Picking up where we left off yesterday, below is the rest of our quick checklist of issues customers should consider in any software license agreement. Today’s posts include more traditional legal issues to add to the issues contained in our previous post, which were more commercial or operational in nature.
- Warranty/Ongoing Support: Does the license come with a warranty that can be used in place of first year support? When do warranty and support services each begin? How is Ongoing Support contracted? Are the license and support rights separate?
- Compliance with specifications Representation: Does the supplier commit to respecting the specifications? Is the commitment limited to substantial or material compliance? Consider how ‘soft’ issues are handled. Are software descriptions in the contract and/or vendor-published documentation included in this commitment? Are there specific remedies in the event of non-compliance (repair, replacement, refund)? Are certain disclaimers in this representation, such as those for infringement and combined use, narrowly tailored?
- No deactivation code: Check that the agreement contains a guarantee that the software does not contain time bombs, worms, viruses or other codes that could be used to disable or disable the software or company systems. Is the warranty granted only at the time of delivery or does it continue for the duration of the support? Are there qualifiers of knowledge or materiality that limit the guarantee?
- Open-source: Ideally, any open source or similar publicly available software incorporated into the software would be specifically identified in the documentation and reviewed by the customer as part of its due diligence with the vendor. Does the use of open source comply with your internal open source policies? At a minimum, the agreement must include representations by the vendor that the software will be free of any “viral” open source software (e.g., GNU General Public License) that could trigger source code disclosure obligations or a free license of the software or any software used in connection with the software.
- Non-infringement guarantee/compensation: At a minimum, does the agreement require the seller to indemnify the company for third-party infringement claims? Does the provision cover all infringement claims or is it limited to certain claims (eg, valid US patent or copyright claims)? Are the exceptions to the seller’s indemnification obligation closely matched? In addition to indemnity, is a non-infringement warranty provided that would allow the company to seek repair or replacement remedy and/or direct damages?
- Bundled products: Are other products included with the base software that the customer has licensed? If so, are they other vendor products or are they provided on behalf of a third party vendor? Do additional terms and conditions apply? Does the agreement disclaim all or part of the responsibility for these bundled products? Are they covered by other representations and warranties? Allowances? At a minimum, the company should receive a transfer of warranties and indemnities available to the seller from the supplier of any bundled third-party product.
- Disclaimer: Confirm that warranty disclaimers do not contradict express warranties provided in the contract. Any broad or potentially conflicting disclaimer should be qualified with “except as expressly set forth in this Agreement”.
- Ownership of Changes/Additions: Will you be modifying, configuring or creating add-ons/add-ons to the software? Under the Agreement, who owns and has the right to use the Modifications, Configurations, and Add-ons? Are these modifications/additions likely to be specific to this vendor’s software and of limited utility outside of this context? Are there any that offer a competitive advantage or an investment? The customer must carefully read the definitions of software and intellectual property rights. Often, if the customer makes the change, you think it belongs to you. Beware, however, that some agreements result in changes in the product definition without reference to who created or was responsible for the change. In addition, some agreements have notification requirements regarding changes which can be administratively burdensome.
- Responsibility: Are the limitations of liability reciprocal and commercially reasonable? Be aware of any absolute exclusions of liability or liability. Ensure that typical exclusions (breaches of confidentiality or data security obligations, non-infringement provisions, indemnification obligations and gross negligence, willful misconduct or fraud) are included in each of the disclaimers and disclaimers. liability cap, if necessary to address the risk associated with the software vendor and use case.
- No Other Terms and Right to Change Terms: Always check if all terms are included in the contract you are reviewing. Beware of links and references to other documents that are not attached. A statement that clicks or links are expressly not applicable is often a good idea. Also consider how the supplier can change the terms. Some forms allow the seller to unilaterally modify the conditions with notice. As licensing models evolve, vendors are looking to evolve their licensing terms. Customers, on the other hand, typically seek the right to approve (at least substantial!) changes to contract terms, or to qualify the seller’s right to incorporate changes that substantially alter current terms and/or reduce Customer’s current rights and remedies under the applicable terms.
This article is part of our recurring “Contract Corner” series, which provides an analysis of specific contract terms and conditions that may raise particular issues or concerns. Check out our previous Contracts Corner articles for more on Contracts and be on the lookout for future articles in the series.