Basics of Software Licensing The Good, the Bad, and the Dull (but necessary…) Hannah Alphey, September 2010

Overview Proprietary software Initial Considerations Permitted Use Term Rights and Restrictions Source Code/Escrow Testing and Acceptance Payment Warranties and Limits on Liability Intellectual Property Additional Services Maintenance and Support Upgrades and Updates Common provisions to consider:

Initial Considerations Confidentiality  Software  Methodologies  Business processes  Ensure you have an NDA in place

Permitted Use ID of licensee?  Strict interpretation. Who needs to use? Entering on behalf of company? Who is actually named? Out- sourcing? Affiliates? Re-structuring? Extent of licence?  Per Machine? Site? Concurrent users? Exclusive v. Non-exclusive?  How customised is the software? Does use by competition matter? Geographic Scope?  Where do you need to use it? Sub-licenses?

Term Duration required? Think about price… Recoup investment Changes in technology v security of fees Striking the balance

Rights and Restrictions Description of Software  Appropriate warranties? Compatible with current IT system?  Shrink-wrap/web-wrap licenses  Think about acceptance  Business software – necessary functionality?  Setting customer expectations Documentation  Manuals required? Restrictions on documentation? Rights  “Use”…

Restrictions (cont…) Restrictions  Sub-licensing, assignment  Cost of change of use.  Modification, adaptation, decompilation, disassembly – EC Software Directive – prohibited exclusions  Exceptions Policing by Licensors  Audit rights  Sub-licensing restrictions

Source Code/Escrow Why have an escrow arrangement? Customer may require access to source code Stability of developer/value of code Control element Selecting an agent, fees, frequency of deposits, release trigger events

Acceptance Testing Depends on software type but the more customised, the more vigorous Think about timetable, process, test criteria Test format? Issue of flexibility v test certainty Consequences if tests are failed?

Payment Upfront – development costs Milestone payments Royalties One off license fee Recurrent fees

Intellectual Property Rights New / existing IPR Ownership issues Third Party IPR claims Indemnity protection Geographical extent Substitute software

Warranties and Limitations of Liability Very heavily negotiated Fit for purpose Original – ownership of proprietary rights Free of defects Length of warranty period Good operating condition Compatibility Future releases/modifications Maintenance and Support Licensors – ensure certain things are excluded Cost of software v potential damage to licensees business Unfair Contract Terms, Sale of Goods Act, Supply of Goods and Services Ave Bargaining strength of the parties.

Maintenance, Support and Additional Services Obligations to support? Duration? Versions? Which services? What = trigger? Hours of availability? Fees? Response times? Software installation Integration Work plan and milestones Training? Change procedures?

Upgrades and Updates Which versions are you entitled to? Are any new versions compatible with hardware/existing systems? Are you entitled to ongoing support? Will there be any additional costs?

Conclusion Very complex Ensure it does what you need it to Licensor/licensee – cover your back. It could cause a lot of damage…. Often no choice, but good to understand!