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Software suppliers can create ground-breaking software to drive growth and add significant value to business customers. However, software suppliers face various legal risks and legal issues when licensing their software products. This article explores three legal risks for software suppliers licensing software to business customers and why mitigating these risks is critical.
Why is it Vital for Software Suppliers to Safeguard Against Legal Risks?
Protecting against legal risks is crucial for software development suppliers. Unforeseen legal problems can have operational risks and legal implications, severely damaging a business.
For instance, a costly damages claim can harm your finances and reputation. By proactively addressing these risks and taking legal advice, your business can safeguard its financial health, build customer trust, and ensure long-term success in a competitive market.
What Are 3 Key Legal Risks for Software Suppliers?
Here are some key risks software suppliers licensing their software should be aware of:
High Liability to Business Customers
Software customers often push for high liability for suppliers under their software licensing agreements. Problems with software can lead to substantial customer issues, from operational disruption to lost revenue. As such, liability under software licence agreements can be a significant risk for software suppliers.
The absence of a well-drafted limitation of liability clause in your agreement significantly increases risk. Omitting this clause exposes your company to the possibility of being sued for high damages far exceeding the licence fees paid. These damages could be extensive, difficult to predict, and potentially catastrophic for your business finances.
A substantial limitation of liability clause will typically cap the amount you can be held liable for to a specific sum, such as the licence fees paid by the customer or a multiple of them. This provides predictability and protects your business from financial harm in the event of an unforeseen problem. Such clauses need to be carefully drafted to be deemed enforceable.
Customers may often request unlimited or very high liability. While they have a legitimate interest in seeking complete protection for potential losses, such demands can be risky and burden your business. Negotiation is critical, and a specialist IT lawyer can assist you in reaching a reasonable position that your business is comfortable with.
Breaching the UK GDPR Rules
The UK General Data Protection Regulation (UK GDPR) governs how businesses handle personal data. Failing to comply with this law can lead to negative consequences, including regulatory fines and reputational damage.
Various risks could arise when a software licensor fails to consider and comply with its UK GDPR obligations during its business activities.
A software supplier’s steps for compliance will vary depending on its specific business activities and how it uses personal data. This will also depend on its role and whether it acts as a data controller or processor.
This factsheet sets out how your business can become GDPR compliant.
Key risks include failing to include data processing clauses in a software licence agreement where necessary, e.g., where the licensor processes customers’ personal data as a data processor. This omission could also alarm customers and stop potential news business.
The UK GDPR requires maintaining comprehensive records of data processing activities unless certain exceptions apply. These records include details about the data collected, its purpose, storage location, and any third-party processors involved. Failing to maintain these records can make it difficult to demonstrate compliance and result in various negative repercussions, including reputational damage and fines. As such, software licensors need to consider and comply with the UK GDPR and not overlook this issue.
Misuse of Valuable Software Assets
Poorly drafted software licence agreements can expose you to misuse of your software. A robust agreement should clearly define the terms of use for your software, including restrictions that prevent customers from reverse engineering, decompiling, or sub-licensing your software. The absence of such terms can make controlling how your software is used difficult and could lead to unintended consequences.
Legal advice from specialist IT lawyers can help your business address these risks confidently. For instance, a lawyer can advise you to protect your software from misuse, limit your liability to customers, and ensure your business activities are UK GDPR compliant
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Key Takeaways
The software industry offers great potential for business success, but legal considerations and risks are vital. Software suppliers must navigate several legal risks when licensing their products. High liability to business customers, breaching UK GDPR rules, and misusing valuable software assets are critical concerns. Addressing these risks through well-drafted agreements and robust UK GDPR compliance measures is essential. Proactively managing these risks can safeguard your financial health, maintain your reputation, and help ensure long-term success.
If you need advice on protecting your business from risk as a software supplier, LegalVision’s experienced IT lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers who can answer your questions and draft and review your documents. Call us today at 0808 196 8584 or visit our membership page.
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