New Jersey Technology Licensing Attorney
Technology Licensing is a very broad term but the concept is very simple. Under any License, one party, usually the owner or developer, (“Owner/Licensor”) grants another party the customer or licensee (“Customer/Licensee”) certain specified rights, to utilize the licensed property for a certain period of time. Generally the Owner/Licensor reserves all other rights in that property to themselves, such as the copyright, patent, trade secrets or trade-marks or logos included in or delivered with the licensed work. As you might guess, there are wide variety of facts that are related to that license, for example, who created or developed the work, who has legal right to the work, has the licensor secured appropriate rights in that work necessary for him to grant the rights promised to you.
What is your exposure if some third party files a legal action against you claiming you copied their work? Well that is a fairly fundamental issue in most technology licenses, and you as the Customer/Licensee generally want to have the Owner/Licensor to: 1) represent that they have all necessary right, title and interest in the work required to lawfully grant you the license in question; and 2.) in addition to that representation, you Customer/Licensee) also want to ensure that you are protected from legal actions and claims that you illegally copied another party’s work; i.e. that your use of that licensed work does not infringe upon the work that they own. In most licenses this is one of the most important terms, it is the IP Indemnity, that basically states the Owner/Licensor will defend and hold you (Customer/Licensee) harmless from all claims that your use of the work under the terms of the license infringe upon their rights and ownership in the work.
What rights do you ordinarily receive under the license, typically the license includes the right to copy, modify and use that work. These are exclusive rights that arise when the work is created under copyright law. A copyright arises in any newly authored work upon creation. Under that broad definition, and the fact that it automatically arises, the developer just needs to prove authorship to claim those rights. Once that is done, you need permission, or a grant of some or all of those rights to copy, modify and use that work (“Grant“), otherwise you would infringe the developer’s copyright in the work.
As you might guess if you have read any of the fine-print in technology licenses, almost as prominent as the license grant itself, is the license restrictions (‘License Restrictions“). These License Restrictions are a list of some very specific things that you cannot do with the work, such as reverse-engineering the work to study in detail how the work was constructed and perhaps create a competitive work. You generally cannot share lease, rent or time-share the work either. If the work that you are licensing is a service, like a hosting service, a common license restriction would be not using that service to spam or harass others via email from that hosting service.
New Jersey Technology Licensing Attorney John P. O’Brien
Serving businesses of all size with technology related contracts and business services.
Technology Licensing - Important Differentiation
As mentioned above, a license is a grant of something less than all right, title and interest in the work, that sort of total transfer of all rights would be an assignment. An assignment might happen if you purchased the company that licensed the work and wanted to transfer your license to use that copy of the software, via assignment of that work, to the company that purchased your company. The license grant is generally for a much more limited right or set of rights, perhaps simply to “use for the licensee’s internal productive use”, as opposed to allowing third parties to also use the Customer/Licensee’s copy of the work for their purposes. Beyond this sort of scope of rights granted, the license also should state a term for the license; i.e. how long is that license right in effect (“Term”).
Another very important component of most commercial licenses is the warranty, this is your assurance that the work you are licensing operates in compliance with the Work’s specification (“Warranty”), and if not there is a contractually documented process for the Customer/Licensee to make a claim that the Work is defective; and 2) a commitment by the Owner/Licensor to correct the defective work, usually at their own expense for a limited period of time (the warranty period). If you are considering the purchase of a SaaS product you should read my article on the difference between an SLA and a Warranty.
So effectively, we grant a license anytime we wish to authorize another party to use our property but not actually convey ownership and title of that property to that other party. In a very real sense a Non-Disclosure Agreement (“NDA“) is a license, it authorizes the recipient to use the confidential information for a specic purpose over a stated term, provided that they protect the information in the manner stipulated. The NDA requires that the recipient use a stated standard of care to protect the confidentiality, only disclose that Confidential Information to those with a need to know and generally destroy the Confidential Information at the conclusion of the NDA term That NDA term, limited right grant and restrictions sounds a lot like the license structure discussed above, doesn’t it?
Technology Licensing & Key Industry/Legal Terminology
Technology License or an Original Equipment Manufacturer (OEM) license allows one party to build a separate product that includes technology licensed under that Agreement; the licensee presents an improved, expanded modified or combined version of the initial software as a new commercial offering that is made available from the licensee (not the initial licensor) generally under a different name and different license terms. (like a PC with Intel (r) inside). As you might guess OEM and Technology Licenses tend to be heavily negotiated long term agreements that are critical to the success of the new OEM product; they frequently require various engineering change notice procedures, support obligations and sales efforts etc. Software developers and Manufactures are very selective before entering into OEM and Technology Licenses, these are significant long term strategic decisions that require significant investments of time, money and resources from all parties involved.
End-User-License-Agreement (EULA), most software is provided to the end user subject to the terms of an end user license agreement. Years ago the EULA was presented in paper format and signed and returned to the licensor. Now days many Owners/Licensor offers their EULA in a click-through or a shrink-wrap format, but many large scale enterprise licenses are still presented in this manner.
