The building blocks of a API Licence Agreement
In this article, we have a look at some of the important aspects that must be kept in mind when drafting an API Licence Agreement
What is an API Licence Agreement?
When you want different systems or applications to communicate and interact with each other you would generally use an Application Programming Interface (API). APIs typically provide a set of tools, documentation, protocols, and specifications.
For example, take Software as a Service Providers. The Provider may add additional functionality to their offering by incorporating software from a different vendor as part of their offering. To enable the SaaS Provider to use the software of the other vendor as part of their SaaS, an API will be required. The terms and conditions relating to the use of the API is then determined by the API Licence Agreement.
API Licence Block
The licence grant is the most important provision of the Agreement. Careful consideration should therefore be given whether or not the licence granted is subject to the payment of the Fees and compliance with other terms and conditions. Consideration should also be given to whether or not the licence is:
- also provided to affiliates;
- provided on an exclusive basis; and
- is territory bound.
Typical rights provided to the Licensee are:
- use the API solely for the purposes of internally developing the Applications that will communicate and interoperate with the Licensor Offering; and
- display certain Licensor Marks in compliance with usage guidelines that the Licensor may specify from time to time solely in connection with the use of the API and the Applications and not in connection with the advertising, promotion, distribution, or sale of any other products or services.
These rights, however, need to be configured specifically for the transaction at hand.
Next, consideration should be given to the restrictions imposed on the Licencee. The typical restriction you whould encounter are:
- copy, modify, or create derivative works of the API, in whole or in part;
- rent, lease, lend, sell, sublicense, assign, distribute, publish, transfer, or otherwise make available the API;
- reverse engineer, disassemble, decompile, decode, adapt, or otherwise attempt toderive or gain access to any software component of the API, in whole or in part;
- remove any proprietary notices from the API;
- use the API in any manner or for any purpose that infringes, misappropriates, or otherwise violates any intellectual property right or other right of any person,or that violates any applicable law;
- combine or integrate the API with any software, technology, services, or materials not authorsed by the Licensor;
- design or permit the Applications to disable, override, or otherwise interfere with any of the Licensor-implemented communications to endusers, consent screens, user settings, alerts, warning, or the like;
- use the API in any of the Applications to replicate or attempt to replace the user experience of the Licensor Offering; or
- attempt to cloak or conceal the Licensee's identity or the identity of the Applications when requesting authorization to use the API.
These restrictions must be configured to suit the particular transaction at hand.
Often a Licensee of an API would want to use and include some of the Licensor's Marks, for example, to increase the credibility of their offering and marketing purposes. If this is the case, provisions must be added to regulate using the Licensor's Marks.
Additional components that may be added include provisions relating to:
- end-user responsibility
- API keys
- API standards
Licence grant is subject to payment of Fees and compliance with the Agreement
Licence may only be revoked if Agreement is terminated
Various restrictions on use of the API
No restriction relating to the use of the API
Support and Maintenance Block
The Provider may provide support and training to the Customer's Users. If this is the case, the terms of the support and training must be detailed in this section.
If training services are included as part of the Software Licence Agreement, ensure that the commercials relating to these services are unambiguously stipulated within the Agreement.
Fees & Payment Blocks
The payment provisions will detail payment terms, overdue amounts, method of payment, setoff, taxes, payment disputes etc.
Generally, the Parties will retain their intellectual property rights and the Provider will own any new Intellectual Property Rights relating to the Software.
An aspect that will, however, need to be addressed in the Software Licence Agreement is feedback rights. In other words, if the Customer provides the Provider with feedback relating to the Software, will the Provider be able to use the feedback to improve the Software and make these improvements available to other Customers?
The default position is usually that the Provider may use all feedback freely without restriction or obligation.
Read more on building intellectual property clauses.
Both Parties would generally want to protect such sensitive information, which, if disclosed to certain third parties, will be detrimental to their business. The confidentiality provisions provide which information must be regarded as confidential, obligations relating to handling confidential information, and what happens if there are unauthorised disclosures.
Limitation of liability
Unrecoverable losses and maximum liability are generally dealt with under the limitation of liability provisions. Unrecoverable losses may include, for example, consequential losses, and claims relating to breach of data protection provisions may be limited under the maximum liability amount to a fixed amount.
Reps & Warranties
The Customer and Provider will usually provide certain mutual warranties. These may include, for example, that they have the legal capacity to enter into the Agreement and that they have not offered unlawful or prohibited inducements to the other Party or any other person in connection with the Agreement.
Then there will also be warranties related to the Cloud Services that will be provided.
Typical warranties will include that no viruses will be introduced into the Cloud Services, the Cloud Services does not and will not infringe on any third party intellectual property rights, the Cloud Services will be updated as necessary to comply with applicable laws etc.
Breach of the warranties will also need to be addressed, and the disclaimers that relate to the warranties.
An indemnity often found in a Software Licence Agreement is an indemnity relating to Intellectual Property infringement claims that a third party may institute against the Customer.
The indemnity provisions need to identify what will be regarded as indemnified losses (what will be covered), what will trigger the indemnity and the claims procedure.
Where the licence is limited to, for example, the number of users, the Provider would want to have the right to conduct audits on the Customer's use of the Software.
With the audit clause, aspects often addressed include notices of audits, the number of allowed audits, confidentiality and what happens if there is an adverse finding.
Term and termination
The Parties may conclude the Software Licence Agreement for a fixed term or it may be a perpetual licence. If it is a fixed-term period licence, there may also be auto-renewal of the Term, which must also be detailed within this section.
The termination provisions detail when a Party can terminate the Agreement before the Term ends and may also provide for termination assistance the Provider must provide if the Agreement is terminated.
How will the Parties deal with disputes? Through a Court process or alternative dispute resolution? Are there different processes for different disputes - For example, expert determination for disputes relating to technical aspects of the Cloud Services?
The boilerplate clauses will include the provisions relating to public disclosure, third-party beneficiaries, how amendments will be dealt with, how notices under the Agreement must be provided, assignment etc.
Will an API Agreement be in the form of a clickwrap agreement?
Cloud Services are usually provided under a subscription-based model where access to the Software is provided to the Customer through an online login. No copy of the Software is provided to the Customer, and there is no need for a licence.
Read more about Cloud Services Agreements.
When it comes to a Software Licence, the Software is installed on the Customer's computers.
What is the difference between a Software Development Agreement and a Software Licence Agreement?
With a Software Licence Agreement, there may be small modifications as part of the support and maintenance services.
If new Software or extensive changes to existing Software is required, a Software Development Agreement will be a more appropriate agreement.
Read more about Software Development Agreements.
What is the difference between a End-User Licence Agreement (EULA) and a Software Licence Agreement?
A End User Licence Agreement (EULA) is for licensing a commercial or off-the-shelf (that is, without modification or customization) Software. The term "EULA" commonly refers to an agreement that is not negotiated or signed by the parties.
Must Acceptance Testing provisions be included in the Software Licence Agreement?
Generally, Software Licence Agreements do not include any Acceptance Testing provisions.
However, there are situations where a Customer may require changes to the Software. In such cases, it may be appropriate to include Acceptance Testing provisions.
Must Software Escrow provisions be included in the Software Licence Agreement?
There may be a situations where the Software is "mission critical" to the Customer. In such cases, it may be appropriate to provide for certain escrow arrangements.
Martin Kotze is a commercial lawyer with over 10 years of experience. He specialises in transactional work within the Tech, Financial Services and Property industries.
He is also one of the co-founders at DocNinja and regularly advises companies on how to contract better with their customers and vendors.
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