Software Licence Agreements: What Is Included And Why

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Software Licence Agreements are a critical safeguard in protecting software providers and customers who utilise software both personally and for their business.

Software is becoming an essential tool for business development, management and growth.

Intellectual property is at the core of this arrangement. For the software provider, the intellectual property they’re seeking to protect is the software that they’ve developed and are licensing to their customers.

For businesses obtaining the benefit of these various technologies, the important intellectual property is their business data that they’re inputting to the software, which is often confidential or sensitive.

A Software Licence Agreement ensures clarity between the parties around who owns what, the terms under which the customer can access the software, and how data will be dealt with.

What Is A Licence Agreement For Software?

A Licence Agreement for software is common for software developers. It essentially allows developers to licence the software they’ve built to other parties for a licence fee.

The Agreement should set out the terms under which the party can use the software (we’ll cover these terms in more detail later).

What Is A Commercial Software Licence?

A Commercial Software Licence is also known as a Proprietary Software Licence.

This type of licence has restrictions around how it can be used by a licensee (which would be covered in the agreement, of course!).

So, the owner of the software can limit how customers can use the software and limit their access to certain information, such as the source code.

Since it is the owner’s commercial property, they can set the terms for its use.

What Does A Software Licence Agreement Cover?

Like any other agreement, a Software Licence Agreement should be tailored to the needs of the parties. However, the following are some standard terms that are usually covered.

Intellectual Property

As the intellectual property in software is usually the software provider’s most valuable asset, it is imperative to protect this asset contractually with customers.

A strong intellectual property clause will grant the customer a non-exclusive, non-transferable and revocable licence to use the software provider’s intellectual property in the software. This allows the software provider to also licence their software to other customers, restricts the customer from transferring the licence to other parties, and enables the software provider to cancel the licence at any time.

While it might seem obvious, the Software Licence Agreement will also state that the customer will not acquire any ownership in the software — they’re just granted the right to use the software.

Usually, a customer will need to input their own data in the software to allow them to actually use it. For this reason, this section usually also includes clauses to protect the customer’s intellectual property. The customer often grants the software provider a licence to use their content to the extent required for the customer to obtain the benefit of the software.

Payment Terms

Payment terms typically set out when payment is due and the applicable fees.

As some software providers offer their software on a subscription basis, also known as a “software as a service”, this section may include a fee schedule setting out pricing for different tiers of subscription levels.

User Obligations and Prohibited Use

This section sets out the rules under which a customer can access the software.

It makes it clear, among other things, that users cannot:

copy the software;
adapt, modify or tamper with the software;
decompile or reverse engineer the software;
allow people other than licenced users to access the software; or
try circumvent any security feature of the software.

It includes clauses requiring the customer to ensure that any other users of the software, such as employees of the customer, abide by these rules. Some software providers require each individual user of a software (as opposed to just the business who employs the users) to also agree to these terms of use. This contract is called an End User Licence Agreement.

Customer Data

As most software requires the input of the customer’s data to actually utilise and receive a benefit from the software, the customer understandably would expect strong security measures to be in place to ensure that their data is protected and being handled responsibly.

Software Licence Agreements usually contain clauses protecting the customer from any unauthorised use, destruction or alteration of the customer’s data, as well as procedures to follow in the event that the software provider suffers a security breach.

Limitation of Liability

From a liability perspective, a software provider will often limit their liability to the customer in the event that anything goes wrong in their dealings with the customer.

For example, if a software provider offers a customer relationship management tool and the customer is unable to access the software for several days, the software provider would seek to avoid liability for any losses their customer may have experienced in those few days (such as losses suffered when they were unable to access their customer’s details and secure sales).

The software provider may also include clauses to limit their liability in respect of any third party goods or services that are used in providing the software, such as a plug-in that can be installed which integrates with the software.

Types Of Software Licence Agreements

There are 5 main types of Software Licence Agreements that it’s worth familiarising yourself with:

Public domain licence
LGPL
Permissive
Copyleft
Proprietary

Public Domain Licence

A public domain licence is relatively flexible. This is because it allows the software to be used by the public with minimal to no restrictions.

More specifically, the software can be incorporated into certain applications or other software for public use.

Since it is so flexible, it carries higher levels of risk with respect to the security of the software and redistribution.

Lesser General Public Licence (LGPL)

A LGPL licence is, in a sense, a ‘softer’ version of a public domain licence. It can be described as ‘open-source’ software, so developers can include elements of free software.

This means they can link to open source libraries in their software.

Permissive

A permissive licence allows developers to license their software subject to certain restrictions. These restrictions are usually around distribution or permitted changes to the software.

Copyleft

A copyleft licence is a little different due to its reciprocal nature.

Under this type of licence, the licensee can make changes to the code and distribute this modified version on the condition that it is distributed under the same software licence.

Proprietary

We mentioned proprietary licences briefly earlier in this article (commercial software licence).

It is a much stricter licence than the other types, as it prohibits redistribution or modification of any type.

So, it restricts any unauthorised use of the developer’s software.

Non-Exclusive Software Licence

A Non-Exclusive Software Licence allows a licensee to redistribute or share the software with third parties.

This is unlike an exclusive software licence, which prohibits any licences from being given out to third parties. Like the name suggests, the licence is only for exclusive use by certain parties.

Who Needs A Software Licence?

If you’re a developer and you’ve built software for other parties, it’s important to put the key terms of your licence in writing.

This is where you’d need a Software Licence Agreement.

This makes sure that the use and access to your software is either enabled or limited according to your preferences or requirements, and your IP is well-protected.

Further, it ensures that you are being paid fairly for the use of your software and minimises the risk of unauthorised access and use.

Need Help?

A Software Licence Agreement protects both the software provider and the customer from the risks each party may be exposed to in this relationship.

If you require a Software Licence Agreement, we’re here to help! You can reach us on 1800 730 617 or team@sprintlaw.com.au.

Embeth Sadie

Embeth is a senior lawyer at Sprintlaw. Having previously practised at a commercial litigation firm, Embeth has a deep understanding of commercial law and how to identify the legal needs of businesses.