The Software Licensing Dilemma

Abstract

Is software licensed or sold? Software licensing occupies a unique position at the intersection of contracts, intellectual property, and commercial law doctrines. The difficulty in analyzing software licensing issues directly results from the sui generis nature of software which leads to the construct of what I refer to as the "software licensing dilemma" - if software is sold and not licensed, the licensor's ability to control unauthorized uses of its product is significantly curtailed; on the other hand, if software is licensed and not sold, the licensee's rights under the agreement are unduly restricted. Currently, the use of contract law to evaluate software license agreements is problematic, not because the doctrine is not up to the challenge but because those who use the rhetoric of contracts have tended to impose an artificially static view of what contract law demands - a view which wholly ignores the philosophical objectives underlying contract law. In this Article, I propose adopting a "dynamic contracts" approach to resolving the software licensing dilemma. A dynamic contracts approach aims to effectuate the intent of the parties while balancing their intent against policy considerations. A determination of the parties' intent would include examining both the nature of the transaction and the terms of the written document or license agreement. This Article argues that the validity of a license grant should not be inextricably tied to the validity of the contract. Contrary to what is suggested by the first sentence of this Article, software transactions are not a binary proposition. While some transactions can clearly be identified as either licensing or sales deals, many (perhaps the vast majority) entail both. The recognition of the independence of license grant provisions exposes the binary proposition of license v. sale as a false dichotomy. In applying a dynamic contracts approach, this Article also addresses several policy considerations relevant to interpreting two often disputed license provisions - the restriction on transferability and the restriction on commercial use.

Keywords: contracts, commercial law, software, licenses, intellectual property, shrinkwraps, clickwraps, browsewraps, consumer law, first sale, licensing