Form B.1
Software License and Services Agreement (Annotated)
The model license that follows is not intended to be used verbatim. Instead, it is intended to be used as a guide to potential clauses that may be included in an agreement while providing an explanation of the ramifications of including such clauses.
CONTENTS
1.Definitions
1.1Acceptance
1.2Affiliate(s) or Affiliate Company
1.3Consolidated Net Worth
1.4Critical Error(s)
1.5Custom Software
1.6Deliverable(s)
1.7Direct Damages
1.8Divested Business
1.9Documentation
1.10Error(s)
1.11Functional Specifications
1.12Hardware
1.13License(s)
1.14Object Code
1.15Open Source Materials
1.16Performance Standards
1.17Regulatory Requirements
1.18Services
1.19Site
1.20Software
1.21Software Acceptance Plan
1.22Source Code
1.23Standard Software
2.Scope of This Agreement
2.1Scope
2.2Turn-key Basis
2.3Modification of Delivery Date
3.Software and Services
3.1License Grant
3.1.AExclusive License Grant
3.1.BRight to Copy
3.2Software Related Materials
3.3No Licenses
3.4Reverse Engineering
3.5Ownership of Materials
3.6Third Party Access
3.7Service Locations
3.8Improvements and New Technology
3.8.1Continuous Improvement
3.8.2New Technology and Reengineering
3.9Customer Authorized User Satisfaction
3.9.1Baseline Customer Authorized User Satisfaction Survey
3.9.2Customer Authorized User Satisfaction Survey
3.10Data Maps
3.ACommitment to Research and Development
3.BService Level Standards
3.B.1General
3.B.2Service Level Credits
3.CLiquidated Damages
3.C.1Liquidated Damages Payable by Licensor
3.C.2Liquidated Damages Payable by Customer
3.C.3Payment of Liquidated Damages
3.C.4Termination in Lieu of Liquidated Damages
4.Term of Agreement and License
4.1Term of Agreement
4.1.ATermination without Cause
4.1.BTermination upon Acquisition by XYZ Software Company
4.2Term of Licenses
5.Events of Default and Remedies
5.1Events of Default
5.2Rights and Remedies of Licensor upon Default of Customer
5.3Rights and Remedies of Customer upon Default of Licensor
5.3.1General
5.3.2Right to Set Off
5.3.3Transition Rights
5.3.4Specific Performance
5.3.5Cover
5.3.6Access to Source Code
5.3.7Licensor Employees and Contractors
5.4Attorneys’ Fees
5.5Services Not to be Withheld
5.5.1Prohibition
5.5.2Termination
5.5.3Injunctive Relief
6.Delivery of Deliverables—Risk of Loss—Title
6.1Delivery by Licensor of Deliverables
6.2Risk of Loss of Deliverables
6.3Title to Standard Software
6.4Title to Custom Software
6.5Title to Hardware
6.6Title to Documentation, Contractual Documents, and Deliverables
7.Acceptance of Software and Services
7.1Acceptance Tests
7.2Failure to Comply
7.3Deemed Acceptance
8.Price and Payments
8.1Price
8.1.A Remote Network Connectivity
8.2Cash Advances
8.3Payments to be Made with Respect to Deliverables
8.4Adjustment of Prices
8.4.AFees Charged by Licensor
8.5Interest
8.6Taxes
8.6.ATaxes
8.6.A.1Responsibility
8.6.A.2Taxes on the Services
8.6.A.3Cooperation to Minimize Tax Liability
8.7Disputed Amounts
8.8Discounts
8.AMost Favored Customer
8.BBenchmarking
8.B.1Benchmarking Procedures
8.B.2Licensor Review of Benchmarking Results
8.B.3Customer’s Acceptance or Rejection of Licensor’s Plan
8.CCPU License
8.DCPU Upgrade
8.ETransfer Fees
8.FService Fees
8.F.1Fixed Fee Services
8.F.2Time-and-Materials Services
8.GCustomer Credit Risk
8.HParent Company Guarantee
8.ICustomer Royalty
8.I.1Fee
8.I.2Fee Cap
8.I.3Payment
8.I.4Audit
8.JReports, Payments, Accounting, and Inspections
8.J.1Periodic Accounting Reports
8.J.2Payments
8.J.3Books and Records
8.J.4Audit
8.J.5Inspections by Licensor
9.Personnel, Management, New Projects, and Testing
9.1Cooperation with Customer
9.2Licensor Personnel
9.2.1General
9.2.2Licensor Services Manager
9.2.3Licensor Services Support Team
9.2.4Licensor Technical Support Team
9.3Selection and Continuity
9.3.1Selection
9.3.2Continuity
9.3.3Succession Plan
9.4Replacement
9.5Customer Personnel
