If you are a software developer, you may lack the resources to profit from your creation without licensing the use of your software to someone who can market and distribute it for you. Alternatively, you may need to use someone else’s software to operate your business, which will also require a contract. Although there are many different types of software licenses, here are some of the most common categories:
End User License Agreements (EULAs): In an End User License Agreement, the software developer explicitly retains ownership of the software, while the end user receives a license to use it under specified restrictions. Typically, restrictions include prohibitions on reverse engineering (analyzing the software’s structure in order to recreate its source code) and adaptation (modification of the software).
B2B Software Licenses: Not all software license agreements are designed to govern relations between software owners and end users. Business-to-business software licensing arrangements include Original Equipment Manufacturer (OEM) licensing, reseller licensing, and many other arrangements.
Free and Open-Source Licenses: This type of licensing allows the licensee much more freedom to use and redistribute software. “Permissive licenses,” for example, contain very few restrictions on how the software can be redistributed, while “copyleft licenses” require the licensee to offer downstream users (sub-licensees) the same rights that the licensee received from the licensor. This generally is used to make a license free and require all users who make modifications to the software to also offer these modifications for free.
Components of a Software License Agreement
Any number of terms might be included in a software license agreement. Some of the most common are:
Scope restrictions. These can include geographic restrictions, use restrictions such as a prohibition against reverse engineering and downstream restrictions (restrictions on transfer to third parties).
Exclusivity. The agreement should specify whether or not the license is exclusive. Normally, the licensor will want to offer a non-exclusive license so he can license the software to someone else. However, this may not be the case for custom-made software.
Royalties and other fees. The amount to be paid to the licensor should be clearly established (royalties might be based on a percentage of sales volume, for example).
Indemnification clauses. An indemnification clause requires a software licensor to defend and reimburse the licensee if the licensee is sued by someone else because the software infringes their intellectual property.
Depending on the complexity of your needs and how your software is to be used, the cost of developing an effective and comprehensive agreement may vary. Priori attorneys typically create flat-rate packages ranging from $400 to $1,200 for relatively straightforward agreements. In order to get a better sense of cost for your particular situation, put in a request to schedule a complimentary consultation and free price quote from one of our lawyers.
What is a common mistake software developers make when first licensing their products?
Software license agreements must be drafted carefully. A common mistake committed by amateurs, for example, is to omit a clause in an End User License Agreement that retains ownership of the software in favor of the licensor, yet attempt to impose restrictions on the licensee’s use of the software. The contract must protect the software owner’s rights to at least the extent established under the Copyright Act, or a court is likely to find the contract invalid. This mistake is only one among many pitfalls that can render a software license agreement ineffective, or even disastrous. If you intend to license your software, an experienced Priori software licensing attorney can help you negotiate the terms of the agreement.
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