The use of various software in a business is important for its smooth operation. Companies, especially big corporations, require many software programs. These are licensed to them for use under certain conditions. These conditions of use are stated in an enterprise license agreement.
A Brief Introduction of Enterprise License Agreements
Under a typical license agreement, the owner of a property allows another party to use the property under stipulated conditions. An enterprise license agreement is a contract that permits a large enterprise to use the software at a discounted rate for its daily business operations. It contains terms such as the term of the agreement, the price of using the software, and conditions of use. It is a legally binding document between the owner of the software and a corporation. Without it, the use of the software would amount to copyright infringement.
For example, software companies such as Microsoft have an enterprise license agreement template for their customers. It lists the conditions of using the software within the corporation.
Purpose of Enterprise License Agreements
Enterprise license agreements are also known as an enterprise software license; it allows a corporation to install the software on a computer without registering it every time. This means that each time the software is installed on a new computer or a new employee in the corporation uses it, there is no need to register it separately.
The agreement allows the software to be used throughout the corporation according to the terms stated therein. It also helps corporations to purchase bulk software from the organization and use it over a period of time. Since it is a written contract, there is little room for confusion between the parties. They can refer to the agreement in case of any doubt.
Contents of Enterprise License Agreements
Enterprise license agreements generally contain the following terms:
- Names of the parties- including the registered business address
- Date of entering into the agreement
- Definitions of terms
- Scope of the agreement- who can use it
- Term of the agreement
- Grant of license- rights granted to the corporation
- Restrictions on use
- Payment details- when and how the payment is to be made
- Confidentiality
- Representations and warranties
- Grounds for termination
- Limitation of liability
- Audit requirement
- Dispute resolution
- Governing law- the law of which state will apply to disputes arising under the agreement.
- Signature of the parties
How to Draft Enterprise License Agreements?
When drafting enterprise license agreements, it is necessary to consider the following:
- Each enterprise has a different requirement. It is important to understand this requirement before drafting the agreement. Some questions that should be considered are- what does the corporation need the software for; how can the terms be drafted to provide it more flexibility?
- The scope of the agreement must be stated clearly. This clause should define who can use the software and where. For example, the employees may be allowed to use the software only on the office premises or only through office machines.
- To prevent unlimited use of the software, this is better to include a fixed time in the agreement. Post that period, the corporation will have to renew the agreement. Granting an unlimited license is discouraged because it gives rise to complexities in defining the terms of the agreement.
- Under a grant of license, the owner gives the corporation the right to use the software. However, it mentions how the software can be used. It can restrict the corporation from copying, lending, modifying, or reverse-engineering the software. The grant is non-exclusive, meaning that the software owner can license it to other corporations as well.
- The payment details must be clear. It should state the license fee to be paid when it becomes due and how it is to be paid. For further clarity, it should mention whether the amount is inclusive or exclusive of applicable taxes and who will bear the tax amount.
- The software owner can limit its liability to only the amount of the license fee paid to it by the corporation. This protects it from claims of incidental or consequential damage from using the software, such as loss of data or profits.
- To ascertain if the conditions of the agreement are being followed, the owner can require an audit to be conducted in certain situations.
Benefits and Drawbacks of the Enterprise License Agreements
Advantages:
- Discounted price: It allows a corporation to purchase various software that it intends to use during the term of the agreement. This enables software owners to offer the software at a relatively lower price.
- Since the price of using the software is mentioned in the contract, the owner cannot arbitrarily increase the price. This protects the enterprise from sudden price changes.
- It streamlines software purchases since a single agreement covers different software from the same owner. The licenses can be tracked and administered electronically. This makes their compliance easier.
- The corporation can include terms relating to technical support for the software.
Disadvantages:
- The agreements are drafted by the software owner. It has greater power to restrict the use of the software.
- The owner can restrict the use of the software. Hence, the corporation may not have a free hand in using the software as it likes.
[Also Read: Software License Agreement]
What Happens in Case of Violation?
If the agreement is violated, the owner may revoke the license and prevent the corporation from further using the software. Software owners usually include terms in the agreement that prevents the enterprise from filing a suit before a judge or jury. Arbitration is the preferred mode of dispute settlement(1). If the agreement allows, the enterprise may sue the owner in a small claims court.
An enterprise software license agreement is effective in handling a corporation’s technological requirements. A single agreement can cover multiple software purchases. While corporations may have different needs, the above points are common to most such agreements. These should be kept in mind when negotiating or drafting the agreement.
- The agreements are drafted by the software owner. It has greater power to restrict the use of the software.
- The owner can restrict the use of the software. Hence, the corporation may not have a free hand in using the software as it likes.