9.6Meeting and Reports
9.6.1On-site Readiness Meetings
9.6.2Contract Management Meetings
9.6.3Planning/Review Meetings
9.6.4Reports
9.7Administration of the Agreement
9.8Change Order Procedure
9.8.AMandatory Changes
9.8.A.1Commencement of Required Changes
9.8.A.2Significant Event
9.8.A.3Changes in Law
9.9New Projects
9.10Testing Process
9.11Time Tracking
9.12Competitors
9.13Audit/Quality Control
9.14Non-solicitation of Employees
9.15Approval of Subcontractors
9.16Screening of Licensor Personnel
9.17Licensor Management
9.18Technology Changes
10.Involvement of Customer Employees in Licensor’s Team
10.1Involvement of Customer Employees/Consultants in Licensor’s
Development Team
10.2Involvement of Customer Personnel in Licensor’s Integration and Acceptance Team
10.3General
11.Support and Maintenance Services
11.1Training Services
11.2Installation Services
11.3Hardware and Software Support Services
11.4Additional Support Services
12.Proprietary Rights, Confidentiality, and Security
12.1Ownership of Intellectual Property
12.2Confidential Information
12.3Privileged Information
12.4Return of Confidential Information
12.5Notification Obligation
12.6Non-Aggregation of Data
12.7Residuals
12.8Employee/Agent Acknowledgment
12.9Survival; No Limitation of Liability
12.10Customer Information
12.11International Privacy Laws
13.Reproduction of Documentation, Object Code, and Source Code
13.1Documentation
13.2Object Code
13.3Source Code
14.Patent and Other Proprietary Rights Indemnification
14.1.ALanguage that Favors Licensor
14.A.1Third Party Infringement Claims
14.A.2Conditions
14.A.3Licensor’s Options
14.A.4Exclusions
14.A.5Entire Liability
14.1.BLanguage that Favors Licensee
14.B.1Indemnification
14.B.2Exclusions
14.B.3Defense of Third Party Suits
14.2Assumption of Defense
14.3Cessation of Fees
14.4Licensee Indemnification of Licensor
15.General Indemnity
15.1Indemnity
15.2Assumption of Defense
16.Warranty and Warranty Disclaimer
16.1Licensor Warranties
16.1.1General Warranties
16.1.2Operation of Software
16.1.3Remedy
16.1.4Warranty Disclaimer
16.1.4.AUCITA Warranty Disclaimer
16.1.5Voiding of Warranties
16.ASystem
16.BSoftware Performance
16.CServices
16.DDocumentation
16.EDefects
16.FInterfaces
16.GOpen Architecture/Open System
16.HCompatibility
16.IFuture Compatibility
16.JData Integrity
16.KSoftware Obsolescence
16.LDisabling Code
16.MRegulatory Requirements
16.NMedia
16.OIntellectual Property
16.PThird Party Warranties and Indemnities
16.QISO 9001
16.RAuthority
16.SPending Litigation
16.TChange of Control
16.UMaterial Misstatements or Omissions
16.VFitness for a Particular Purpose
16.WPrivacy/HIPAA
16.XData Transfer
16.YGifts and Gratuities
16.ZCustomer Complaints
16.AAOpen Source Software
16.ABLocation of Performance
16.ACUsability of Source Code
16.ADSecurity
16.AERepresentations Made in RFI and RFP
16.AFDebarment
16.AGRecording Devices
16.AHDrug Testing/Criminal Background Investigation
16.2Customer Warranties
16.2.1Authority
16.2.2Conflict with Other Agreements
16.2.3Financial Ability
17.Limitation of Liability
17.1Disclaimer of Liability
17.2Limitation of Liability
17.3Items Not Considered Damages
17.4Acknowledged Direct Damages
18.Obligations that Survive Termination
19.Error Correction under Warranty
19.1Notification of Errors
19.2Correction of Errors
20.Right to Move [If Applicable]
21.Customer Preparation
22.Assignment and Transfer
22.1Prohibition on Assignment
22.2Remedy
22.3Transfer
23.Amendments, Modifications, or Supplements
24.Independent Contractor
25.Compliance with Laws/Changes in Laws
26.Security, Access, and Safety Requirements
27.Releases Void
28.Governing Law and Venue
28.1Governing Law and Venue
28.1.AAlternating Venue
28.1.B Alternative Language for Differing Venues Based on Trade Secret Concerns
28.1.C Alternative Language for Opting Out of the United Nations Convention on Contracts for the International Sale of Goods
28.2UCITA Disclaimer
