Software license agreement

Author: Preslav Baldzhiev

The digitalization of the world has made every action possible through software code. This has led to the creation of an environment in which the human factor is minimized and the activities of employees are facilitated as much as possible. However, the boom in the search for algorithms has pushed new contractual relationships between Software Owners and their Users – relationships without which the use of the software is unthinkable.

What is a software license?

The software license is an agreement through which the owner of the software code (Licensor) grants the User the right to use and determines the manner of exercising this right. Naturally, the right of use is granted for a fee, the method of payment of which may vary according to the terms of the Licensor. An important clarification that should be made is that the owner of the software code does not have to be its author – the software algorithm can be programmed by a third party at the request of the owner or the programmer, who is employed by the Licensor (examples are not exhaustive).

The software license agreement may be concluded for a certain period of time. This time constraint seems pointless for several reasons:

• The provision of a term for a trademark license agreement is a necessary guarantee for the Licensee, as the protection of the Trademark is subject to registration and renewal. The case of the software license is not close to the previous one, as the copyright protection of the program code comes into force from the moment of its creation.
• The term of the franchise agreement is also understandable, given the possibility that the franchisor’s site may not be as successful as expected (bring more losses than profits for the franchisor). Such a hypothesis cannot be applicable here, as the success of the license is the license itself (granting the right of use leads to profits for the Licensor).
• The software license is provided for an unneeded item that can be used for a long period of time (program code). Only, a time clause would make some sense if it is provided that the right of use is granted until the software is updated or updated. In this case, however, there will be an aggravation of the civil turnover, as the Licensor and the Licensee will be forced to conclude a new software license agreement in case of change in the program code – in most cases the update or update concerns a specific element of the software. its integrity is not changed (it would be much more convenient for both parties if the contract stipulates that the right of use will automatically cover any improvement or update of the software). An example of such an update or update is the updates that Microsoft provides to users running Windows 10.

Distinction

Here is the moment to mention a distinction that is typical of Western legal systems, but which in the Republic of Bulgaria is not so common. This is a distinction between a Software License Agreement and an End-user License Agreement (EULA). The end-user license agreement is aimed at individual users who will use the software for non-commercial purposes and for personal use (for example anyone who purchases a license for an antivirus program and uses the software on their home computer).

However, the software license agreement is aimed at business users – this means granting a license on a larger scale. An example of this is a large accounting firm that purchases a license for Microsoft Office Excel so that the software can be used by its employees in connection with their employment obligations.

For the purposes of this article, the term Software License Agreement will be used as a summary for both types of agreements.

Legislation

The issue of the regulation of the software license agreement turns out to be interesting and controversial for theory and practice. Looking at the Bulgarian legislation, the licensing agreements are regulated in the Commercial Law (Chapter XXXV). Article 587 lists the objects that may be subject to a license – a reading of the provision shows that the software does not fall into any of these (computer programs are equated to literary works). Another important discrepancy is that the Commercial Law provides for mandatory registration with the Patent Office (Article 590), while in practice the reality is different – the Software License Agreement is not subject to registration.

According to the case-law of the Court of Justice of the European Union, and in particular, in Case C-128/11 Oracle v UsedSoft, the software license is considered to be a contract for the sale of a copy of the program. The word “copy” is key, as its use preserves the ownership of the original product (the algorithm with which the software is programmed).

Benefits of a software license

1. Retention of Ownership – The Software License allows the Licensor to provide a copy of the Software without losing ownership of the Program Code itself.
2. Intellectual Property Protection – In itself, the software algorithm is subject to copyright protection, which means that it is the subject of intellectual property. By entering into a software license agreement, Licensor guarantees this protection and even extends it, and may prohibit Licensee from using the Program in a manner that is contrary to established protection. Here it is important to mention the Institute of First Sale, which is considered in the above-mentioned case (C-128/11). The Institute of First Selling provides that the resale of a copy of the Software is not a violation of the law (the Licensee may grant its right to use to a third party). This issue is discussed in more detail in the article ” Resale of licensed software – is it legal?
3. Limiter’s Liability Limitation – The Software License Agreement provides an opportunity for Licensor to determine the rules under which its program will be used. These rules can also be characterized as guidelines for the proper use of the computer algorithm, and their implementation guarantees the Licensor that he will not be held liable for improper use of the program.

