Licence Agreement will also state that the customer will not acquire any ownership in the software — they’re just granted the right to use the software.

Usually, a customer will need to input their own data in the software to allow them to actually use it. For this reason, this section usually also includes clauses to protect the customer’s intellectual property. The customer often grants the software provider a licence to use their content to the extent required for the customer to obtain the benefit of the software.

Payment Terms

Payment terms typically set out when payment is due and the applicable fees.

As some software providers offer their software on a subscription basis, also known as a “software as a service”, this section may include a fee schedule setting out pricing for different tiers of subscription levels.

User Obligations and Prohibited Use

This section sets out the rules under which a customer can access the software.

It makes it clear, among other things, that users cannot:

• copy the software;
• adapt, modify or tamper with the software;
• decompile or reverse engineer the software;
• allow people other than licenced users to access the software; or
• try circumvent any security feature of the software.

It includes clauses requiring the customer to ensure that any other users of the software, such as employees of the customer, abide by these rules. Some software providers require each individual user of a software (as opposed to just the business who employs the users) to also agree to these terms of use. This contract is called an End User Licence Agreement. 

Customer Data

As most software requires the input of the customer’s data to actually utilise and receive a benefit from the software, the customer understandably would expect strong security measures to be in place to ensure that their data is protected and being handled responsibly. 

Software Licence Agreements usually contain clauses protecting the customer from any unauthorised use, destruction or alteration of the customer’s data, as well as procedures to follow in the event that the software provider suffers a security breach.

Limitation of Liability

From a liability perspective, a software provider will often limit their liability to the customer in the event that anything goes wrong in their dealings with the customer.

For example, if a software provider offers a customer relationship management tool and the customer is unable to access the software for several days, the software provider would seek to avoid liability for any losses their customer may have experienced in those few days (such as losses suffered when they were unable to access their customer’s details and secure sales).

The software provider may also include clauses to limit their liability in respect of any third party goods or services that are used in providing the software, such as a plug-in that can be installed which integrates with the software.

Need Help?

A Software Licence Agreement protects both the software provider and the customer from the risks each party may be exposed to in this relationship.

If you require a Software Licence Agreement, we’re here to help! You can reach us at [email protected].

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