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What Is a Software License?
A software license is a legally binding agreement made between the owner or developer of a software program and the user, outlining how they can use and distribute the product. In this document, the responsibilities of each party are clearly defined, preventing and protecting the developer from infringement of copyright law. Typically, the software license addresses things like:
- If the user can view the underlying source code
- If the user can copy, alter, or redistribute the program
- Where the program can be installed and how frequently
Why Software Licensing Is Important
Before any software can be installed, it has to be legally licensed. Otherwise, it would be considered a breach of copyright law to use the software. For businesses acting as users, being aware of software licensing is particularly important because you don't want to unnecessarily pay for licenses that you aren't using. While acquiring too many can be a waste of a company's resources, having too few can leave the company vulnerable to a costly potential lawsuit. Additionally, software license agreements can make managing the company's software way easier, so it's important that you find the right one.
As a software developer, software license agreements protect the investment of time, energy, and resources, ensuring that you will be able to make a profit from your hard work. Some of the other motivations for obtaining a software license agreement are because it:
- Prevents customers from abusing your software. Without getting a signed licensing agreement, there's nothing stopping your customer from attempting to copy your software for their own benefit. Usually, customers that try to copy software do it so that they can install it on multiple computers, saving them money, but they could also try to sell it for a profit. Either way, this could cost you potential income.
- Allows you to license the software without selling it. You can let customers pay for a license of your software while maintaining all rights to it, allowing you to license it out with restrictions placed on its use. This essentially gives you more control over how your software is both used and distributed and gives you the chance to make more money over time.
- Gives you the chance to disclaim warranties. Customers have certain expectations any time they purchase a product, and your software is no different. By incorporating a disclaimer of warranties in your license agreement, you can require the user to accept the software as available or as-is, putting the risk on them.
- Limits your liability. Limiting your liability is extremely important because it helps protect your company against potential lawsuits.
- Allows you to freely revoke licenses. Including this section of the agreement gives you the freedom to revoke or suspend licenses at any time, and for any reason, helping you keep complete control over the software.
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What Is Included in a Software Licensing Agreement?
Software license agreements can look different depending on the developer and the use, but most of these documents contain at least these four sections:
This section provides information regarding the type of agreement being established, when the agreement goes into effect, and how long it will be active for.
In this section, you provide details about the people or businesses that are entering into the agreement. Aside from clarifying whether each party is an individual or a company, you will need to provide key details, such as each party's:
- Full name.
- Contact information.
The terms of the agreement should be set out in this section, including important information regarding:
- The price of the license and whether it is a one-time flat fee or requires annual fees.
- Access to the coding.
- Whether the license is a site license, meaning it can be used on multiple computers as long as they are at one location.
- Support, maintenance, and refunds that are or aren't offered.
Any terms that are specific to your software or situation and aren't found in other sections of the agreement should be listed here. This section is also where you can place signatures, dates, and a note about any notarization requirements.
Additional Clauses Often Found in Software License Agreements
Aside from the four main sections, there are some clauses that provide important protection for your business, such as:
- Governing law: This is where you establish which state or city will have jurisdiction over any potential legal disputes.
- Termination: Setting guidelines for the event of an agreement termination allows you to establish that you are legally within your rights to revoke the license for any reason and at any time. You can also detail the steps that will need to be taken, such as uninstalling or destroying the software.
- Limits of liability: Including this clause protects you from potential lawsuits from the customer by clearly stating that they are accepting the software as-is and disclaiming any implied warranties regarding the software and its usage.
- Device usage: The need for this section really depends on how you license the software. You could use this opportunity to outline whether the customer is restricted to installing the software on one computer, or whether this is a site license that applies to multiple computers at one location.
- Breach of contract: When entering into a contract, it's always wise to have a clause that states that not adhering to the terms will result in a breach of contract . This gives you the opportunity to set up clear consequences so that you can protect and regain control of your software if the need arises.
- Modification: Unless you are allowing users to freely alter your software, which is inadvisable, you should include a clause that states what defines modification for this specific agreement and any guidelines that you have about how your software can be modified. Most customers understand and expect the need for this clause because you, as the developer, should have control over any changes made to the software and be able to profit from them.
