Software is licensed, not sold. This distinction is foundational to understanding software transactions and has significant implications for both software vendors and their customers. In Nigeria, software licensing agreements are governed primarily by contract law and the Copyright Act 2022. This article explains the key elements of a software licence and the common pitfalls to avoid.
Licence vs Ownership
When a company purchases software, it is typically purchasing a right to use the software, not ownership of the software itself. The copyright in the software remains with the developer or the vendor. This means that the purchaser cannot resell the software, modify it beyond what the licence permits, or reverse engineer it.
Types of Software Licences
Perpetual Licences
A perpetual licence grants the right to use the software indefinitely. The licensee pays a one-time fee and receives the right to use the specified version of the software forever. However, perpetual licences typically do not include ongoing updates or technical support, which may be provided under a separate maintenance and support agreement.
Subscription Licences
Subscription (SaaS) licences grant the right to use the software for a defined period, usually annually. When the subscription terminates, the right to use the software terminates with it.
Open Source Licences
Open source software is distributed under licences that allow users to use, modify, and distribute the software, subject to the conditions of the licence. Common open source licences include the GNU General Public Licence (GPL), the MIT licence, and the Apache Licence. Companies that build commercial products on top of open source software must review the applicable licence carefully.
Key Terms in a Software Licence Agreement
Scope of Licence
The scope of the licence defines what the licensee can and cannot do with the software. It should specify the permitted number of users or devices, whether the licence covers group companies, whether use is limited to a specific territory, and what modifications are permitted.
Data Processing
If the software processes personal data on behalf of the customer, the vendor is acting as a data processor under the NDPA. The agreement must include data processing terms that comply with the NDPA, covering the subject matter and duration of processing, the nature and purpose of the processing, and the obligations and rights of the data controller.
Limitation of Liability
Software licence agreements almost invariably include a limitation of liability clause, capping the vendor liability at the fees paid in the preceding 12 months. Customers should negotiate carve-outs from this cap for liability arising from IP infringement, data breaches, and wilful misconduct.
Termination
The agreement should specify the circumstances in which it can be terminated and what happens to the customer data on termination, including the right to retrieve data in a usable format.
Conclusion
Software licence agreements deserve careful legal review before signing. The terms of the licence define the rights and obligations of both parties, and poorly drafted agreements create risk for both vendors and customers.
This article is for general information only. For software licence drafting or review, contact Marturion Legal.