28.3Applicability of Uniform Commercial Code
29.Non-Binding Dispute Resolution
29.1Manager Level Performance Review
29.2Executive Level Performance Review
29.3Voluntary, Non-Binding Mediation
29.4Continued Performance
29.5Equitable Relief
30.Arbitration
30.1Binding Nature
30.2Escalation Procedure
30.3Filing of Claim
30.4General Rules
30.5Discovery
30.6Decision
31.Waiver of Breach
32.Waiver of Right to Jury Trial
33.Force Majeure
34.Bonds
34.1Performance and Payment Bonds
34.2Requirements
35.Business Continuity Plan (Disaster Recovery) [If Applicable]
36.Covenant of Good Faith
37.Time Is of the Essence
38.Insurance
39.Third Party Software
40.Third Party Beneficiaries
41.Outsourcing
42.Divestiture and Transition
42.1Divestiture
42.2Transition
43.Export
44.Publicity and Use of Customer Marks
44.1Publicity
44.2Use/License of Customer Marks
45.Appointment of Agent for Service of Process
46.Electronic Transfer of Intellectual Property
47.Electronic Documents and Transmissions
48.Liens
49.Legal Fees
50.Mandatory Reference
51.No Construction against Drafter
52.Notices
53.Background, Enumerations, and Headings
54.Incorporation of Appendices and Exhibits
55.Severability
56.Counterparts
57.Facsimile Execution
58.Entire Agreement
59.Contingent Agreement
APPENDICES AND EXHIBITS REFERENCED
IN SOFTWARE LICENSE
Appendix 1.2Affiliates
Appendix 1.5Custom Software
Appendix 1.6Deliverable(s)
Appendix 1.11Functional Specifications
Appendix 1.12Hardware
Appendix 1.21Software Acceptance Plan
Appendix 1.23Standard Software
Appendix 3.1Central Processing Units
Appendix 3.BService Level Standards and Credits
Appendix 3.COn-site Inspection Certificate
Appendix 5.3.6Source Code License Terms
Appendix 8Model Pricing Schedule for Time and Materials Contracts
Appendix 8.CCPU License Fees
Appendix 9.2Key Personnel
Appendix 9.2.3Information Technology Support and Maintenance Services
Appendix 9.6.1Expense Guidelines
Appendix 9.6.4Performance Reports
Appendix 9.9Project Terms and Conditions
Appendix 11.2Installation Services
Appendix 11.3Hardware and Support Services
Appendix 16.QQuality Standards
Appendix 35Disaster Recovery
Exhibit 7.1Certificate of Acceptance
Exhibit 8.HForm of Parent Guarantee
Exhibit 9.15Confidentiality and Nondisclosure Agreement
Exhibit 16.CStandards of Conduct
Exhibit 34Form of Performance Bond and Payment Bond
Exhibit 43Letter of Assurance
APPENDIX ACustomer Affiliates
APPENDIX BPrice Schedule
Software License and Services Agreement
THIS SOFTWARE LICENSE AND SERVICES AGREEMENT is made this _____ day of _____, 20__ by and between ______, a ______corporation with its principal address at______(hereinafter “Licensor”) and ______, a ______corporation with offices located at ______(hereinafter “Customer”).
Who are the appropriate contracting entities?
Who is the Customer? Is the Customer financially stable and able to pay Licensor, or is a parent guarantee needed? (See Section 8.H, the signature line and Form O.1)
Is a parent guarantee or performance bond needed to ensure the Licensor’s performance? (See Sections 8.H and 34)
Consider the Licensor’s and Customer’s addresses as they may have income tax implications for the Licensor, sales tax implications for the Customer, and impact any dispute over venue and governing law.
Background
Licensor has developed and owns certain proprietary software for use in the ______industry. Customer desires to obtain a license to use such software and have Licensor develop certain modifications and enhancements for such software. Licensor desires to license such software to Customer and perform the services on the terms and conditions set forth herein.
Think carefully about the wording contained in any recital, as the laws of some states such as Michigan treat recitals involving a statement of fact as conclusive evidence of the facts stated. See, Detroit Grand Park Corp. v. Turner, 25 N.W.2d 184 (Mich. 1946).
