The building blocks of a Software Licence Agreement

In this article, we have a look at some of the important aspects that must be kept in mind when drafting a Software Licence Agreement

A Software Licence Agreement is in essence a copyright licence.

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.

The building blocks of a Software Licence Agreement

Scope of Software Licence

To learn more about the specific building blocks of a Software Licence grant clause follow this link

Support, training and professional services

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.

Professional services (for example customization of the Software) can also be included as part of the Software Licence Agreement or incorporated into a separate Professional Services Agreement. If professional services are included as part of the Software Licence Agreement, ensure that the commercials relating to these services are unambiguously stipulated within the Agreement.

Intellectual property

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.

Payment

The payment provisions will detail payment terms, overdue amounts, method of payment, setoff, taxes, payment disputes etc.

Read more on building intellectual property clauses.

Insurance

The Provider may be required to take insurance against, for example, cyber crimes. The insurance provisions should detail the type of cover to be taken out, the amount of cover required, what happens if there is a failure to maintain cover and obligations to produce certificates confirming cover. 

Audit rights

If there are limitations relating to the licence, for example the number of installation or seats provided, the Provider would want to have the right to audit these aspects. The frequency of these audits, costs thereof and what happens if there are adverse findings must be clearly addressed in this section.

Confidentiality

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.

Read more on confidentiality clauses.

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.

Read more on the limitation of liability clauses.

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 Software that will be provided.

Typical warranties will include that no viruses will be introduced into the Software, the Software will conform to the Documentation, and the Software does not and will not infringe on any third party intellectual property rights etc.

Breach of the warranties will also need to be addressed, and the disclaimers that relate to the warranties.

Read more on warranty clauses.

Indemnities

An indemnity often found in a Software Licence Agreement is an indemnity relating to Intellectual Property infringement claims.

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.

Read more on indemnity clauses.

Disputes

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 Software?

Read more on dispute resolution clauses.

Term and termination

The Parties may conclude the Software Licence Agreement for a fixed term. 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.

Read more on data protection clauses.

Boilerplate provisions

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.

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The Author

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 listed companies to small and medium enterprises on how to contract better with their customers. 

Martin Kotze

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