The Software License and its Terms and Conditions

January 3, 2023
Thai Nguyen

Companies investing in software and SaaS should carefully review all licensing agreements before entering into the contracts. Businesses should know what they can and cannot do with the software. This way, they can make better decisions, improve safety and security, maintain compliance, and renew or upgrade software if necessary. Every developer and vendor may have different terms and conditions. Still, every contract follows a similar format and features standard clauses. This short guide will teach you what to expect from your software license.

What Is a Software License Format?

When reading through a software license, knowing where and how to find any specific information is essential. In most cases, agreements include the following sections:

  • General Overview: The first section of a licensing agreement describes the type of contact, the parties involved, the duration of the contract, and when the contract will begin. This information is the most critical to management and ITAM. 
  • Parties: The Parties section details the parties involved in the contract. You will see the developer names, contact information, and vendor information. You will also find your name, title, and information.
  • Terms and Conditions: The bulk of the contract is the terms and conditions section. It addresses main concerns such as fees, usage, renewals, upgrades, location limitations, services and features, maintenance, technical service, and more. 
  • Details: Developers cover points that may not be addressed yet. For instance, there may be terms and conditions specific to your company. You will also find signatures and dates at the end of this section.

What Are the Common Software Licence Clauses?

While it is critical to look into the particular details of your contracts, standard clauses, terms, and conditions include:

  • Warranty: Agreements may come with a warranty, ensuring the software will work as promised for a certain amount of time. However, some contracts issue “no warranty” meaning the end user agrees to accept the software as is. There are also limited warranties, indicating fixed conditions for the warranty. 
  • Non-Exclusivity and Exclusivity: A non-exclusive license is a common choice for developers. It means that they grant you the right to use the software but that they can also grant the same rights to others. The opposite of this license type is an Exclusive, where only you can use the software. Co-exclusive contracts provide rights to a select number of people, but they must be named in the contract. 
  • Intellectual Property Rights: This clause details what the consumer and provider own in terms of intellectual property. If developers have rights to things that consumers create in the service, they should explain what they can use, how they can use it, and how long they can use it.
  • Privacy and Security: Providers must be clear about their privacy and security measures. If they collect any data from the consumer in any way, it must be outlined. It must explain  exactly what they take and how they use it. Likewise, if any other parties are involved in the contract, their access to data must be detailed. Furthermore, these clauses should include the consequences in case of security breaches.
  • Liability Caps: Providers outline their liability limits in case of terms and conditions breaches. Consumers should ensure liability caps align with their potential losses in the same scenario.
  • Prices: Some developers outline specific services or features and their prices. They may also describe available packages and their prices. In these conditions, providers typically include how long the pricing will last and when the company can review or alter a price. Additionally, it specifies billing and the consequences for late or overdue payments.
  • Authorized Locations and Users: Software contracts can limit usage to a number of authorized users, certain authorized users, a number of locations, or a certain location. 
  • Distribution Rights: A software license provides rules for the distribution of software. They may allow customers to have one or more copies of the software but specify a limit in number, location, or both. Likewise, most software contracts do not allow end users to distribute or sell the software. 
  • Modification Rights: Some types of software licenses allow the end user to modify the software for their own use or to make the software even better for all users. Other types forbid any modification, define modification, and explain the consequences if the consumer breaches this clause. 
  • Termination: If the provider wishes to terminate your contract, both parties must take certain actions. This clause may indicate that you must destroy all copies of the software or uninstall the software from all devices. Most contracts detail that providers can terminate rights at any point, for any reason, without consequence. However, if you wish to terminate your contract, you may need to pay a fine or pay your remaining balance. 
  • Governing Law: In the event of a dispute between the parties, the law in the provider’s state or country prevails. 

Can You Negotiate a Software Contract?

End users can negotiate a software contract, assuming they have yet to enter into the agreeement. They can also reconsider their contract and re-negotiate terms and conditions upon renewal. Although not every provider will be open to negotiations, they are typically accustomed to adjusting certain portions for an amicable business relationship and long-term contract.

Most negotiations tackle:

  • Term length
  • Billing or payment details 
  • Price increase cap 
  • Performance protection 
  • Security protection 
  • Software support
  • Liability and Losses
  • Termination consequences
  • Definitions

Say you find the perfect software for your business, department, or team, but you find the terms and conditions unfavorable. Negotiation may be the solution. If this is the case, put together a negotiation team wise to ITAM and security needs, business goals, finance and budgeting, and legal terms and proceedings. Your team should perform sufficient research on the vendors, developers, software, and a competitor or industry contracts. They should develop data-backed, reasonable asks for the negotiations and prepare to be flexible. While they may need to compromise on some issues, they should also be able to walk away from a deal that doesn’t suit your business.