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A Guide to IT Contracting by Michael R. Overly, Matthew A. Karlyn

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9
2
Software License Agreements
CHECKLIST
Ask Yourself:
Business purpose and goals
Criticality
Fees and costs
Implementation time
Terms to Include
License and restrictions
Acceptance testing
ird-party soware
Fees
Warranties
Indemnication
Limitation of liability
Specications
Condentiality and security
Maintenance and support
Announcements and publicity
Term and termination
Additional terms:
S Force majeure
S Prohibition on right to assign
10  •  A Guide to IT Contracting: Checklists, Tools, and Techniques
INTRODUCTION
While every soware license agreement does not warrant a customized
approach, it is important that soware license agreements contain the
essential terms that address relevant business issues. It is oen the case
that soware licensing transactions are driven by a vendor’s soware
license agreement. Understanding that, in many cases, it makes sense to
start with a vendor form of license agreement, this chapter discusses the
language that your company should expect to see in its soware license
agreements. Short vendor forms are used by vendors in transactions that
range from the simple to the complex and may require a small nancial
commitment or several million dollars. When reviewing, draing, and
negotiating soware license agreements, it is essential that your company
understand each provision of the vendor agreement, how it operate, what
changes should be made to ensure that the provisions meet your compa-
ny’s business requirements, and what additional provisions your company
should propose adding to the soware license agreement so that the result
is an agreement that is balanced and meets your company’s needs.
FOUR CRITICAL QUESTIONS
Before draing or reviewing any soware license agreement, your com-
pany should ask four critical questions. e answers to these questions will,
in large part, dictate the type of provisions that you dra and the depth of
revisions that you will propose to the vendor’s form of license agreement.
• Business Purpose and Goals. What is the business reason for licens-
ing this application? is should include a fairly robust discussion
that the business has for implementing the application.
• Criticality. How critical is the licensed application to the organiza-
tion? By asking this question, your company is determining whether
the application supports a critical business function or a minor busi-
ness function. Your company should ask itself—what are the impli-
cations to the business if the application doesnt work?
• Fees and Costs. What is your company going to pay for the applica-
tion—including with respect to the initial license, support, imple-
mentation fees, professional services fees, maintenance, etc.
Soware License Agreements • 11
• Implementation Time. How long will it take to implement the
soware? e longer the implementation period, the greater the
likelihood for cost overruns, delays, and other problems. Where
implementation is an issue, the parties will want to develop a specic
work plan and schedule prior to execution of the soware license
agreement and, at a minimum, determine the commencement date
of the implementation, the required completion date, and all of the
dates associated with the key deliverables of the implementation.
Where a complete work plan is not determined prior to agreement
execution, ensure that the agreement includes a requirement that the
parties work together to nalize the work plan within a specied
number of days aer the agreement becomes eective.
LICENSE AND RESTRICTIONS
Each license agreement should contain a license to the soware that pro-
vides all authorized or possible users access to the soware.
• Ensure that your company can assign the license if it requires this
right.
• Ensure that successor entities to your company can use the applica-
tion for a period of time in order to ensure a smooth transition. In
this case, the vendor will likely require that your company remain
responsible for its obligations, including payment obligations, for the
period of time the successor entity is permitted to use the soware.
• Ensure that, if applicable, your company is permitted to outsource
the operation, hosting and use of the application and that such right
is without charge.
It is generally preferable to avoid limiting the use of soware for “inter-
nal purposes” and instead broadening the license grant to provide your
company the ability to use it for its “business purposes.
• e “licensed soware” should be dened to include all of the so-
ware that your company is licensing. Keep in mind that this likely
includes any updates, enhancements, modications, versions, and
customizations to the soware.

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