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License Rights in Your Software License Agreements
By Robert Doe, JD
Each software license agreement contains a provision which grants specific use rights with regard to the software you are licensing. However, software manufacturers’ standard contract documents may not take into account your organization’s specific use requirements.
As a result, unless your organization has a relatively simple legal structure, you should pay particular attention to this language to ensure the software can be used as you intend it to be used. The extra effort is well worth the time when you consider that without the proper license grant, you may be asked to pay additional, unanticipated fees down the road.
If you don’t alter the standard contract language, typically, the license grant is given only to the legal entity signing the contract. For example, a typical software vendor’s license grant provision might read as follows: “Licensor grants Customer a perpetual, nontransferable, nonexclusive license for the number of concurrent users set forth in Exhibit A to use the computer program listed in Exhibit A (the "Software") at the installation site set forth in Exhibit A for Customer’s internal business purposes.”
In this example, the license grant is given to “Customer,” which is typically defined as the legal entity signing the agreement, which may not encompass all the actual individuals that will use the software. Getting the license rights correct in your contract requires that you know how your organization is structured and who the individuals are that you want to be able to access and use the software, both at the current time and in the future.
If your organization has a parent corporation, or has one or more legal entities that are owned or controlled by your organization or are under common control with your organization, the typical vendor license grant provision will technically not allow any use by the employees of these “affiliate” organizations.
Another example of a situation that is not technically covered in most license agreements is use by contracted providers that are not employees of your organization. In addition, some organizations may have other independent contractors that will need access to the software at various times, such as computer consultants.
With more and more frequency, healthcare organizations are licensing software not only for their own use, but to use on behalf of other smaller healthcare organizations in the community. Similarly, some healthcare organizations are considering re-licensing their systems to smaller organizations at a reduced rate.
In the example license grant language above, use of the software is limited to the “internal business purposes of the Customer.” If the software is to be used, in part, for the benefit of an affiliated or unrelated organization, or re-licensed to such an organization, the license grant will need to be significantly modified to allow for such actions.
When licensing software, it may be worth the extra time to put some thought into how you intend to use the software, both internally within your organization and, if applicable, externally. As part of your analysis, you will need to understand the legal structure of your organization. This information will help you to make sure you have the appropriate license grant in your software license agreements to allow for the use rights you require.
Bob Doe is a founding member of BSSD, an information technology law firm located in Minneapolis, MN.