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Software Licensing: Principles and Practical Strategies


Suffolk University Law School Research Paper No. 10-49

53 Pages Posted: 12 Sep 2010  

Michael L. Rustad

Suffolk University Law School

Multiple version iconThere are 2 versions of this paper

Date Written: September 10, 2010


Software licenses are important for all business lawyers whether they are transactional lawyers or litigators. Software Licenses: Principles and Practices provides attorneys, business executives, software engineers, and law students with the latest legal and strategic developments. The software industry is the third largest industry in America, displacing sales and leases as a means of transferring value. Over the past decade, software law has evolved from a sleepy backwater to the mainstream. Despite the centrality of software licensing to the economy of the new millennium, the law is relatively undeveloped and filled with landmines. This book employs best practices as well as doctrine imported from the ALI’s Principles of Software Contracts, UCITA, UCC Article 2, and international commercial law, supplemented by interviews with leading software lawyers. Business lawyers as well as intellectual property lawyers need to know the anatomy of a software license, just like a medical student must master the anatomy of the human body. Licensing has joined leasing and sales as a leading method of transferring value in the information-based economy.

Lawyers that represent either licensors or licensees will benefit from the systematic coverage of standard-form contracts, development agreements, and close study of the commercial law and intellectual property issues in this book. Law students in the new millennium need to be familiar with the fundamentals of software licensing to serve their clients. Software project managers, software company executives, or global business executives will benefit from the primers on basic and specialized software agreements in this book. E-businesses and software companies are increasingly marketing their products in a global marketplace. Exporters of software need to localize their license agreements to reflect cultural as well as legal differences in foreign countries. The law of software licensing is evolving at a rapid pace. Each chapter combines practical examples and up-to-date explanations to legal, business, and policy issues concerning software licenses. I used the hypothetical activities of SSC to place law, policy, and licensing strategies in context. SSC not only licenses software in the domestic market but also in the twenty-seven countries of the European Union. Each chapter emphasizes how SSC can protect its rights without infringing the rights of others in its licensing activities.

Lawyers who represent software industry clients will benefit from reviewing a short history of the industry, a review of information technologies, and a survey of licensing types. The first chapter begins with a brief history of the software industry and describes its impact on the daily life of all Americans. Software has not only become America’s third largest industry displacing durable goods, but its ubiquity in everyday life requires a reworking of contract law and intellectual property rights. The chapter surveys the most important types of software and introduces the concept of the software licensing agreement before probing the intricacies of specialized licensing.

Chapter 2 is a primer on the key concepts and terms of standard software license agreements. This chapter introduces the reader to Suffolk Software Company (SSC), a continuing hypothetical company used to address important legal issues in their licensing activities. SSC is a credible test case for evaluating the developing case law and business strategy for software licensing. The narrative of SSC gives the reader a less academic and more practical view of software contracting law.

This chapter examines he five “Ws” of every software license agreement. Counsel answering the five Ws - Who, What, When, Where, and Why - will be in a good position to evaluate and negotiate the key provisions of most software license agreements. This chapter establishes a baseline for a comprehensive audit of software licensing issues. Each subsequent chapter employs an immense number of vignettes to explain both basic and special purposes licenses for software development, mass market, software escrow, and international agreements.

The concept of “punch lists,” drawn from construction contract law, enables lawyers to double check that they have dealt with the most important risk factors in software contracts. There are a number of ways to use punch lists. For the law student and novice, they illustrate the stages of drafting specialized software licenses. For the practicing lawyer, they are “to do” lists. The punch lists for warranties and indemnification are most important in terms of any software licensing agreement. Chapter 3 explains warranty, indemnification, and disclaimers issues with the help of punch lists. Chapter 4 uses the pedagogical device of a hypothetical software company to illustrate the most common issues that arise when software licenses are breached..

The next four chapters use the hypothetical software company to explore specialized software agreements. Chapter 5 is a new audit of quickwrap or standard-form software licensing agreements. Chapter 6 examines the benefits and risk factors for free, libre, and open software. Courts classify software as open source if a licensor freely distributes source code to end users. Open source has evolved as a counterhegemonic movement to the closed proprietary software, which guards source code as trade secrets. Courts have yet to weigh in on the enforceability of copyleft licensing agreements. This chapter provides punch lists for avoiding liability and protecting rights while minimizing risk factors when dealing with open source software. Chapter 7 provides law and business punch lists for software development agreements. Chapter 8 examines the myriad business and legal issues associated with software escrow arrangements..

The third part of the book (Chapters 9 through 11) examines strategic legal and business issues for the commercial law of software licensing. Courts decided software licensing cases in a vacuum of specialized legal principles until the past decade. The chapters on the commercial law of software licensing will address recent changes facing software licensors and their customers today with far-reaching coverage of the Uniform Computer Information Transactions Act (UCITA) as well as the American Law Institute’s PRINCIPLES OF SOFTWARE CONTRACTS approved in May of 2009. The chapters on UCITA and The Principles of the Law of Software Contracts will provide business lawyers with a solid understanding of the best available templates for software licensing transactions.

Chapter 9 introduces the Uniform Computer Information Transactions Act and presents the first comprehensive statute governing software law. Judges, legislators, and policymakers will benefit from the coverage of UCITA. The rules for software licensing are changing dramatically this past year with the American Law Institute’s approval of The Principles of Software Contacts. Chapter 10 provides comprehensive coverage of The Principles of the Law of Software Contracts, approved by the American Law Institute in May 2009, as well as UCITA. Chapter 11 is a practical guide to asset-based lending including the creation, perfection, and priority issues that arise with software assets. Revised Article 9 in 1998 recognized software as collateral for the first time. Article 9 has created specialized rules for creating and enforcing purchase money security interests in software. Asset-based lending where software is collateral will increase rapidly as the industry increasingly seeks outside funding for software development projects.

The final part of the book focuses on cross-border software licensing issues. Software licensing operates in an increasingly flattened global economy. Chapter 12 examines the problems of American exceptionalism in licensing software in radically different cultures. This chapter explains how U.S. companies must localize their license agreements to launch successful business enterprises. From the beginning of the software industry, U.S. companies required their foreign customers to agree to U.S.-style license agreements that favored vendors. In the business-to-business sector, software agreements look pretty much the same around the world. This is the result of U.S. software agreements as setting the standard. In the business-to-consumer sector, many clauses in U.S.-style licenses are unenforceable in foreign countries. U.S. software licenses diverge markedly from the mandatory consumer protection rules governing the 27 European Community Member States. Business lawyers representing U.S. software makers need to localize license and distribution agreements to comply with mandatory consumer rules in Europe and elsewhere. While Chapter 12 is a comprehensive survey of European consumer protection broadly applicable to the licensing of software, Chapter 13 is a study of the cultural and sociological factors that come into play with cross-border software licenses. This is the first book to analyze cross-border software licensing issues. The book’s emphasis on preventive law will help lawyers, as well as members of the business community, face these challenges head-on!

Suggested Citation

Rustad, Michael L., Software Licensing: Principles and Practical Strategies (September 10, 2010). SOFTWARE LICENSING: PRINCIPLES AND PRACTICAL STRATEGIES, Oxford University Press, 2010; Suffolk University Law School Research Paper No. 10-49. Available at SSRN:

Michael Rustad (Contact Author)

Suffolk University Law School ( email )

120 Tremont Street
Boston, MA 02108-4977
United States

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