Software is an intangible asset protected by copyright. The owner has the right to authorise and prohibit copying, as a means of controlling the various ways which the copyright work may be commercially exploited through carefully utilising software licences.
The law governing copyright and confidentiality offers some basic protection of proprietary rights but it is unlikely to provide safeguards which the software owner will ideally want. This can be particularly significant for software which may be used internally since copyright varies from jurisdiction to jurisdiction.
The owner will therefore normally grant a licence, that is a permission to use the software product, to the user, ‘the licensee’. Software licences are not required to be in formal wording, or even in writing. If the owner hands over a disk containing the program, or displays code of a website without further limitations, this in certain circumstances may be interpreted as an informal licence.
There are two principal reasons why the owner should control the use of software through a written licence:
- Clarity– as with all agreements, if there is any subsequent agreement, it is preferable fort the precise terms that have been agreed to be a matter of record.
- Ownership rights – the owner can assert the ownership rights, setting out the conditions for permitting the software to be used with some practical restrictions. The remedy for unauthorised copying or use will then be against the licensee who is in breach of the licence agreement. In this way the owner preserves the rights of ownership and will be able to enhance, develop and exploit the software product further. It also enables the software to be used by numbers of users.
Software Licensing and distribution
It is not always the case the licensor party to the licence agreement is the owner of the software. The licensor may itself have been granted rights to use the software in accordance with a sub-licence and/or distribute the software in accordance with the terms and conditions which the owner will have set out in the distribution agreement.
If the software is to be distributed through a third-party channel, the owner of the software will decide whether each end user is to enter into a licence agreement directly with the owner through the distributor acting as agent for that purpose, or whether the intermediary distributor should be empowered to grant sub-licences to end users on terms approved by the owner.
Whatever the circumstances, it should be clear that the selection criteria for distributors will be important factors in determining whether to permit software distribution by sub-licensing, and to the extent to which the owner is adequately protected, particularly in relation to the financial standing, experience, facilities and quality controls of the distributor.
Different types of software licensing agreements
Different kinds of software and different businesses will require different kind of agreements when it comes to software licensing. The supply of software will affect the style of the licence and the particular licensing method.
Commercial application software is rarely written form scratch or bespoke. Much is supplied in standard packaged form, with standard licensing terms and conditions. For example, many low-value software products licensed in high volume will be licensed by way of shrink-wrap software licences or where it is sold online by way of a click-wrap licence.
In general software licences have become standardised over the past couple of decades. Opportunities for negotiation of the terms and conditions for shrink-wrap or standard click-wrap software are unlikely to arise.
Some considerations for software licensees
Prospective licensees should look and consider very carefully the wording of the licence. A user will not want to acquire software to help run some critical aspects of its business, only to later discover that the licensor has reserved the right to withdraw the use of the software at a later stage.
Further if the user is not itself licensed to use the source code of the software then it must investigate the nature of any support being provided by the licensor to maintain and update the software.
One must also consider, whether the user would be able to gain access to the source code if the owner of the software became insolvent or other circumstances arise which could prejudice the user’s continuing ability to use the software effectively in its business.
When it comes to exploiting new software, we can advise on the most effective licensing and distribution models for your business and supply the necessary documentation.
We can advise software developers and owners on their rights and how best to protect them, from the initial drafting and negotiation of your project contracts through to the sale and marketing of the finished article.