In the midst of a technology boom, we have seen an exceptional growth in the opportunity to create, develop and commercialise software of all kinds. Consequentially, there lies an equally growing need for software providers to incorporate sophisticated terms and conditions that will keep pace with market developments.
Given that software can be commercialised in multiple ways, different sets of terms have been developed to sufficiently govern the commercialisation of that software product or service. Below is a list of the different types of commonly used software terms alongside their purpose and the context in which they are typically used in.
Software Licence
What?: A software licence operates to permit party B(the Licensee)’s use of software belonging to party A (the Licensor) in exchange for something (money, data or otherwise). In comparison to other agreements, a software licence is typically shorter as it only deals with the permission to use the software – it does not normally cover details such as updates or support as this constitutes more of a service than a plain licence.
When?: Software licences are often used in circumstances where the software is sold to a large number of customers, with the software itself being in a final format. This is because a software licence typically excludes support services and instead concentrates on the actual permission to use the software. As a licence is normally simplified, it allows the business to reuse the same licence for numerous customers, with an opportunity to make slight tweaks to the terms if necessary.
Software as a Service Agreement (SaaS)
What?: A SaaS agreement is typically more complex than a plain software licence as it governs the provision of a service in addition to permission to use the software. In this case, the use of the software is usually managed on the software provider’s servers as opposed to the customer’s servers, with the ‘service’ of the agreement coming into effect through the provider’s support offering. This support offering often consists of maintenance, updates and security, so often a more detailed agreement is needed. In addition, because of this ongoing service, payment made to the software provider is commonly accepted via a subscription fee, often paid monthly, quarterly, or annually and may vary or could be accompanied by additional fees depending on usage or support provided.
When?: A SaaS agreement is normally used when software is being sold from one business to another business (B2B), although there are numerous instances where businesses sell the software directly to consumers. The software itself is typically provided via a web browser or application. Examples of popular SaaS products are Microsoft 365, Netflix and Zoom. Here, customers pay a monthly subscription and, in addition to software access, receive updates and maintenance support.
End User Licence Agreement (EULA)
What?: A EULA is a licence that sets the parameters for use of a particular platform of software program and governs the relationship between the software providers and end users. Due to the way that contract law works in England and Wales, it is not enough to have terms in place with your paying customer – you should also put terms in place with each and every user of the platform – a EULA.
In summary, a EULA can provide:
- a licence for the individuals to use the software,
- any restrictions to that licence (for example, they will not try to copy or create derivative works),
- a requirement that the End Users do not infringe your IP rights or those of a third party when using the software, and
- confirmation that you retain ownership of the IP rights.
When?: EULAs are essential for all types of software offerings – intended to apply to the end users of the software in question. If you think back to when you have previously opened up an application for the first time, you might recall having to ‘accept’ or ‘decline’ a legal terms and conditions – this list is most likely a EULA.
Software Development Agreement
What?: A software development agreement governs the specific development of a particular software for a client – and deals with the rights in that developed software. Unlike a software licence or SaaS agreement, intellectual property in the developed software is usually (but not always) assigned to the party paying the developer, as opposed to licenced. This is not always the case however, and so it is important that the terms reflect the intentions of the parties and are properly drafted and reviewed prior to signing. There may be an option for the developer to provide some form of maintenance and support, although it is likely to be for a limited period as the software is rolled out – anything beyond this is likely to require a separate support agreement.
When?: Whenever software is developed by an external software developer. The only time a software development agreement may not be necessary in this instance is when a business employs a development team (in-house employees) and therefore does not require a third party to undertake the work for them. In this case, it is important to have clear software development policies to avoid disadvantageous licenses being signed up to and/or integrated in any developed software.
Software Reseller/Distribution Agreement
What?: A reseller agreement normally deals solely with the distribution of software and does not focus on the creation of software. In practical terms, the distributor would typically purchase a large batch of licences/access to the software at a reduced cost and then sell them on to end users or businesses. There may be occasions where the distributor wishes to provide some form of maintenance and support, at which point this would need to be included into the terms of the agreement. Whilst the distributor will not be given ownership of the software, they will likely be granted a licence to sell the software.
When?: Reseller agreements are essential to govern the relationship between a software owner and any third party wishing to sell on the software to third parties – this can sometimes be a “white-label” style arrangement or a “value added” type arrangement. It is important that any commission is clearly detailed in the agreement – together with the specific rights granted to the reseller.
Framework Agreement
What?: Framework agreements are useful when a business offers a multitude of services but would like consistency across its contractual terms with its customers. For example, your business might offer lots of different services and you might have some clients who pay for all of your services – or some that pay for 1 or 2. A framework agreement can operate as the standard terms and conditions of your service provision, with the ability for service-specific terms to be “plugged in” as and when the customer requires the service. It is important that the terms are carefully drafted to ensure there is no unintentional conflict between the terms.
When?: Framework terms are often suitable for multi-service businesses. For example, a tech company might provide broadband, consultancy, software development, cyber security and more. The framework terms enable a business to easily up-sell and add on services throughout the relationship with its customer.
Conclusion
With numerous contracts existing to govern different relationships, it is important that you put in place the right type of contract for your business. These contracts should be well-drafted to provide you with the best possible protection. Whether you are looking to sell software, commission software development for your business or use software in your business, it is fundamental that you understand the risks, your rights and obligations.
At Stephens Scown, we have a talented roster of Intellectual Property and Technology lawyers who are well-equipped to draft, review and advise on all kinds of software agreements. Should you wish to have software contracts drafted, or if you have any questions regarding software and intellectual property, please reach out to technology@stephens-scown.co.uk or call us on 0345 450 5558.
This article was co-written by Joey Medway and Amy Ralston a Paralegal and an Associate in the Intellectual Property, Data Protection and Technology team.