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Small Business Software Licensing Tips

A software license is a legal contract regarding the use or distribution of software. Software, after all, is not traditional tangible property but considered a type of intellectual property. Under copyright laws and the so called “first sale” doctrine, small and large businesses must “license” software rights, rather than merely “sell” their software. As a result, a license grants less rights than an outright sale. There are many types of software licenses, but a typical software license grants someone the permission to use one or more copies of the software in ways where such use would normally constitute copyright infringement.

There are many potential traps when it comes to licensing software. Here are some quick tips for drafting, reviewing, and negotiating licensing agreements:

Pay Attention to Key Provisions: Licensing agreements are full of legalese, but the key provisions still need to be reviewed, such as how long the license will be, under what conditions, the costs and payments, warranty terms, ownership rights in the software, and access to the software. It is important for both parties to pay attention to these terms, even after painstaking negotiations where parties want to get the contract signed as quickly as possible.

Involve your Counsel Early: Parties often contact counsel once the parties reach a roadblock or at the end of the process to double check and review. Contacting counsel early can result in better leverage and more favorable terms early on. Sometimes, parties seek counsel regarding a software licensing contract after several other related contracts (assignments contracts, promissory notes, employment contracts, etc.) have already been signed—a situation which may lead to problematic issues.

Provide Counsel with All Documents: Parties often hand counsel just a copy of the software licensing agreement to review, when many other related documents are necessary. Your counsel cannot help you if they do not know that certain documents exist. It is better to hand a big stack of papers to your counsel rather than leave him or her in the dark.

Work as a Team Through Multiple Revisions: It is often difficult to categorize every issue in the contract as solely a legal, technical, or business decision. For example, acceptance terms have both legal, technical, and business implications. To satisfy the company goals, the engineer, the lawyer, and the managers should all work together as a team through multiple revisions.

Put it in Writing: This may seem straightforward, but many times parties talk informally in person or over the phone and the subject matter fails to make it into the agreement. If negotiations are done orally, tell your counsel and make sure it becomes memorialized in writing. Along these lines, make sure you end up with a signed copy on file.

Ask Your Counsel About What-Ifs: Everyone has things they are worried about. Tell your Counsel about these concerns and what-if situations. Most counsel have firsthand experience in the remote possibilities that may happen, and how to address them.

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