Termination and its Consequences -
Software Licence Agreements and Software Development Contracts - Part 9

Termination

The two provisions that cater for termination in practically every professionally prepared document – where the parties have near equal bargaining power - are that either party may terminate in the event of a material breach or where one party enters liquidation or is otherwise insolvent.

Incorporating other rights to terminate largely relies on the nature of the services to be provided. Having right to terminate contractual obligations assumes that there are continuing obligations under the contract. If the contract simply grants a perpetual software licence for a fixed fee, then it stands to reason that there is little need for rights to terminate. The modern style of contract drafting, even for packaged software (which are commonly instances of a perpetual licence grant) commonly exist in software licence agreements, and generally relate to the failure of the provider to meet specified minimum service levels and fundamental breaches of the contract.

Consequences of Termination

In the case of outsourced software services, exit management provisions are essential to ensuring a timely and professional handover of the outsourced services. In the context of software developed and subsequently licensed, it may be that it is appropriate for the licensor to

1. Hand back user documentation

2. Delete all copies of the software residing on servers and workstations

3. Deliver up copies of the software on backup media and

4. Destroy confidential information.

Certificates of compliance may be used to obtain confirmation that the post-termination requirements of the contract have been adhered to.

On a related issue, this is where managing software licensing by electronic means is a useful tool to prevent use of the software. This is an under utilised measure by licensors to ensure that the computer software cannot be used.