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Negotiating Software Licenses – What Really Counts

Photo of shaking hands, which symbolizes negotiating software license agreementsThis post addresses the most important issues that are raised in negotiating software licenses.

I will assume that parties have agreed on pricing. (Otherwise, there is no point negotiating license terms!) In addition, I will ignore the lengthy legal “boilerplate” that appears in most software license agreements.

Four Critical Issues in Negotiating Software Licenses

In my experience, there are four issues that must be examined closely, and often result in much discussion, when negotiating software licenses.

  1. The license grant. Usage often is limited to certain types or numbers of software copies, users, computers, operating systems, and the like. There routinely are prohibitions against reverse engineering and other activities that might infringe copyrights or misappropriate trade secrets. Even if the license permits modification, there likely will be limits on modification rights.
  2. Warranties and representations. A knowledgeable licensee will require that the licensor provide warranties and representations concerning the licensor’s right to enter into the agreement, non-infringement of intellectual property rights, and the like.
  3. Indemnification. A knowledgeable licensee will require that the licensor indemnify the licensee against losses arising from, at the least, intellectual property infringement. Depending on how the licensee will be utilizing the software, the licensor may seek reciprocal indemnification.
  4. Limitations of liability and damages. Licensors typically do not wish to risk potential liability that is greater than the value of the transaction. And neither party will be eager to incur liability for consequential damages (damages that do not flow directly and immediately from the acts of the parties). However, indemnification obligations and damages from breach of confidentiality typically are not subject to such limitations. (Please see Limitation of Liability and Confidentiality Provisions in Tech Contracts.)
The Bottom Line

When negotiating software licenses, it helps to know which provisions to focus on and which deserve merely a quick review.

Related post: Best Practices in Drafting Software Contracts

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Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.