Does Your Client Need a Short-Form Software License Agreement?

August 15, 2017

Licensors of mass-marketed, off-the-shelf software (software without customization or modification by a licensor for a particular licensee’s requirements) typically license their software on standard “shrinkwrap” or “clickwrap” terms which do not present an opportunity for the licensee to negotiate the terms. However, certain businesses that license enterprise or other multi-user software may be positioned to negotiate the terms of their software license agreements using either the licensor’s or the licensee’s form agreement as the starting point.

Both licensors and licensees may prefer to use a short-form software license agreement to capture the terms of the deal. A short-form software license agreement may be a great solution for your licensor or licensee client if the client:

  • Is a start-up company that needs a go-to-market software license agreement succinctly addressing the licensor’s key areas of concern.
  • Only wants to address and negotiate the high level issues of a software license due to time or budget constraints.
  • Wants to streamline the contracting process and control costs, especially if the value of the contract does not justify extensive legal expenses.

Whether the parties decide to use a long-form agreement or a short-form agreement, the contractual language is normally adjusted to account for the specific business factors at play in the transaction including:

  • The size and value of the deal.
  • The client’s leverage and position as the licensor or licensee.
  • The status and bargaining position of the other party.
  • The extent to which negotiating the agreement may delay or jeopardize the closing of the transaction.

In short-form software license agreements, one of the most heavily negotiated provisions is the scope of the license grant, including the use restrictions. The scope of the license grant tends to vary in many respects based on the intended use by the licensee and the licensor’s business strategies, and may provide for either:

  • Unlimited use within a specified licensee organization.
  • Limited use that is restricted, for example, to one or more specified numbers or types of:
    • software copies;
    • named users or unnamed concurrent users;
    • facilities, equipment, systems, networks, platforms, or devices; or
    • location.

Parties also typically negotiate the allocation of risk and liability in short-form software license agreements, including:

  • Warranties, such as warranting that the software complies with agreed-upon specifications and contains no viruses or malicious code.
  • Indemnification, such as an indemnity from the licensor for third-party infringement claims.
  • Limitations of liability, such as limiting potential damages liability to a fixed amount and waiving indirect damages.

Practical Law’s Intellectual Property and Technology team recently published resources to help counsel understand, draft, and negotiate effective short-form software license agreements:

These resources provide standard language for short-form license agreements as well as practical guidance on negotiating and drafting the agreement.