4 Factors to Consider When Licensing Software

Written by Kevin Liew on 23 Nov 2022
60,828 Views • Miscellaneous

Securing a licensing agreement is a prerequisite when outsourcing intellectual property. A software licensing agreement will allow your business to use tech-based intellectual property in exchange for compensation. However, before getting into an agreement, it's essential to negotiate an agreement that will ensure both parties' needs are met. Here are four key factors to consider when entering a software licensing agreement.

1. Termination rights

Software licenses are typically time-limited and contingent on early termination. As a business owner, you should ideally understand the terms of each software license and take precautions to exercise renewal rights and avoid early terminations.

Software license agreements typically contain two types of termination rights. These include termination for convenience and termination for cause. Termination for convenience allows a party to terminate a license for a party's sole convenience. In contrast, termination for cause allows a party to end only when the other party breaches the license agreement. Termination rights can be subject to pre-conditions or limitations, such as notice to the breaching party and a fair opportunity to sort out the breach.

2. Level of software piracy risk

Risk is the product of the price or value of the intellectual property added to the potential number of authorized users. There are two main types of licensing enforcement to remember when deciding how to mitigate risk; software and hardware.

License management technology such as FLEXlm allows software from several vendors to be supported with a single license management system on a network. In addition, it supports various licensing policies such as node locked licensing, user-based, floating license, and site licensing. Software-based licensing is a perfect option for high-volume and low-margin software licensing. Although it's not the most secure option, it can be an excellent fit when piracy is not a great threat. 

3. License exclusivity

Software licensee has exclusive rights to use and exploit IP, though such exclusivity is usually restricted to a certain level. For instance, you can enjoy exclusivity in a given geographical area or within specific business channels. These exclusive rights may further be subdivided into small parts as the party would like, such as to be exclusive only subject to a potential licensee types sub-set. In some cases, when you pay for comprehensive customization to a software package, the licensor will give an exclusive period to allow you to enjoy a competitive advantage in return for that investment in the enhanced software. 

4. Licensing period

The period the license will be effective is another vital aspect to consider before entering a software licensing agreement. For instance, when licensing a copyright, the agreement might need to be structured in a way that considers the patient's life. This includes each party's duties upon the license expiration and an obligation to help transfer processing to another party. However, if dealing with trade secrets, it might be necessary to leave an escape clause in the agreement to have an exit in the event an alternative secret gets into the market.


Most end-users and consumers overlook the complexities of software licensing, but it can be detrimental to your business and may land you in trouble. It's always essential to reach out to a software professional familiar with the product you are looking to use to ensure you choose the right software for your business. Consider these essential factors when licensing your next software.
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