3 Key Terms of a Software License

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Who owns your software?

If your company has developed software, it should create a software license prior to distribution of that software. A software license is the key instrument that defines the rights in ownership, usage, and distribution of software between the company and user(s). Developers seek to protect rights in the product developed with their time, money, and staff. Users want to know what is being licensed and whether that license will meet their needs. A software license should be employed in enterprise software, consumer software, “cloud” software, customized software, and even in “open source” software contexts (it is a misnomer that if one desires software to be open source, that the company needs only to forego a software license). Failure to draft a carefully considered software license can lead to loss of ownership of key aspects of the software, loss of control of the business model, bad publicity, and other consequences. There are many options to think about for a software license but three key terms include:

Scope of Use – This element of the software license states the permitted and prohibited uses of the software. A license may, for example, limit the use of the software to the licensee’s own internal use or primary business activity. Such a restriction may support the licensor’s business model or effectively be required by law. For example, in credit card processing software, the software provider may also be providing related services and would seek to limit the uses of the software so that the licensee does not deprive it of revenue opportunities from those third parties. Additionally, the credit card processor may not be able to fulfill IRS reporting obligations if the user processes credit card transactions for third parties.

Intellectual Property – Since you’re reading an intellectual property blog, you probably knew this issue should be addressed. However, this issue should not be overlooked or oversimplified. Innovation in software can invoke multiple areas of intellectual property law and contract law, including patent law, trademark law, copyright law, and trade secret principles. Where software patents exist, notice of the patents should be provided. Copyright almost always exists in software, thus it should be addressed. Furthermore, the intellectual property clauses should not be oversimplified. For example, the intellectual property rights may not be as simple as “Developer owns all right, title, and interest in Software… we own it all, you can’t use it, the end…” Unreasonable restrictions on use of the software may lead to a backlash, lot revenue, or just may not fit the company business model. The intellectual property clauses may be more nuanced due to contemporary business models and social media influence, where the users may make substantial contributions. For example, use of the “Android” name and logo (ie trademarks) by third party developers is advantageous to the Android Market ecosystem. Likewise, the prolific placement of Twitter and LinkedIn logos on third parties websites promotes the use of the Twitter and LinkedIn systems, respectively.

Rights in User Data – Some user data is mission critical. For example, customer relationship management (CRM) can be  the lifeblood of a business. Judging by some of the posts on Twitter, other user created data may not be so critical. In light of the software, the business model, and customer profiles, the software license should address the licensor’s and licensee’s rights in user data. This may include user created data, data about the user, or information generated about the user from the user environment. For CRM software on an in-house workstation and servers, where the business model is that the enterprise pays for the software, the license may state that the licensee has complete ownership of the user data and the licensor has no rights in the user data. For a mapping application, the license may state that the mapping company has complete ownership, including the right to redistribute user supplied corrections.

Older language and terms may not apply to the current environment, so a company should periodically review the software licenses. Newer paradigms such as software as a service, virtualization, and multi-core processors have changed the software landscape and thus may lead to ambiguity or undesired results from an existing license.

The above terms are just three terms among many for consideration for inclusion in a software license, so do your research for your specific software and situation.

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