For suppliers of software or other types of technology/IP, licence agreements with customers will constitute key assets. Importantly, the agreements will also be a cornerstone of any investor or purchaser due diligence.
Issues to consider include:
- For what purpose or purposes is the customer entitled to use your software? Are there any circumstances in which they are entitled to modify or improve the software? If so, who owns the IP in any modifications/improvements?
- For how long can the customer use the software? If not indefinitely, what happens at the end of the licence term?
- 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 on-premise software or onboarding/integration of SaaS software? What happens if there is a delay in the deployment?
- What rights does your customer have to reject/return the software, or terminate the licence agreement for convenience, ie when it suits them? How will this affect your ability to recognise revenue?
- What warranties are you providing? How long does any functionality warranty 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 someone else alleges that the software is infringing their IP?
- If the customer fails to pay the licence fee, as well as suing for non-payment are you entitled to suspend the customer’s right to use the software?
- If the software incorporates or is supplied with third party software, are you sub-licensing the software to the customer or does the customer require a direct licence from the third party owner? In either case, what EULA or licensing terms apply to the third party software?
- Does the customer have any rights to access and use the source code of the software, eg if you go bust, commit a material breach, and/or fail to provide support for the software?