Terms of Licence -
Software Licence Agreements and Software Development Contracts - Part 2

Intellectual Property Rights

Terms of Licence

Assuming that the software supplier does not intend to assign the copyright in the software to the licensee, the terms of the licence are of crucial importance to software suppliers’ further exploitation of the software.

On the most generic level, there are 3 types of licences that may be granted: non-exclusive licences, sole licences and exclusive licences. Licences though, as they are only ‘permissions’ may be framed in anyway the parties wish. A software supplier will often wish to licence their software to a number of clients. In this case, the licence will be a non-exclusive licence as the software supplier grants a non-exclusive right to the licensee to use the software. Sole licences do not appear too often, and they simply mean that the licensor (the software supplier) grants a single licence to a party to use the software, and they retain the right to use the software themselves. On the other end of the licensing spectrum is the exclusive licence. In the event that a software supplier wishes to grant the licensee the right to use the software to the exclusion of all others, an exclusive licence is granted. Some care needs to be taken when granting exclusive licences, as courts will look at the terms of the exclusive licence and decide whether it is in substance an assignment. If it is, then a court will order that the licence term was not at law a licence at all, but rather an assignment and thus divesting the software supplier of all rights in the software.

Here is a brief example of the complexity that can be introduced in granting licences. Suppose a supplier designs and constructs software that manages couriering of documents from office to office of business. It is possible for the software supplier to grant non-exclusive licences to businesses in a particular trade, say banking to use the software. Those licences may be restricted to use in a particular geographic region such as the City of London. The software supplier may then grant non-exclusive licences to businesses in the financial sector in Manchester to use the software. Further, the software supplier may grant an exclusive licence to a person to develop the source code to perform additional functions. This exclusive licence would deprive the software supplier from further developing the source code himself. So licensors of software are able to flexibly grant permissions to use the software, and restrict its use geographically, by industry and any other basis that appeals to them.

Extensions of these types of licensing are non-transferable and non-assignable licences, which effectively prevent licensors from selling or licensing others to use the software. One of the exclusive rights of the copyright owner is the distribution right – the right to licence others to distribute software. This is the foundation of the reseller agreements, whereby third parties are authorised to licence software on the software suppliers’ behalf. Most software licences do not grant the licensee the right exercise the distribution right as it would allow them to sell licences for the software.

Furthermore licences may be set for a fixed term or the grant of licence may be perpetual – allowing the licensee to use the software forever subject to any other conditions imposed by the licensor.

Tracking Licences

When the software is licensed on a per use basis, it is a good idea to provide that a register be maintained of copies made of the software, in addition to monitoring software use by Active Directory on Windows systems. Such implementations facilitate denying software use by electronic means. If this is to be done however, the licensor must be informed in the contract document.