- Rights: To prevent someone from purchasing a license and then stealing key components of your software for their own product, you need to clarify that the rights to the software are your property even after the agreement has been executed, including the name, software copyright, intellectual property rights, and distribution rights.
- Non-transferability: This clause is essential if you want to restrict the license from being transferred to another business or person. Non-transferability clauses are common because transferred licenses prevent you from making money from new customers, but also because you won't have an enforceable agreement with the new party once it is transferred. In most cases, software licenses are only transferrable when the original computer is no longer in use.
- Non-exclusivity: If you're hoping to license your software to other businesses so that you can increase your profits, you should include a clause that clearly states that your software isn't exclusive to that customer.
Legally binding agreements, such as a software license agreement, are essential regardless of what kind of business you're in or the kind of transaction taking place. To keep your product and your profits protected, it's imperative that you clearly lay out your rights and expectations before you allow users to install and use your software.
Meet some of our Software License Lawyers
Thomas Codevilla is Partner at SK&S Law Group where he focuses on Data Privacy, Security, Commercial Contracts, Corporate Finance, and Intellectual Property. Read more at Skandslegal.com Thomas’s clients range from startups to large enterprises. He specializes in working with businesses to build risk-based data privacy and security systems from the ground up. He has deep experience in GDPR, CCPA, COPPA, FERPA, CALOPPA, and other state privacy laws. He holds the CIPP/US and CIPP/E designations from the International Association of Privacy Professionals. Alongside his privacy practice he brings a decade of public and private transactional experience, including formations, financings, M&A, corporate governance, securities, intellectual property licensing, manufacturing, regulatory compliance, international distribution, China contracts, and software-as-a-service agreements.
Attorney of 6 years with experience evaluating and drafting contracts, formation document, and policies and procedures in multiple industries. Expanded to estate planning last year.
George is a lifelong Houston resident. He graduated from St. Thomas High School and then Texas A&M University. He obtained his Doctor of Jurisprudence from South Texas College of Law in 2007. He is experienced in real estate, estate planning & probate, civil/commercial matters, personal, injury, business matters, bankruptcy, general counsel on-demand, and litigation. He is active in the community serving as past-president of the St. Thomas Alumni Board, a current member of the Dads Club Aquatic Center Board of Directors, current member of the Dickinson Little Italy Festival of Galveston County Board of Directors, and former PTO President for Briarmeadow Charter School.
My clients are often small and medium size technology companies, from the "idea" stage to clients who may have raised a round or three of capital and need to clean up a messy cap table. I help with all legal matters related to growth that keep founders up at night - hiring people, allocating equity, dealing with shareholders and investors, client negotiations and early litigation counseling (before you need a litigator). I've seen a lot, and because I run my own business, I understand the concerns that keep you up at night. I’ve been through, both on my own and through other clients, the “teething” pains that will inevitably arise as you scale-up – and I’m here to help you. I have over 20 years international experience devising and implementing robust corporate legal strategies and governance for large multinationals. I now focus on start-ups and early/medium stage technology companies to enable a sound legal foundation for your successful business operations. Many of my clients are international with US based holding companies or presences. My 17 years abroad helps me "translate" between different regimes and even enabling Civil and Common Law lawyers to come together. Regularly, I handle early stage financings including Convertible Notes, Seed and Series A/B financings; commercial and technology contracts; international transactions; tax; mergers and acquisitions.
Sammy Naji focuses his practice on assisting startups and small businesses in their transactional and litigation needs. Prior to becoming a lawyer, Sammy worked on Middle East diplomacy at the United Nations. He has successfully obtained results for clients in breach of contract, securities fraud, common-law fraud, negligence, and commercial lease litigation matters. Sammy also counsels clients on commercial real estate sales, commercial lease negotiations, investments, business acquisitions, non-profit formation, intellectual property agreements, trademarks, and partnership agreements.
Brad is a business attorney with experience helping startup and growing companies in a variety of industries. He has served as general counsel for innovative companies and has developed a broad knowledge base that allows for a complete understanding of business needs.