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Ready to Buy

Before signing off on a software license agreement, make sure you address a few crucial legal issues.
This story appears in the September 2010 issue of BizTech Magazine.

Jeffrey Whittle

When considering a license for software, particularly for a complex or customized application, it’s imperative to take certain legal issues into account.

Before you sign, here’s a checklist of should-do practices:

1. Determine the scope of the software license.
You should quickly decide whether you need an exclusive or nonexclusive license and the extent to which your company can use the license. This should include, for example, the purpose of software, geographical territory for use and intended systems platforms; whether it must be customized or will be used off the shelf; and any other unique scope restrictions.

By making these scope determinations initially, you will be able to draft an agreement that will promote early negotiations over any significant misunderstandings between you and the manufacturer or supplier. Plus, it will ensure that the license actually aligns with your expected uses.

2. Define the terms of use in the license.
When considering a license, you want to carefully evaluate the definitions for terms used in the agreement. This is an important exercise because it will help you maintain consistent use of language throughout the agreement.

Michael Raspino

Important items to review include definitions of the software being licensed, source code, territory or field, and media on which the software is to be used. Some other items to consider are terms related to the length of the agreement, confidential information and any services to be performed under the agreement.

3. Get into timing particulars.
Understanding the terms of the agree­ment, as well as the conditions for termination, will help you set and track important dates, such as when renewal is needed (under either the same or different terms). Overlooking or missing important dates can result in missed opportunities and in higher fees for your company.

“Every licensing agreement should set forth a
performance expectation.”

4. Double-check the intellectual property specs.
If the software is proprietary, then the manufacturer generally assumes responsibility for intellectual-property ownership issues surrounding its development.

For example, was open-source software or some type of freeware used in the development process? Was the source code an original development or did third parties contribute? Is the software protected by copyright, patents, trademarks or confidentiality clauses?

The bottom line really comes down to knowing the responsible party ahead of time should a problem arise.

5. Review procedures for testing prior to implementation.

With the advent of the software age and the advanced use of software generally, making sure that software operates properly perhaps has become less significant. But for complex or custom applications software, it remains an important concern.

Every licensing agreement should set forth a performance expectation. For instance, you want a product that’s substantially error- or bug-free, and you want warranties that address how a problem will be remedied if errors occur. It should also include some details regarding the condition of software media and warranties if these conditions are not met. And, it’s wise to make sure the application contains no surprise timing elements, locking functions or other unknown code elements.

Finally, it’s also prudent to set a period for testing the software. That way you can make sure that it works according to the expected performance, specifications and operating conditions set forth in the agreement.

If you apply these practices when setting licenses, you should be able to eliminate many problems and surprises when it comes to actual use of the software you buy and implement for your company.

Jeffrey Whittle is a partner and Michael Raspino an associate at Bracewell & Giuliani. They practice technology law and advise clients regularly on software licensing and setting agreements for technology projects.

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