Licence agreements are key assets for suppliers of on-premise software, and a key part of a potential investor’s or purchaser’s due diligence.
Issues to consider include:
- For how long can the customer use the software? If not indefinitely, what are the parties required to do at the end of the licence term?
- For what purpose is the customer entitled to use the software? Are there any circumstances in which they are entitled to modify or improve it? If so, who owns the IP in any modifications/improvements?
- Is the customer entitled to allow any third parties to use the software, eg the customer’s group companies, contractors or agents? Do the restrictions on use equally apply to these third parties? Is the customer directly responsible to you for the way the software is used by the third parties?
- Who is responsible for the installation of the software? What happens if the agreed go-live date is delayed?
- Is the customer entitled to new versions of the software, and if so on what terms? Can the customer be required to upgrade to a new version?
- What rights does the customer have to reject/return the software, whether for convenience or otherwise?
- What warranties are provided, and how do they continue? Are the contractual warranties instead of or in addition to warranties implied by law? What rights does the customer have in case of breach?
- What happens if a third party alleges that the software is infringing their IP?
- If the customer fails to pay the licence fee, as well as suing for non-payment is the customer’s right to use the software suspended?
- If the software incorporates or is supplied with third party software, is the third party software sub-licensed to the customer or does the customer require their own licence from the third party? What licensing terms or EULA apply to the third party software?
- Does the customer have any rights to access and use the source code of the software, whether as part of an escrow arrangement or otherwise?