Contents of the software license agreement

1. General provisions – The general provisions specify the parties and the manner in which they will be named in the contract. The owner of the software is called the Licensor, and the party that receives the right to use (the User) should be called the Licensee. In general terms, the program for which the right to use is granted should also be individualized (individualization means a description of the software, the type of program code, an indication of its main functions, etc.). The general situation should also indicate the type of license granted (term / indefinite, for the end-user /business customers, etc.)
2. Remuneration – As mentioned above, the Software License Agreement is a remunerative agreement, which means that Licensee must pay remuneration to Licensor. In most cases, this fee is a payment for the price of the software, but it is not excluded to make additional payments that are separate from the payment of the price of the program (these separate payments may be different subscriptions for software maintenance).
3. Licensor’s Rights – It will be mentioned again that the software license agreement is a bilateral agreement, as both parties have opposite rights and obligations. Licensor’s rights may vary, but the most basic include receiving a fee (receiving the price of the product if it is a separate payment from the fee), determining the terms of use of the program, making changes to the Software, grant a license to third parties etcetera.
4. Obligations of the Licensor – Similar to the rights, the Licensor has obligations that may vary. The main obligations are granting the right to use the software, notifying the licensee in the event of a change in the Terms and Conditions, providing the necessary support during the warranty period (if provided in the contract) and more.
5. Licensee’s Rights – Licensee’s rights arise in direct proportion to the Licensor’s obligations. Licensee has the right to use the software, receive support during the warranty period (if any), and be notified of changes in the terms and conditions and others.
6. Obligations of the Licensee – The Licensee undertakes to pay the Licensor’s fee (as well as the price of the software, if it is a separate payment), to use the software in accordance with the Terms and Conditions, not to infringe the intellectual property rights of the Licensor, not to obstruct the Licensor when it grants the right to use other persons, not to provide third parties with access to the program while it is activated on the Licensee’s computer, etc.
7. Intellectual property rights – A standard clause that is irrevocable under a license agreement. This includes issues related to the exercise of intellectual property rights, with reservations that ensure that the product does not infringe on other people’s intellectual property rights and any other provisions in this spirit. An important provision would be the one that specifies that the license allows the use of intellectual property owned by the Licensor, as far as the needs of the use of the software require it.
8. Termination – Termination clauses are standard. The Software License Agreement may be terminated upon expiration if agreed. Termination may also be unilateral if the other party fails to fulfil its obligations under the contract (the party in good standing is obliged to send a notice before termination). A one-off termination without notice is also possible, but the hypotheses under which this is possible must be explicitly stated.
9. Final provisions – Final provisions are also standard for each contract. This includes the following clauses (the list is not exhaustive):
   1. In view of which legislation the provisions will be interpreted;
   2. Which legislation is applicable to issues not settled by the contract;
   3. A clause guaranteeing the validity of the whole contract if one of the provisions is declared invalid;
   4. How disputes between the parties will be resolved;
   5. How the correspondence between the two countries will be conducted.

Conclusion

The software license is another agreement that shows that the digital world is developing significantly faster than the pace at which the legislation in Bulgaria is being updated. This bilateral agreement becomes a defender of black-market software, providing transparency and mutual trust between Licensor and Licensee.

Although the software license agreement itself runs away from the meaning of the license agreement under Bulgarian law, at the same time does not come so close to the sale, the software usage agreement should be called a license agreement because it does not transfer the right of ownership over the object of intellectual property, in this case, the software, and allows for the use of its copy.

This material prepared by Preslav Baldzhiev aims to provide more information about the software license. It does not constitute a legal opinion and cannot be interpreted as individual consultation on any concrete facts or circumstances. The advice of a specialist should be obtained for specific questions and situations. For more information on the above-mentioned issues and individual consultations, please contact the team of the law firm of Krasimira Kadieva at 00359 882 308 670 or make an inquiry using the contact form of the website. Since 2017 Preslav Baldzhiev is a law student at Sofia University “St. Kliment Ohridski “, having previously graduated from the High School of mathematics and natural science “Acad. Nicola Obreshkov” in Burgas. In February 2020 he took a course for industrial property representatives at the Patent Office of the Republic of Bulgaria in the field of trademarks, geographical indications, and industrial designs. He is interested in intellectual property, personal data protection, commercial and law on obligations and contracts and also regularly attends conferences, practical courses, seminars, and webinars.