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Software licensing – legal issues

Software licenses are a strange breed of legal documentation; they are often left unread by end users and are frequently no more than a page in length. However a carefully crafted software license may provide to be a powerful resource that can be relied on by a code developer. Similarly, a software license can expose a licensor or a licensee to significant commercial risk. Vendors and licensees should ensure that they are familiar with all relevant issues surrounding their software licenses.

Open Source or Closed Source?

Open source software refers to the open availability of source code and is a serious threat to the traditional closed source software paradigm that most organisations have become familiar with. Like closed source licenses, the terms and conditions of open source licenses are often heavily negotiated by licensors and licensees alike. And, like closed source, open source is proving to be a highly litigious area with the most notable court case being the U.S case of SCO v IBM that has been running for several years . Licensors and licensees should ensure they are familiar with the concepts involved. This can serve as a form of leverage against a more unprepared party. Resellers looking to delve into open source software should ensure they attend relevant industry events, such as LinuxWorld, recently held in Sydney.

Escrow Arrangements

Often the sheer value of the intellectual property in source code may result in the licensor doing everything in its power to keep a lid on the source code and provide only the executable, object code versions of the software to its licensees. However, this may expose the licensee to significant danger, especially where the software becomes an integral and vital component of the licensees business: if the licensor goes into liquidation or loses the source code in a systems failure or natural disaster, will the licensee’s business be able to continue to function? For these reasons software is often placed into escrow facilities and only released to the licensee on the triggering of certain, specified events.

Ancillary IT Contracts

Large software license agreements (SLAs) such as those concerned with enterprise resource planning (ERP) and other significant installations are rarely executed without support, maintenance and service agreements being put in place. IT organisations that require such software, whether open or closed source and regardless of the licence fee, will no doubt require robust ancillary IT contracts that enable and ensure that the software can be fully incorported and maintained by the relevant organisation.

Legal Issues

Software licensing is a legal art form. It requires the careful balancing of warranties, payment, intellectual property and other legal mechanisms. If you are involved in a significant software licensing transaction, the most important issue is to ensure that the content of your IT contract accurately reflects your intentions.

Disclaimer: This column is for general informational purposes only. It is not legal advice nor is it a substitute for legal advice. Readers should seek legal advice on their own particular circumstances. Alan Arnott is a technology & telecommunications lawyer with qualifications in computer science and law with Arnotts Lawyers Jones Bay Wharf in Sydney. For more information, please visit /