Avoid incorporating by reference the Customer’s RFP or the Licensor’s RFP response as this may create an internal conflict with the terms of the Agreement and the functional specifications contained in the Agreement.
IN CONSIDERATION of the foregoing and the mutual covenants set forth herein, and intending to be legally bound, the parties agree as follows:
Alternatively:
NOW, THEREFORE, in consideration of the foregoing Recitals, which shall
be deemed to be a substantive part of this Agreement, and the mutual covenants, agreements, representations, and warranties hereinafter set forth, the parties hereto do hereby agree, as follows:
Licensors should be hesitant to accept language acknowledging the recitals to be a substantive part of the agreement. From the customer’s perspective if the licensor is willing to acknowledge the facts of the recitals, it should be willing to stand behind such statements. The risk to the licensor is that the recitals are now part of the agreement even in those states that have not adopted the position of Michigan.
1.Definitions
Whenever used in this Agreement, any Schedules, Exhibits, or Addenda to this Agreement, or the Source Code Escrow Agreement, the following terms shall have the meaning ascribed to them below. Other capitalized terms used in this Agreement are defined in the context in which they are used and shall have the meanings ascribed therein. The terms defined in this Schedule include the plural as well as the singular.
See Form Q.1 for additional and/or alternative definitions that may be more applicable for your transaction.
1.1Acceptance for the System shall occur only when: (a) Licensor has provided to Customer all Deliverables required to be provided to Customer; and (b) (i) Customer notifies Licensor in writing that all testing for the System has been completed successfully in accordance with the terms of this Article, or (ii) Licensor provides to the applicable Customer Project Manager a written notice of completion stating that all Critical Defects and Medium Defects have been corrected. Nothing else, including Customer’s use of the System, or any portion thereof, in a live, operational environment, shall constitute Acceptance (under contract law or the Uniform Commercial Code of [STATE]) of any portion of the applicable system.
1.2Affiliate(s) or Affiliate Company shall mean those companies that are initially listed on Appendix 1.2 attached hereto, which may be amended from time to time with the prior written consent of an authorized executive officer of Licensor.
Think about who is going to be able to use the Software and how the usage by those entities may affect Licensor’s revenues and pricing. The Customer may want to provide software to all of its “Affiliates” including those overseas. The licensor will often want to restrict the license to the Customer alone or to the Customer’s then existing “Affiliates” who are listed on an attached Appendix. By listing the Affiliates, the Licensor is able to limit the license to a finite number of entities avoiding any potential misunderstanding as to who is included. The Customer may not add an entity to the list of Affiliates without Licensor’s permission. The breadth of this definition is often an element of price. In addition to pricing concerns, the Licensor may want to limit use of the software to ensure compliance with U.S. export laws.
1.2.AAffiliate shall mean, as to a Party, any other Person that directly or indirectly controls or is controlled by such Party. The term “control” (including, with correlative meanings, the terms “controlled by” and “under common control with”) as applied to any Person means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or other ownership interest. For the purposes of this definition, “Person” means any individual, partnership, corporation, limited liability company, unincorporated organization or association, any trust, or any other business entity.
The definition of “Affiliate” set forth in Section 1.2.A offers greater flexibility to reflect the ever changing nature of a large corporation’s relationship with its affiliates. The definition of “Affiliate” is not fixed as of a particular time allowing additional users without modifying the license agreement. This definition more closely tracks the definition of affiliates used under the securities laws and from a Securities and Exchange Commission perspective.
1.3“Consolidated Net Worth”means, at any time, (a) the total assets of the Customer [and its Affiliates] that would be shown as assets on a consolidated balance sheet of the Customer [and its Affiliates] as of such time prepared in accordance with GAAP, after eliminating all amounts properly attributable to minority interests, if any, in the stock and surplus of Affiliates, minus (b) the total liabilities of the Customer and its Affiliates that would be shown as liabilities on a consolidated balance sheet of the Customer and its Affiliates as of such time prepared in accordance with GAAP.
1.4Critical Error(s) shall mean a failure of the Software that severely impacts Customer’s ability to provide service or has a significant financial impact on Customer for which an alternative temporary solution or work around [acceptable to Customer] may not be accomplished.
This definition favors the Customer as it includes not only those errors that impact Customer’s ability to provide services but also any that have a “financial impact” on the Customer.
1.5Custom Software means those Deliverables that are classified in Appendix 1.5 hereto as Custom Software, as well as the documentation related thereto; an exhaustive list of Custom Software is set forth in Appendix 1.5 hereto.
