Software is the computer program which comprises one or more sets of data definitions and procedural instructions or any part thereof recorded on any form of magnetic, optical or electronic media, or in or on any other storage media, which can be directly or indirectly interpreted and executed by a processor (i.e. computer hardware or other data processing device) and which controls the operation of the processor so that it will carry out the procedures which are stated in the software specification to be carried out by the processor. Put simply, it gives function and purpose to computer hardware.
It can be regarded as having a tangible component: tangible in so far only as the program resides on a tangible medium, for example, it may be delivered on a CD ROM, DVD or other memory device or it can be downloaded over the internet and when delivered, will be installed by the user usually on the user’s hard drive or onto a server which can be physical or “virtual” (if in the Cloud, though this latter may be a different licensing arrangement).
The true value of software, however, is as an intangible intellectual property asset and it is this asset that the software licence is designed to protect.
Why a licence? As was stated in the Commentary, considerable human, financial and technical resource is expended in the creation of software, which can be copied at a fraction of that cost. Therefore in order to ensure a proper return on investment on this asset, control over mass unrestricted reproduction and distribution is essential as well as the retention of the software owner’s intellectual property rights so that that owner can continue to recoup the cost of software development by receiving revenue from its use. At this point in time, licensing is still the most appropriate means of achieving this aim though now often accompanied by the latest technological aids built into software to ensure compliance with the licensing conditions.
This particular Contract is a typical traditional software licence which an end-user customer would receive, sign and return in order to obtain the software. In theory at least, the licence should be returned signed to the supplier prior to delivery of the software to the customer so as to ensure that the customer is bound by its terms and in particular, that the customer is aware of the fact that s/he/it is being granted only a right of “use” and not of “ownership”.
There are numerous other types of software licence and delivery mechanisms for software, for example, Contract 2 is a “Shrink wrap” Licence which is not signed by either party but a “seal or label” broken on a package containing the software medium (CD or DVD) so that the user is constructively accepting the licence terms, and Contract 61 is a “web-wrap” Licence where the user has to “Click” an “Accept” button at the end of the licence terms which appear on screen before the software can be downloaded over the internet. Again, the “Click” being another method of constructive acceptance and is in essence, equivalent to a digital signature.
Software is often distributed by a distributor or agent of the software owner, who may also provide support or other services. When used in this context then the following licence agreement should contain a declaration of the supplier’s authority from the software owner to grant such a licence. For example, by adding the words “The Licensor is authorised by the software owner to grant this licence” or “The Licensor is the authorised distributor/agent of the software owner…” (see also text in Contract 4).
It is equally important to stipulate clearly the conditions of the grant and the rights and obligations of the Licensee/user. In particular, as it is commonplace for software to be used in a multi-user or network environment, it is relevant to specify in the licence precisely where, by whom, by how many and the manner in which the software may be used. For example, the licence may state that the software may only be used on one designated system (whether physical or virtual), and/or for use only at a particular location and/or by a single user or by a number of concurrent users, each of whom may use the software simultaneously.
The importance of controlling the number of concurrent users is predominantly financial since a Licensee can, without much difficulty, pay only one licence fee for one copy of a software program and if unrestricted technically or by contract, use the same program within a network whereby there may be any number of users worldwide. Therefore, rather than each such user paying a separate licence fee, the Licensor receives only one fee. The financial loss attributable to not controlling such unlimited use is obvious.
In order to further protect (beyond contractually) that the number of concurrent users does not exceed the permitted maximum included in the licence fee, some Licensors incorporate a specific additional software program within the software, sometimes known as an access control monitoring program which can automatically restrict any additional users beyond the maximum permitted by the Licence.
Conversely to restricting use rights, it may be that a Licensor, in recognition of modern mobile laptop, tablet, “Android” and other current devices, may wish to extend the licence granted for the licensed user(s) to be able to use the software on any such devices. An example of such an extension to the grant is included in this Contract.
In view of the continuous and widespread infiltration of viruses affecting thousands of software users at a time it is particularly relevant, certainly from the Licensee’s viewpoint, for the Licensor to warrant the integrity of the software, i.e. that it is virus free certainly at the time of delivery (see Commentary for nature and effect of viruses).
Furthermore, with the use of disabling/“time-out” programs or devices which will render the software unusable which can be built into software by the Licensor to ensure compliance with (most often) a particular period of use (e.g. a 30-day trial period), it is relevant for the licence to specify whether or not there is such a program or device incorporated in the software (see Commentary for nature and effect of disabling devices).