Here’s a typical grant of rights from a software end-user license agreement (EULA):

Provider hereby grants Customer a license to use 30 copies of the Software.

Common though that clause may be, it’s dysfunctional. On-premise software licenses grant rights under copyright. And the copyright statute does not address a right to use anything. U.S. copyright law governs rights to reproduce, distribute, modify, publicly display, and publicly perform works of authorship. If your license doesn’t address those rights, it’s not clear.

[This post highlights one of the topics to be discussed on our February 18 webinar, IP Terms in Tech Contracts: Licenses, Warranties, Open Source, and More. See the last paragraph below.]

What does “use” mean?

In the sample clause above, can the customer modify the software if that’s necessary to use it — or to use it in certain ways? The license to use doesn’t say, so we can only guess from context. Can the customer distribute some of its thirty copies to its partners — if using the software involves collaborating with other companies? Again, we can only guess. We don’t even know if the customer can copy the software or how much. Does its right to thirty copies mean it can keep reproducing the software to maintain thirty copies? If one of thirty computers running the software breaks down, can the customer reproduce a new copy for a new computer? Can the customer reproduce the software at all, or does it just get access to preinstalled copies? Again, the license to use doesn’t say, and we have to guess form context.

Customers, add the necessary statutory rights

If you’re the customer, make sure your on-premise software license grants actual copyright holders’ rights. Specify whether you can reproduce, distribute, or modify the software. (Rights to publicly perform and display relate more to recordings and playwrights’ scripts than to software.) You don’t have to specify the right to use — any more than the owner of a book needs a license to read it. But adding a right to use won’t hurt you, once you’ve listed your important rights.

Here’s a better clause for the customer:

Provider hereby grants Customer a license to reproduce the Software so as to maintain a supply of 30 copies.

Or:

Provider hereby grants Customer a license to reproduce and use 30 copies of the Software, to modify the Software as necessary to operate it according to the System Specifications, and to distribute up to 10 such copies to its Authorized Partners.

Providers, avoid “use” or at least subtract the excluded statutory rights

If you’re the provider, don’t grant the right to use. Or grant it if your customer insists (probably due to ignorance), but then specify what it does not mean — by listing the actual rights of copyright holders not granted. If the customer can’t reproduce, distribute, or modify the software, say so.

Here’s a better clause for the provider:

Provider hereby grants Customer a license to reproduce the Software so as to maintain a supply of 30 copies and to use such copies solely for its its internal use. Customer shall not modify, distribute, publicly display, or publicly perform the Software.

More …

Of course, an on-premise software license can and often should address other concepts, like duration of rights, territory, exclusivity, seats, and named users. But start out with a clear copyright license.

We’ll discuss the above in more detail — along with other intellectual property issues — during our webinar on February 18: IP Terms in Tech Contracts: Licenses, Warranties, Open Source, and More.

© 2021 by David W. Tollen. All rights reserved.

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