Software licence agreement

The aim of a software licence agreement is to allow software developers to transfer (or licence) the rights of use over software to a transferee. The transferee pays a fee and is granted the right to use the software for either a limited or unlimited period. Software developers and clients wishing to enter into a software licence agreement should ensure they comply with various statutory provisions.

Legal nature of software licence agreements

The legal nature of a software licence agreement will vary depending on the circumstances of the case.

Factors to be considered when determining the legal nature of a software licence agreement include whether rights are being granted over standard software, modified standard software or bespoke software. The duration of the licence will also play a role in determining the legal nature of the licence agreement.

The grant of licence rights over standard software is generally seen by the German courts and legal scholars as a rental or leasing contract over the hardware CD-ROM on which the software is stored.

Others take the view that it is the software itself as an intangible good which is transferred. They therefore classify such contracts as licence agreements – which in turn contain a mixture of elements from various contractual relationships including: sale of goods contracts, lease and rental contracts, service contracts and partnership agreements. Under such contracts, restrictions may be

The rights and duties of the parties will vary depending on the type of contract concluded. For example, restrictions may be imposed on the user’s rights of use; conversely, users may benefit from statutory guarantees and thus be able to bring claims against the software lessor or licensor for breach.

If permanent rights of use are granted over software, the agreement is more likely to be considered a contract for the sale of goods. This means that the user becomes the owner of the software and their rights of use cannot be restricted, except where the restrictions are of a copyright nature.

The situation is different in the event that custom software is developed or where standard software is modified. In the event that such software is transferred permanently, the agreement is considered a service contract (software development agreement).

The following refers to software licence agreements relating to standard software.

Licence over standard software

The legal nature of the software licence agreement and the purpose of the agreement should be described in the preamble. This will guide any later evaluation of the substance of standard terms and conditions and the extent of rights of use transferred. If the preamble does not contain provisions describing the nature of the agreement, the substantive rights contained in the agreement – including the term, rights of use and application of statutory guarantees – will be assessed in order to determine its legal nature.

In the software licence agreement itself, the software and the term of the licence should be precisely defined. The rights to be granted by the licensor should also be defined.

Finally, the remuneration to be paid to the licensor, the term of the licence and the procedure for terminating the agreement should be determined. The contractual partners may also wish to include a provision on the limitation of liability. For all other issues, the rules governing standard lease agreements can be utilised.

Do you have questions about IT law, licences or data protection? We are happy to help!
German lawyer, Christian Solmecke, and his expert team are available to answer your questions.
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Christian Solmecke is a partner at the law firm WILDE BEUGER SOLMECKE. He is the author of numerous legal publications in the area of internet and IT law. He is also an associate lecturer for social media law at the Cologne University of Applied Sciences.

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