A guide to software licensing

Software licences are procured across all areas of the Company and take a number of different forms. Here are some FAQs and the associated considerations when negotiating a software licence.

Is the licence valid?

Check that the supplier warrants its right to grant the licence and is indemnifying the Company against infringement of any third party's rights.

Check that, if the right to grant a licence is subject to a third party's consent, such consent has been received.

What is the extent of the licence?

Is the term of the licence as agreed? Are there satisfactory provisions for a renewal following the expiry of the term? Suppliers will often look to include auto-renewal provisions whereas the Company would look to require an active renewal.

Licences use technical terms to describe the licence, which should be checked against the intended use. Here’s a short guide on what the terms mean:

  • Exclusive/Non-exclusive. This indicates whether the licenced software may be licenced to other third parties by the supplier. Suppliers may not agree to the use of the phrase “exclusive” however, even where Company will be the only customer, as it can be deemed to preclude the supplier from using its own software.
  • Transferable/non-transferable. This indicates whether the licence can be assigned.
  • Revocable/irrevocable. This indicates whether the licence can be terminated.
  • Perpetual. A perpetual licence is granted indefinitely, subject to termination rights.
  • Fully paid up. This means that no licence fee will be due for the licence.

Assess who needs access to the software i.e. which personnel. We usually look to ensure that both POL and POMS are covered, but in any event ensure that the licence covers all users who require access to the software.

Are there any restrictions on the use of the software, for example can it only be used on a particular processing unit or at a particular site? If so, check that such restrictions are acceptable.

Are there commercial reasons for limiting the supplier's ability to licence the software to other customers? If so, consider the exclusivity of the licence granted to the Company.