What is a Software Contract?
A software contract is signed between a software licensor and licensee. It outlines important terms, such as how the software can be used, usage rights, payment, and liability. If you have a software contract, you should negotiate aspects of it that you feel could be improved. It enables you to make use of better pricing, it protects your content, and it can enhance your business operations.
Read the rest of this article to learn about software contracts and how to negotiate them.
What are Common Types of Software Contracts?
There are various types of software contracts, with some of the most common being the following:
- Subscription agreement. This software contract includes recurring payments for access to the software.
- Enterprise agreement. Large companies make use of more flexible agreements that meet their specific business needs.
- Perpetual license agreement. One-time fees are paid by the licensee to access the software for an indefinite time. However, there can be ongoing costs involved for maintenance or updates.
- End-user license agreement (EULA). This is a type of software contract for individual use, providing usage restrictions, rights, and other key aspects.
What are Common Terms in Software Contracts?
There are some common terms that appear in software contracts. These include the following:
- License terms. How the software is allowed to be used needs to be defined, such as if it’s for single or multiple users.
- Payment. Whether it’s upfront or one-time payments, the payment schedule will be specified. Any hidden costs need to be identified and amended for clarity.
- Support. The contract should provide support methods, such as live chat and fast response times.
- Termination. Parties should have clarity about how they can terminate the contract. This section should include information about auto-renewals and contract termination notice.
- Intellectual Property (IP). This ensures that both parties agree that the licensor owns the IP rights to the software and the licensee is only allowed to use it as per guidelines in the contract.
- Limitation of liability. The contract specifies how parties will be responsible for damages.
- Legal compliance. How the software is used needs to be legally sound by meeting all relevant laws and standards.
How Should You Negotiate Software Contracts?
Negotiating a software contract is an important step to take before signing it. It helps you to identify any areas of the working relationship that don’t satisfy your requirements while minimizing your risks and ensuring that you get what you need from the agreement.
Here are some essential tips to help you negotiate software contracts effectively.
Review the Contract
Before reviewing the software contract, make sure you fully understand it. Read through all its terms and clauses so you can identify exactly what you would like to change or update to reflect your business needs and avoid red flags.
If you need a lawyer to review your software contract, you can hire one on ContractsCounsel, an online legal marketplace that connects clients to experienced, vetted lawyers on the platform.
Simply post a project (it’s free) on the ContractsCounsel marketplace. Lawyers will send you bids on the project. You can choose a lawyer to work with based on factors such as their credentials, experience, and client ratings.
Add Flexibility to Contract Terms
Think about terms in the contract that could be tweaked to better suit your requirements. For example, maybe you would like to change the payment schedule or add an additional use for the software.
Check the Ongoing Costs
Make sure that the ongoing costs are not increased without a limit. Suggest capping them. If the licensor doesn’t agree, you could compromise by suggesting that they prevent increases for the first few years of service.
Consider What’s Not Included
In some contracts, certain information could be missing, resulting in issues down the line. Think about what could go wrong so you can protect yourself.
For example, what happens if you don’t get the services you require? Or, what happens if the other party terminates the contract early—will you still have access to the software?
Be Cautious with Customization
Although a customized software contract might make sense for your business needs, it needs to be specific and transparent to prevent confusion. Whatever you agree on must be included in the agreement so that you don’t miss out on any benefits.
Check Definitions
While it might be considered simple, you should always check the definitions in the software contract, such as “user,” “licensee,” and “licensor.” These have to be clearly defined so that there is no confusion about who will be providing and using the software.
Clear definitions protect both parties. For example, a loosely-defined “user” can cause the licensor to claim that multiple people count as users, and potentially increase the costs involved for using the software.
How Can a Lawyer Help You with a Software Contract Negotiation?
Hiring a lawyer can be highly beneficial when you want to negotiate terms in your software contract. As a result of their experience and legal expertise, they’ll notice terms in your contract that you might not have during your review.
Here is how your lawyer will assist you with software contract negotiations.
- They’ll identify hidden risks or costs, especially if your contract is filled with legal jargon or it’s vague.
- They’ll negotiate your liability limits so that you don’t have to take responsibility for too many risks.
- They’ll protect licensor data rights.
- They’ll ensure the contract doesn’t have any terms that can be misinterpreted, resulting in future disputes.
- They’ll alert you to termination red flags, such as auto-renewals that could keep you locked into the agreement.
- They’ll check for legal compliance so that you’re not at risk of penalties or other consequences.
- They’ll consider how the contract will operate in the future, which should encourage your business growth, not restrict you.
- They’re skilled at negotiating with the other party, knowing how to compromise and find middle ground that gives you a favorable outcome.
Do you need to hire a lawyer for software contract negotiations?
Hire a lawyer on ContractsCounsel who will be able to assist you with reviewing your software contract and negotiating with the other party to ensure you minimize your risks and prioritize your interests.
You’ll connect with a lawyer who’s got the expertise, experience, and credentials to navigate software contract negotiations with ease.
