NEGOTIATING SOFTWARE LICENSES FUNDAMENTALS © 2014, WILSON VUKELICH LLP. ALL RIGHTS RESERVED. Heather Whitten and Diane Karnay September 17, 2014

Introduction 2  A well-drafted software license is beneficial both to licensors and licensees.  Software licenses should be clear on the fundamental business terms – the license grant and limitations, fees and payment terms, warranties, indemnities, limitations on liability, term and termination, escrow, jurisdiction, and other general contractual provisions.

Introduction 3  The items outlined in this presentation will be viewed from both the licensor’s and licensee’s perspectives.  Negotiations are often contingent on the overall dollar amount of the license, and the negotiating power of the parties.

Concept of License 4  Software is can be a complicated and expensive IT asset.  Software licenses grant usage rights, as opposed to ownership rights.  The usage terms and conditions are specific, limited, and sometimes changing. Licensors – typically provide software license terms. Licensees – should carefully review these terms, to ensure they are not acquiring more than is needed and to ensure they are getting what they expected.

License Grant Limitations 5  Non-exclusive versus exclusive;  Term versus perpetual;  Geographically restricted;  Restricted to certain purposes;  Restricted to use by licensee only;  Use for licensee’s internal business purposes only;  Restricted by license type – i.e. to use at a site, or by a fixed number or range of named users (seat license) or concurrent users, or by the type of system on which the software may be run, or to an enterprise.

Fees and Payment Terms 6  Fees may be enterprise or usage based, and paid either up front or in arrears.  Fees will be tied to license types and terms.  Is there provision for expansion of scope of the license, with applicable fees?  Payment terms can be either set out in the software license or in a purchase order.

Warranties 7 Licensors will want to provide only an express limited warranty, pertaining to the software being provided by them (and not third party software which may be incorporated), and will disclaim all other warranties and conditions. Licensee will want to include warranties important to them and their use of the software and its performance as well as infringement. Remedies for a breach of warranty should be set out.

Indemnities 8  Licensors will typically only provide an intellectual property infringement indemnity, fairly limited in scope. Licensor may ask for an indemnity from the Licensee based upon claims arising out of their use/misuse of the software.  Licensees will want to increase the scope of the intellectual property infringement indemnity, and also try to include indemnities for other matters important to them and their use of this software (particularly if it is mission critical).

Limitations on liability 9  Licensors will want to limit their liability as much as possible: (i) direct damages only to a specified dollar limit, (ii) exclusion of indirect and consequential damages, and (ii) claims to be brought within a specified period of time.  Licensees will want to expand such liability as much as possible.

Early Termination Provisions 10  Licensors will want to have the right to terminate the license in the event of breach of the license terms by the licensee.  Licensees will want to soften such provisions, by allowing a cure period and limiting the right to terminate to only significant breaches.  Repayment of any license fees?

Escrow 11  Licensees may wish for the software source code to be put into escrow, in the event the software is critical to their operations. Note that they will then need to have resources to be able to utilize the escrowed materials.  Licensors will want to orchestrate the escrow terms, including who is the escrow agent and what are the release terms.  Who pays for escrow?

Jurisdiction 12  Each of the parties will want the laws of its home jurisdiction to govern over the terms of the license, and to have its home town be the venue for actions.  It is important to ensure that the United Nations convention on Contracts for the International Sale of Goods is not applicable.  The license agreement can remain silent concerning the venue to bring actions.

Other Matters 13  Minimum system requirements and use with other systems.  Upgrades and enhancements.  Maintenance.  Support.  Training.

Have more questions? 14 For more information about software licenses, please contact: Heather Whitten (905) or Diane Karnay (905)