Master Sales Agreement (MSA), many equipment manufacturers include the license grant term and license restriction as part of their sales order term, or as a term within their. MSAs may be one of your company’s most valuable assets, this is a primary conduit to your customer base and often represents one of your biggest competitive advantage from competitors who are trying to enter the market and/or replace your product with their product.
Click-through version’s of the EULA are generally used with most mass distributed software that you download from a licensor or publisher’s website. That essentially states that the customer/licensee consents to the license terms presented when they log into the software, or download the software from the publisher, and that their use of that devices acknowledges their consent to those terms. Generally most click-through licenses, and most shrink-wrap licenses, include an opt-out provision that states if you (Customer/Licensee) don’t agree with the license terms you should not use the software and return the software where you purchased it for a full refund, or something very much to that effect.
Shrink-wrap license comes with the software as part of the packaging and basically says when you open the software packaging and/or load the software on your computer, by taking those actions you are consenting to the license terms. Generally most click-through licenses, and most shrink-wrap licenses, include an opt-out provision that states if you (Customer/Licensee) don’t agree with the license terms you should not use the software and return the software where you purchased it for a full refund, or something very much to that effect.
Term License is essentially a license that is for a stated period of time, perhaps 1-5 years. It grants you a license to use the software for that stated term. Often term licenses include an evergreen clause, that essentially says unless one party notifies the other party 60 days in advance, the license will automatically renew for a stated renewal term (generally 1 year) and this renewal is under the same terms and the licensee is responsible for a renewal license fee. SaaS Agreements are a very popular form of term license. Term licenses often include a Service Level Agreement (SLA) as part of the license fee (so there is no need for separate software maintenance agreement).
Enterprise License is another popular form of term license that is in popular use among larger corporate customers/licensees. An Enterprise License allows all eligible customer users and often corporate affiliates to use as much of certain stated software products, within that customer’s operation for a stated license fee. Enterprise licenses generally include SLA support as part of the license and they may include a true-up, where an accounting of the customer’s actual license use is compared against the license fees charged, and if a stated maximum number of licenses are used, the customer/licensee may need to pay some incremental license fee to true up to that actual use number (not all Enterprise License use the true up structure).
SaaS License are hosted version of software that are constructed as term licenses with an SLA included as part of the license. The SaaS License allows the customer/licensee to not only use the software application, platform, server or storage in question, but it is also provided in a hosted format where the underlying computer hosting is also provided as part of that license. The customer/licensee dials into the licensor’s host platform (often subcontracted to a major commercial host provider like Amazon Web Services). SaaS license are term licenses, generally offered with an SLA.
Open-Source Licenses are a wide range software programs that are made available by their owners and developers to the public free of charge, subject to their associated Open Software License. In most instances the Open Source License disclaims all liability for the Owner/Licensor; so essentially you get te use of the Software for free but there are no warranties that come along with the software (you use the software at your own risk, if it does not work there is no support number to call; and if there is a 3rd party infringement claim you have no indemnity protection). Open Source licenses typically require that the Customer/Licensee include property copyright notices, warranty disclaimers, and a copy of the applicable Open Source license if they include that software in any work that the Customer/Licensee may offer to a 3rd party. It is extremely common that software developers will use various Open Source Routines in the work that they develop; and what you will find is an attribution list that comes along with the software; the attribution list tell you (Customer/Licensee) what Open Source Software licenses are included in the product; along with a copy of the applicable Open Source license, or more likely a URL that brings you to that Open Source license agreement; the attribution also generally includes a listing of any associated copyright notices. This arrangement is fine, and as mentioned above, it is commonplace in the software development market; however it is still very important for the Customer/Licensee to carefully review what Open Source Licenses are included in the work that you are licensing. Some Open Source licenses require that the party wishing to use that Open Source Software (the software developer; i.e. Owner/Licensor) must agree to offer any and all software developments that they may add to that Open Source Software, and offer those developments along with the Open Source Software freely available to all others under the same Open Source license terms.
New Jersey Technology Licensing Attorney John P. O'Brien
There are many other sorts of licenses that you may have heard of: Reseller License Agreements, Managed Service Provider Agreements, trademark license etc. The general concepts used in those licenses are substantially similar to the concepts presented above. With over 30 years of technology licensing experience, I can assist you in crafting a license that is appropriate for your intended use. A license is like a bridge, you do not want to transfer rights under a poorly conceived license or it could have serious unintended negative consequences in your long term IP rights and liabilities for that work.
John O’Brien has focused on evolutions within the tech industry and has worked for large manufacturers and software developers. As a professional services counsel for Digital Equipment in the early 1990s he worked closely with Project managers and their team in support of customized software development and deployment projects in their NYC Area practice, the largest PS practice in the country at the time. Later as an Area Counsel in Sun Microsystems he witnessed the amazing client server/open systems shift that is often referred to as the .com. More recently he has been immersed in support of software developers and SaaS providers. Change is the only constant, but you need to be able to discern the implications of the change on your operation and adapt. Let him help put that experience to use for you.
I am a legal professional specialized in helping companies of all sizes develop, negotiate and/or modify consulting contracts, licenses (in-bound or out-both), SOWs, HR agreements and other business related financial transactions.