Software Licensing: What Your Agreement Is Probably Missing

The license grant is the core of any software license agreement. It defines the specific rights the licensor grants to the licensee, including the right to install, copy, access, and use the software. Enterprise licenses frequently distinguish between named user licenses, tied to specific individuals, and concurrent user licenses, which allow a defined number of simultaneous users. Failing to define permitted users creates exposure to unauthorized expansion of use across the licensee's organization. Companies negotiating enterprise software licenses should engage technology licensing counsel to ensure the license grant aligns with their actual deployment and usage plans.

Typical restrictions prohibit reverse engineering, decompilation, disassembly, modification, and use of the software to develop competing products. Without an express sublicensing prohibition, a licensee may argue they have an implied right to sublicense the software to their own customers. The restrictions clause must be drafted in conjunction with the license grant to ensure that no rights are inadvertently granted through ambiguous language. Licensors and licensees who need to review or negotiate a software license restrictions clause should engage contract drafting & review counsel to identify gaps and conflicts before execution.

Courts have generally upheld clickwrap EULAs, where the user must affirmatively click to accept the terms before accessing the software. Browsewrap agreements face greater enforceability challenges because the terms are accessible only via a hyperlink, not presented directly to the user. Key EULA terms include the scope of the license grant, restrictions on use, warranty disclaimers, limitations of liability, and the licensor's right to terminate the license upon breach. Companies that need to draft, update, or enforce a EULA should engage technology & IP transactions counsel to ensure the agreement is enforceable and covers all key risk areas.

The subscription model defines whether fees are based on a per-seat, usage-based, or flat subscription rate, and what happens when usage exceeds contractual limits. The SLA must specify the minimum uptime commitment, how downtime is measured, and what remedies the customer receives when the SLA is not met. Data rights are among the most heavily negotiated provisions in SaaS agreements. The customer should ensure it retains ownership of its data and has the right to export its data upon termination. Companies entering into SaaS agreements for enterprise software should engage trade secret protection counsel to review SLA terms, data rights provisions, and termination rights before signing.

Copyleft licenses such as the GPL require that any software incorporating GPL-licensed code must itself be distributed under GPL terms, meaning the distributor must make the source code of the entire combined work available. Permissive licenses, such as the MIT License and the Apache License 2.0, allow the licensee to incorporate open source code into proprietary software without triggering the copyleft obligation, subject to attribution requirements. Failing to perform an open source audit before a software acquisition or product launch can result in mandatory disclosure of proprietary source code and loss of trade secret protection. Software companies with questions about open source obligations in their products should engage copyright laws counsel to conduct an open source audit and assess their license compliance obligations.

The IP indemnification clause defines the licensor's obligation to defend and indemnify the licensee against claims that the licensed software infringes a third party's intellectual property rights. A well-drafted IP indemnification clause covers patent, copyright, and trade secret claims, and defines the conditions under which the indemnification obligation applies. The licensee must promptly notify the licensor of any infringement claim and cooperate in the defense. Software vendors and enterprise licensees should engage DMCA copyright counsel to evaluate their IP indemnification obligations and assess exposure from third-party software components.

Unauthorized use or distribution of software constitutes copyright infringement under the Copyright Act. Statutory damages for copyright infringement range from $750 to $30,000 per work infringed, and up to $150,000 per work for willful infringement. The Digital Millennium Copyright Act (DMCA) provides additional protections: Section 1201 prohibits circumvention of technological protection measures, and Section 512 allows copyright owners to require online platforms to remove infringing software copies. Software vendors who have discovered unauthorized use or distribution of their software should engage copyright litigation counsel to evaluate infringement claims and pursue DMCA enforcement or copyright litigation.

Licensors should include an audit rights clause that allows them to verify the licensee's compliance with the permitted user count and use restrictions. Audit rights clauses should specify the frequency of permitted audits, the notice required before an audit, and what happens when an audit reveals underpayment or excess usage. Software licensing disputes frequently involve requests for injunctive relief, because ongoing unauthorized use causes continuing irreparable harm that cannot be adequately compensated by money damages alone. Software vendors and licensees facing a breach of license dispute should engage breach of contract counsel to evaluate audit findings, assess liability exposure, and develop a strategy for enforcement or defense.