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Software License Agreements - A Practical Guide

Computer software is an essential tool for almost every business. Businesses use computer software to design and create products, perform services, manage business relationships, communicate with suppliers and customers and control internal operations. Almost every business procures various kinds of computer software from numerous software vendors.

Computer software is usually distributed by the software vendor pursuant to a contract – commonly known as a “software license agreement” – that specifies the rights and obligations of the software vendor and the customer. A software license agreement usually gives the customer limited permission to use the licensed software, confirms the software vendor’s limited promises regarding the quality of the software and the availability of related services, imposes obligations on the customer (including an obligation to pay applicable fees for the licensed software and related services) and allocates risk between the software vendor and the customer.

Software license agreements can take various forms and be implemented in various ways. Inexpensive, commercial off-the-shelf software is usually governed by a non-negotiable, standard form agreement, which the customer must accept before or during the software installation process. Expensive software that is costly and complicated to implement is often governed by an agreement that is subject to negotiation by the software vendor and the customer.

An inadequate or unreasonable software license agreement can present the customer with significant business risks and legal liabilities. Accordingly, regardless of the nature or form of a software license agreement, a prudent customer, with the benefit of legal advice, will carefully review the agreement and attempt to negotiate required revisions so that the agreement is appropriate and reasonable in the circumstances.

This handbook provides a simple explanation of some of the important provisions commonly included in software license agreements and some practical guidance for businesses considering the procurement of software.

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