What is important when licensing your software application

Finding the right way to commercially exploit software you have developed is a key consideration for software developers. The software licence model is popular, but a well-drafted software licence agreement is essential to protect your interests.

Key points for software licenses

• Exclusivity – Is the licence limited to certain parties, industries or territories? As “exclusivity” has no single, fixed meaning in this context, the agreement should clearly define the rights granted and any restrictions.
• Description – Clearly identify the technology, application or software being licensed or developed. Where the product contains multiple elements or modules, specify which elements the user or customer may access and use.
• Scope – Define what the parties may do with the software and any restrictions on use. Are there limits on the number of users, or on sharing log-in details and passwords? Clarify whether any user limit applies to total authorised users or concurrent users.
• Duration – Consider whether the licence should run for a fixed term, renew automatically or allow extensions or early termination, and specify the consequences of termination. Large organisations may also seek a right to benchmark the licence fee against comparable products or assess service levels during the term, with a right to terminate if agreed standards are not met.
• Minimum licence period – Some licences include a minimum term to allow the supplier to recover development costs. The agreement may provide for an early termination fee if the customer terminates during this period.
• Payments/Licence fees – Specify whether fees are payable as a one-off amount, annually, monthly (particularly for subscription services) or by reference to royalties.
• Warranties – The appropriate warranties depend on the nature of the software, its intended use and the licence terms. For higher-value bespoke software, the agreement may include a warranty period during which defects are corrected at no additional cost, often for three or six months. For lower-cost applications intended for general use, the software may instead be supplied “as is”, subject to any applicable legal requirements and agreed contractual terms.
• Confidentiality and Data Protection – The agreement should address confidentiality and the use, storage and processing of personal data, as appropriate to the application and its intended use. Where personal data is processed, the relevant UK data protection requirements must be considered.
• Indemnities – Consider the consequences of unauthorised copying or infringement of the software owner’s rights, as well as third-party claims that the software infringes intellectual property rights. The agreement should clearly allocate responsibility for these risks.
• Updates, upgrades and support more generally – Specify what updates, upgrades and support will be provided, whether the customer must upgrade and what happens if it does not. For example, support may be restricted if the customer continues to use an outdated version of the application.
• Quality control and information sharing – Consider whether provisions are needed to monitor sales, usage and access to relevant data.
• Improvements – Clarify who owns any enhancements, modifications or customisations made by the supplier or customer.
• Sub-licencing - There is no automatic right to sublicense. Express permission and clear conditions are therefore needed if the customer is to be allowed to sublicense the software, for example to contractors or group companies.
• Assignment - Consider any conditions or restrictions on transferring the licence. This may become relevant when a business is sold: can the licence transfer with the business, or should the software owner have a right to be consulted or to refuse a transfer to a competitor?
• Governing Law - A UK-based business may wish to specify the applicable UK jurisdiction’s law and the courts that will have exclusive jurisdiction, taking account of the parties’ locations and the intended market.

Register your Intellectual Property Rights where you can do so

Copyright in software arises automatically when the relevant legal requirements are met; the UK does not have a general copyright registration system for software comparable to that in the US.

Other intellectual property rights, including patents, trade marks and registered designs, may require registration to obtain the relevant protection. Failure to secure available protection can leave your business vulnerable. Identifying and protecting the rights available to your business is therefore an important step.

We are experienced tailoring license agreements and negotiating technology development contracts to meet your commercial needs, so if you would like to discuss any help you need please contact us.