1.6Deliverable means the Hardware, Software, and Documentation to be delivered hereunder; an exhaustive list of all Deliverables is set forth in Appendix 1.6 hereto.
1.7Direct Damages means the damages incurred by the claiming Party to this Agreement directly resulting from a breach of this Agreement by another party to this Agreement and specifically excludes: (a) loss of interest, profit, or revenue; failure to achieve cost savings or business interruption and (b) any incidental, consequential, punitive, multiple, or indirect damages of any kind or nature. Direct Damages include by way of example but without limitation, (i) the costs incurred by Customer to obtain software or services that are the same as or substantially similar to (but not broader in scope than) the Software or Services being replaced, that is, the charges to be paid to another services provider(s) to the extent such costs are commercially reasonable and exceed the Fixed Charges hereunder for such Software or Services; (ii) the costs to correct any deficiencies in the Software or Services rendered that result in a failure of the Deliverables to meet Service Levels or the specifications set forth in the applicable Statement of Work, after Licensor has failed or refused to correct such deficiencies; (iii) the costs incurred to transition the Software or Services to another provider(s) of services; (iv) any payments, fines, penalties, or interest imposed by a governmental body or regulatory agency for failure to comply with requirements or deadlines; and (v) the reasonable out-of-pocket costs and fees incurred by Licensor to collect from Customer any fees payable to Licensor under the Agreement.
Alternatively the parties may want to include a section similar to Sections 17.3 and 17.4
1.8Divested Business means any business unit, as determined by Licensee, that Licensee sells or of which it otherwise transfers the assets or ownership. The term “Divested Business” shall mean such business unit or the acquirer thereof, as applicable.
1.9Documentation means collectively: (a) all of the written, printed, electronic, or other format materials published or otherwise made available by Licensor that relate to the functional, operational, and/or performance capabilities of the ABC System and/or any Software; (b) all user, operator, system administration, technical, support, and other manuals and all other written, printed, electronic, or other format materials published or otherwise made available by Licensor that describe the functional, operational, and/or performance capabilities of the ABC System and/or any Software including but not limited to the Functional Specifications and Software Acceptance Plan; and (c) any other Deliverable that is not Hardware or Software. Documentation shall not include Source Code.
1.10Error(s) shall mean a failure of the Software to substantially conform to the Documentation or the Functional Specifications, which materially impacts the Software’s operational performance or functional performance.
The definition of “Error” is written to recognize that software by its nature is imperfect. The Customer, however, may want a tighter definition to ensure the software’s performance meets the Customer’s needs.
1.11Functional Specifications shall mean those specifications to which the Software shall conform as set forth Appendix 1.11.
The Functional Specifications should be set out in detail prior to execution of the Agreement to avoid later disagreements. Agreement in advance may not be feasible depending on the nature of the development undertaken by Licensor. Without agreeing upon the Functional Specifications, the Licensor cannot give the Customer a fixed price for any software development. At the same time, it is unwise for either party to agree to a fixed price with the intent on negotiating the Functional Specifications later.
1.12Hardware means those Deliverables that are classified in Appendix 1.5 hereto as Hardware, as well as the documentation furnished therewith in the normal course of business; an exhaustive list of Hardware is set forth in Appendix 1.12 hereto.
1.13License(s) shall mean any personal, nonexclusive, nontransferable, non-assignable license or licenses for Customer’s internal use only granted by Licensor to Customer to use the Software under this Agreement.
1.14Object Code shall mean the binary machine-readable version of the Software.
1.15“Open Source Materials” shall mean any software, library, utility, tool, or other computer or program code (collectively, “Code”) that is licensed or distributed as “free software,” “freeware,” “open source software,” or under any terms or conditions that impose any requirement that the Code or any software using, linked with, incorporating, distributed with, based on, derived from or accessing the Code: (i) be made available or distributed in source code form; (ii) be licensed for the purpose of making derivative works; (iii) be licensed under terms that allow reverse engineering, reverse assembly or disassembly of any kind; or (iv) be redistributable at no charge. Open Source Materials include without limitation any Code licensed or distributed under any of the following licenses or distribution models or similar licenses or distribution models: the GNU General Public License (GPL), GNU Lesser General Public License or GNU Library General Public License (LGPL), Mozilla Public License (MPL), BSD licenses, the Artistic License, the Netscape Public License, the Sun Community Source License (SCSL) the Sun Industry Standards License (SISL) and the Apache License).