Software licensing is big business, especially when software happens to be the principal asset of many emerging technology businesses. A license is necessary if one desires to use another’s product, process, or service in a way that, without the license, would violate the other’s patent, copyright, trademark, or other intellectual property/proprietary right.

Businesses will often be both licensors and licensees; in other words, they will license their own technology to others and obtain licenses to use others’ technologies. As such, it is important to first develop and plan an appropriate licensing strategy. The business should define its objectives, whether it is to fund research and development, meet customer demands, enhance its own products, avoid potential litigation, or explore market opportunities. In addition, the business should consider the selection of markets, screen potential licensees, and research potential licensors.

A common problem arises in determining exactly what the intellectual property at issue is. Licensors often think their technology is broader or has more intangible rights than they realize, and licensees may only seek to use a certain part of the technology. In addition, software programs may consisted of several types of intellectual property, such as copyrights, trade secrets, or patents, and it is important to determine what rights one needs.

In addition, in licensing software, it is important to determine what does not need to be licensed. Certain parts of the code may be open source or subject to fair uses. Other parts of the code may be built from third-party libraries that are considered to be in the public domain. Certain technologies also involve patents that may have expired.

To deal with the myriad of issues, software licensing is allowed to be fairly flexible. The licensor is free to parcel out the rights that it wishes, whether exclusively or nonexclusively, perpetually or for a period of time, worldwide or in a certain region, revocable or not. The licensor can limit the use of the software, such as the ability to create derivative works, make modifications, re-sell, or distribute copies. The licensor can adjust the royalty rate or other licensing fees as it wishes based on the type of license desired by the licensee. Of course, everything needs to be put in writing and signed by the parties to be bound.

This article is the first in a series of articles regarding software licensing.