Software Licence Agreements and Software Development Contracts - Part 1

Our software licensing lawyers step through some common provisions of software license agreements and software development contracts. We consider the purpose of inclusion of clauses into licence agreements for software, and software development agreements.

Whether a software license agreement is properly constructed for a transaction depends on a range of factors. Of course, management of intellectual property rights for the copyright owner is a key area for close consideration. This entails defining the territory – usually countries - for the use of the software.

Software Development Contracts

A key indicator for determining the complexity is whether the software licence is or will be part of a larger agreement to develop software from scratch – that is, a software development contract. When computer software is developed under contract, the proper advice is that a document specifying what the software will do at the end of the day should be incorporated into the agreement. Whether it is referred to as the functional specification, functional requirements or the requirements document is immaterial. What is important is that it defines with reasonable clarity what the software will do; and of course on a functional level. In this way both contracting parties are able to determine when the contract works have been completed.

Packaged Software Contracts

On the other end of the spectrum is a software licence for packaged software. In this case, the software is not to be built to any person’s particular specification, but rather the software supplier has gone to trouble of identifying a need in a market and constructed the software to fill the gap in the market. Sometimes – and more frequently – niche software is built with configuration options to deal with a broad array of configurations to suit different flavours of businesses. So, an accountancy package may be tailored to businesses from 10 people to 1,000 people. The point is this: software of this nature is fundamentally packaged and is sold as it is. There may be a requirement for extended configuration to suit the particular client’s needs, but in the end it is packaged and not software built to anyone’s particular specification, as is the case with software development contracts.

The difference may be obvious in this regard, but time and time again the wrong contract is used due to misconception as to the fundamental nature of what is being delivered.

After determining the fundamental nature of the software, some of the other matters that are frequently dealt with in so called software license agreements are:

1. The provision of maintenance and support services

2. Installation and testing

3. Service level agreements, delivery of improvements (whether they are updates or upgrades, rather than hot fixes). The software related services may be agreed in a separate document or they may be incorporated into the same agreement as the software licence. We return to these below.