Software licensing disputes

Issues that often arise in this context relate to:. Vague or ambiguous price structures that can be interpreted differently. The licensor's provision of additional services for example, installation, testing or training under unclear cost and payment terms,.

Lack of clarity on which party is responsible for paying sales and use taxes. How interest is charged and collected on late payments. The licensee's ability to dispute invoices that it deems incorrect without incurring late payment charges or other penalties. Third-party Access and Use Disputes can also arise in situations where the software license agreement is silent or otherwise fails to clearly identify the individuals or class of individuals permitted to access and use the software.

The most common situation involves terms that allow only the licensee's employees to access the software, excluding from access the licensee's third-party agents, contractors or advisors. This type of restriction can be impractical and troublesome for licensees that rely heavily on independent contractors to handle tasks relevant to the software's intended purpose. In addition, conflicts often ensue when a software license agreement does not specify the means for identifying authorized users for example, by listing specific employees in an attached exhibit , if required by the licensor.

Restrictions on Transferring or Sublicensing the Software Software license agreements usually restrict the licensee from transferring or sublicensing the software to third parties. However, licensors sometimes permit licensees to transfer or sublicense the software, for example, if the licensee:.

Merges with or is reorganized into other related parties, such as subsidiaries or entities that share a common owner with the licensee. Must provide key third-party agents or contractors with access to the software to enable them to undertake certain operational tasks central to the licensee's business.

Enters into a joint venture and must sublicense the software product to the joint venture entity. In these circumstances, conflicts often occur when:. The licensee sublicenses or transfers the license to a third party as permitted in the software license agreement, but fails to properly notify the licensor or take other steps required under the agreement to ensure the licensor can enforce its terms against the sublicensee or transferee.

A sublicensee or transferee breaches the software license agreement and the licensor and licensee disagree on when or how the licensee must indemnify the licensor for the breach. The parties cannot agree on the amount or payment of additional license fees to the licensor for any third-party use of the software.

The licensee allegedly fails to comply with a change of control provision when assigning its license to a third party that acquires the licensee's business, whether through an asset sale or a stock acquisition. For a more in-depth discussion of these and other contract terms that commonly arise in software license disputes and practice tips for managing the associated risks, see Practice Note, Software License Disputes: Managing the Inherent Risks.

No comments yet. Our website uses cookies to provide you with a better experience. Read our privacy policy for more information. Accept and Close. Jeremy Sherman 3 years ago. Dispute triggers and battlegrounds The main problem areas for customers stem from developments in technology which have changed the way in which the licensed software is used, and which have not been reflected in updates to its contractual terms with the software vendor.

For example, software licensed for use on a small number of readily identifiable cores 15 years ago may now be in use within a virtualized ecosystem comprising hundreds of cores; b new front-end services that make use of back-end software without the requisite licence, often introduced by customers as part of a drive to provide self-service functionality to end users; and c legacy contracts licensing software on a named user, per-CPU or per-core basis that are incompatible with cloud solutions, where these numbers cannot easily be ascertained or may not be representative of the level of use.

Software vendors also face difficulties when enforcing their rights, mainly relating to the following scenarios: a Excess use often comes to light as a result of the exercise by the software vendor of its audit rights, but problems arise where there has been infrequent monitoring and audit of customer usage. While software vendors are often entitled to undertake audit processes annually, in reality they may operate the right less frequently, resulting in high value claims spanning multiple years of alleged overuse.

These are generally vigorously resisted and which lead to customers raising arguments that the software vendor has waived its rights by failing to audit at an earlier stage. Prevention is better than cure When adopting a new system, it is important in the design stage for the customer to consider what impact it may have on the rest of its IT estate. Join the Discussion No comments yet. Add Comment. Varsity Sponsors. Latest IPW Posts. Our work has included software provisioned on premises and SaaS.

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Our work often includes analysis of source code, applications, and development artifacts. We advise clients in intellectual property matters and general commercial litigation relating to software and e-commerce. Representative Engagements. We were retained by counsel for the plaintiff, a publicly-traded company, in a dispute regarding the suitability and implementation of a software application used in the financial services industry.