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A software licence agreement protects your business from risk as a software owner or supplier. Software and software products can be critical and valuable business assets for software owners. These assets, therefore, need robust protection in a legal contract when your business grants third parties rights to use the software. A software licence agreement will help ensure that software customers and users can utilise your software and provide peace of mind in knowing that your software remains safeguarded. However, it is essential to consider when you should update your software licence agreements. This article will explore some critical points regarding updating software licence agreements in the context of standard software licensing terms.
What Is a Software Licence Agreement?
A software licence agreement is a legal contract between a software supplier and a customer who wishes to use the software. Its purpose is to grant a customer or user permission to use the software under specific conditions.
Typically, this agreement will include terms such as:
- Scope of the Licence: This clause defines the extent of the customer’s rights to use the software, such as whether they can install it on multiple devices or copy it for backup purposes;
- Restrictions on Use: This clause outlines limitations on how the customer can interact with the software. For instance, whether there are restrictions on reverse engineering, decompiling, or modifying the software;
- Intellectual Property Rights: This clause clarifies ownership of the software and any associated intellectual property;
- Warranties: This clause details any guarantees the supplier offers customers regarding the software’s functionality; and
- Limitations of Liability: This clause sets out the extent of financial liability to the customer in case of issues arising from a breach of the software licence agreement.
Why Does Your Business Need a Software Licence Agreement?
It is essential to use software licence agreements to protect your software assets. Software comprises various types of intellectual property rights, which require protection from misuse. Your business could avoid several adverse consequences with a robust software licence agreement. For instance, licensing your software to third parties means that there is a risk the software might be reverse-engineered or subject to other misuse.
You may also be at risk of non-payment, such as when customers fail to pay you licence fees, which could result in significant financial loss. A software licence will help your business enforce its rights against customers for non-payment.
Further, a software licence agreement can significantly limit your liability in case of a legal claim against your business.
Therefore, you should use a software licence agreement when offering your software to a customer. This applies to both off-the-shelf software products and bespoke or custom-developed software.
As a software supplier, you can choose between rolling out standard terms or bespoke licence agreements. Standard terms offer a one-size-fits-all approach, simplifying the process and ensuring uniformity across all customers. Bespoke agreements allow you to negotiate individual contracts to suit individual customer requirements, offering greater flexibility and addressing specific bespoke projects. A specialist IT lawyer can advise on the best option for your business, depending on how you licence software to your customers.
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When Should You Consider Updating Your Software Licence Agreements?
Standard software licence agreements or software licence terms offer a streamlined approach for software suppliers, particularly those with off-the-shelf products marketed to a broad customer audience. These predefined legal documents specify the terms and conditions governing how many customers can use your software.
Where you are licencing your software based on standard software licence terms to many customers, you should consider the following issues around updating your terms:
Changes to Your Software Offering
New software updates, features, and functionalities may be added as your software develops.
Your software licence terms must reflect how these features can be used and distributed.
Further, you may need to update your terms to reflect changes in the way you licence your software—for example, if you began by offering a one-year subscription but seek to change this to a rolling term where the customer’s rights to use the software automatically renew and roll over each year.
This factsheet sets out how your business can become GDPR compliant.
You may also make more significant changes, such as starting to roll out your software offering on a software as a service or ‘saas agreement’ model, meaning you might need to restructure your terms completely.
Legal Compliance
Anglo-Welsh laws and rules relating to software licensing and distribution can be subject to change. Regular reviews will help you ensure your licence agreement remains compliant with the latest legal requirements and is therefore needed. For instance, the UK General Data Protection Regulation (UK GDPR) governs data handling within the UK.
If your software collects or processes user data, the licence terms must be updated to reflect data protection law and compliance measures. The UK GDPR law introduced many changes, meaning software owners acting as data processors had to consider and update their software licensing terms with mandatory data processing clauses.
Managing Risks Over Time
Entering a software licence agreement can expose your business to various risks.
By updating your standard software licence terms, you can ensure they remain effective in protecting your software assets and mitigating risks over time. Therefore, you should carefully assess certain risks you have faced over time and update your agreements to reduce those risks.
For example, you may include new customer indemnities, whereby the customer agrees to compensate your business for any losses or damages resulting from their misuse of your software. You may also seek to add stricter software access controls, confidentiality provisions, and more robust audit rights to check if your customers comply with your agreement’s terms.
If you need clarification, you should seek legal advice about updating your software licence agreements. A lawyer specialising in software licence agreements can guide you through your legal agreement and advise you on which changes you may need to incorporate over time.
Key Takeaways
A software licence agreement is critical for protecting your business’s software assets when granting usage rights to third parties. Specific updates to your standard software terms may be necessary to protect your business from risk. For example, your agreements may need to be updated to address changes in how you licence your software, comply with changing laws, and manage new risks. By updating your software agreements, you can mitigate risks better and maintain robust protection for the software.
If you need help updating a software licence agreement, contact LegalVision’s experienced IT lawyers as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page to learn more.
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