[NOTE: This is another in the series of repostings of my previously-published articles. This article was written in 2003 for Practical Technology Contract Review News email newsletter I used to publish. It was part of a series of articles explaining the various sections of IT agreements and how to think about them. It really doesn't get any more basic that getting the license language to match what you want in your deal, but you'd be surprised how often that is not done well, especially in the first drafts of contracts.]
The 5 Ws of License Grants
Nearly every technology contract today contains at least one license grant provision. Most commonly, there will be a software licensing clause, but trademark, copyright and even patent licenses have become common in everyday technology contracts.
I have often been surprised when I review a contract prepare by a vendor to find that the license grant is not even close to what is anticipated by the deal, let alone what either the licensor or licensee actually wants. License grants are not “one size fits all” clauses. Because the license is a key to the deal, a license grant provision should never be treated as a stock or off-the-shelf clause. It’s one clause that you want to get exactly right because if you don’t get the rights you need now, you will probably run into problems later.
Getting a license grant right takes some effort, but simply focusing on the simple five Ws – who, what, when, where and why – that we were taught in school will put you ahead of 95% of people reviewing license grants. These may seem like basic questions, but, believe me, there are no stupid questions when it comes to reviewing license grants. You want to make sure that you understand the language and that it covers what it is supposed to cover.
1. Who? Don’t take this question for granted. Who is licensed? Your company and employees? Yes, but is the correct company licensed? What about affiliates and subsidiaries? Employees of affiliates and subsidiaries? Do you use part-time employees or other independent contractors who are technically not “employees”? How about third party consultants who install, maintain or work with the software? Customers? Potential customers you want to allow to demo the software? Other users? I’ve seen questions come up in each of these categories.
2. What? What exactly is being licensed? Is it just object code of software? Do you want source code as well? How about documentation? Trademarks? Copyrights? Compare what you think you are getting to the license grant language to make sure that you are getting everything you expect.
3. When? Many license grant provisions do not spell out a duration of the license grant, leaving at least three interpretations – the grant is perpetual, the grant is equivalent to the term of the license agreement or the grant is for a “reasonable” period. Nail this question down and save yourself from any later trouble. As a general matter, setting the duration of the license grant equal to the term of the agreement (including renewals) is the most logical approach.
4. Where? I once reviewed a license for a mobile software application that was going to be used by technicians in their cars. Incredibly, the first version of the license grant provision from the vendor included language that the software could only be used at a specific address! Obviously, someone had simply used an old license agreement as a model with no awareness of the consequences. Sadly, I am sure that some licensees simply signed this “standard contract.”
Site licenses or machine or location specific licenses were common in the mainframe era and that type of language occasional slips into today’s license agreements. In the case of software especially, you want to determine where the software will be used and be sure that the license grant authorizes use in those locations. Will employees be running the program at home or on a laptop? Will they be accessing the program remotely? PDAs and wireless devices also may require modifications to standard license grant language. Be wary whenever you see any type of site license language.
Another “where” issue arises in the case of license grants for particular territories. Check the definition of territory carefully and consider how it may affect e-commerce or web marketing.
5. Why? Why are you obtaining the license? Is it exclusive or non-exclusive? You’ll want to proceed with caution any time an exclusive license is involved. Also, it has become fairly common to grant licensees the right to “use” software or other intellectual property rights. Unfortunately, “use” is not one of the exclusive rights granted under the copyright statutes (reproduce, make derivative works and publicly display are a few examples) and it is only one of the rights patent holders have (make, sell and offer to sell are others). It is, therefore, important to spell out exactly what rights you want to license using the precise terms, especially if you want to make derivative works or to grant sublicenses rather than to rely on a court later interpreting the word “use” to include these rights.
The license grant may well be the single most important section of any technology agreement. If you aren’t specifically granted the rights, you probably don’t have the rights. Why take chances?
By using the simple 5 Ws approach, you can go a long way toward quickly getting a license grant provision in shape. You will not only have better and more accurate language, but you can then use your attorney more effectively to work on more important issues than simply making sure that the language at least covers the deal. As a result, you’ll shoot to the top of the class in being able to review license grants.
[Originally posted on DennisKennedy.Blog (http://www.denniskennedy.com/blog/)]
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