Chapter 3: Scope of License and Fees

In this chapter we turn to the provisions of the form vendor license agreement, introduced in Chapter 1, relating to the license grant, scope of license, restrictions on use, and fees. These provisions are without a doubt some of the most important in the entire agreement. They define the scope of the licensee's right to use the software and the fees to be paid for that use. Careful attention to these provisions will ensure the licensee is able to use the software for all of its intended purposes and that it has identified all costs associated with using the software and has negotiated protections to ensure those costs are adequately controlled in later years of the agreement.

The following sections of the form license agreement are discussed in this Chapter: Sections 1.3 (Definition of Licensed Software), 2.1 (License Grant), 2.2 (Licensed Software Use Restrictions), and 5 (Fees and Payment).

1. Defining the Subject of the License

One of the first provisions to review in assessing any software license is the definition of the software being licensed, typically referred to as the "Software," the "Licensed Software," or the "Application." In the form vendor agreement, the term "Licensed Software" is used and a definition is provided in Section 1.3. ^[1]

The definition of "Licensed Software" should be as broad as possible, encompassing all software applications being licensed and all updates, enhancements, versions, and releases. There are two main reasons for requiring this breadth. First, it will insure the license grant covers all of the foregoing and that there are no additional licensee fees for the updates, enhancements, and new releases. Second, the warranties and other obligations of the licensor under the agreement are usually tied to the "Licensed Software" or "Licensed Product," so the licensee would automatically gain the benefit of those protections for any new updates, versions, and releases of the software.

Consider the language provided in Section 1.3. As written, this definition could be construed to include only the software in the form originally provided to the licensee. Any later update or new release of the software would not be included in the definition and, therefore, not subject to the warranties and other protections provided in the agreement.

To address this problem, the definition of "Licensed Software" should be revised as follows: ^[2]

Example Revision:

• 1.3 "Licensed Software" shall mean the object code version of the computer programs to be provided by Vendor to Customer, as listed in Attachment "A" (Equipment and Licensed Software Listing and Fee/Payment Schedule), including all updates, releases, bug fixes, and enhancements thereto provided by Vendor to Customer under this Agreement.

^[1]Unless provided otherwise, throughout the remainder of the book all references to sections will be to the form vendor agreement provided in Chapter 1.

^[2]Suggested revisions to language in the vendor form agreement will be indicated by means of underlining and strikeouts.