Module_3

MODULE 3

SOFTWARE LICENSE AND SUPPORT AGREEMENTS-
MEANING, TYPES AND KEY CLAUSES

3.1 WHAT IS A SOFTWARE LICENSE?

A software license is a contract between a software manufacturer and an
end-user relating to ownership, authorized use and redistribution of
software. A software license defines the rights and liabilities of parties to
the software license agreement, and also provides terms and conditions for
fair and legitimate use of the software.

It is essential to understand about software licenses to ensure that an end-
user does not exceed the usage rights of the license, or a business does not
infringe on the copyright of the software. Without a software license
dictating rights and liabilities of the owner and the user, a software owner
may not be able to control how their work is used, distributed or
reproduced, and may face illegal claims of ownership; whereas, an end-
user may not be aware of the limitations on his rights.1

3.2 TYPES OF SOFTWARE LICENSES

Software licenses can be mainly categorised into:

1 Andrew Morin, Jennifer Urban and Piotr Sliz, ‘A Quick Guide to Software Licensing for the Scientist-
Programmer’ (2012) 8(7) PCBI https://doi.org/10.1371/journal.pcbi.1002598 accessed 6 January 2019

3.2.1 Proprietary Software License

Under a proprietary license, ownership or proprietorship of the software
remains with the software publisher, hence the name. This implies that
end-users of a proprietary software license enjoy only restricted rights.
Proprietary licenses have limitations on the number of installations
allowed – usually, they can be installed only on one computer; and they
can be used only for the prescribed purpose. Source codes of these kind of
software licenses are generally not available to the users, hence they are
also known as ‘closed-source software’; except for academic purposes,
when source codes of proprietary software are made available, but only for
the purposes of inspection due to scientific publishing and peer-review
requirements. Users are not permitted to reproduce, redistribute, modify,
reverse engineer or produce any derivative work. Therefore, the nature of a
proprietary software license ensures that an end-user must compulsorily
accept the license if s/he wishes to use the software at all.2

Some examples of proprietary software include Microsoft Windows,
iTunes, Adobe Photoshop, Adobe Flash Player.

Proprietary software licenses can be further found in the following forms:3

• Original Equipment Manufacturers(OEM): under OEM, users
purchase the hardware already pre-installed with the software,

2 ibid
3 ‘A Simple Guide to Understanding Software Licensing’ (Microsoft)
http://download.microsoft.com/documents/australia/licensing/licenseguide.pdf accessed 7 January 2019

meaning that the software comes attached with the hardware. This
implies that OEM licenses are not transferable. An OEM license is
best suited for customers with minimal use rights, such as home
users.
• Full Packaged Product (FPP): an FPP license is a ready-to-use off-
the-shelf software designed for the mass-market which is available
for purchase at retail stores or online. An FPP can be installed on a
single computer only; however, it is transferable. The software
maybe transferred to another computer, but only after removal from
the prior computer. An FPP license is a perpetual license. Example,
Microsoft Windows.
• Volume Licensing: volume licensing facilitates purchase of multiple
licenses through a single agreement. This kind of arrangement is
most favourable to business enterprises, with benefits such as
volume discounts and flexible payment plans.

3.2.2 Freeware Software License

A Freeware is a software which is available ‘free of cost’ to the users who
can download it from the internet without paying any fees or charges.
There are no limitations on the number of times a freeware can be
downloaded. However, it is imperative to note that a freeware software is
not the same as a free software. While a freeware software is free of cost, a
free software is free of copyright. This implies that a freeware software is
only cost-free and not copyright-free. Thus, source code of a freeware
software is not available to users, or in other words, source code of a
freeware is ‘not open’ to users for modification. Hence, a freeware

software license is a closed-source software license. The most important
point to remember in case of a freeware is that the principal economic
attribute of a freeware is its price; a freeware has nothing to do with
freedom (of users to change, modify or improve the source code).4

Examples of freeware include Adobe Reader, Skype.

3.2.3 Shareware Software License

Under a shareware software license, a commercial software is freely
distributed to users, for a limited time period, for instance, 30 days or 90
days or any other specified time period, on a trial basis. A shareware gets
deactivated after the trial period is over, after which an end-user has to pay
in order to use that software. A shareware software is also thus called a
‘try-before-you-buy’ software license.5 A shareware benefits both users
and software manufactures alike. While end-users get an opportunity to
experience the product before purchasing it, software developers get a
chance to test-run their software. However, shareware software licenses
are also major causes of security concerns. They can be used to engineer
malware attacks, which may happen in two ways – users may unwittingly
download malware by clicking onto an URL which they believe to be an
authentic link to the shareware; or, an additional software which gets
downloaded by default on download of the shareware could be the source
of the malicious software.

4 Tim Fisher, ‘What is Freeware’ ( Lifewire, 5 October 2018) https://www.lifewire.com/freeware-definition-
4154271 accessed 7 January 2019
5Karen Hamilton, ‘The Cost of Free’ (2010) http://k3hamilton.com/CoF/shareware.html accessed 7 January
2019

Some examples of shareware include WinZip, PHP Debugger 2.1.3.3,
Adobe Acrobat 8 Professional and several antivirus programs.

Shareware software licenses can further be found in various forms:6

• Adware: an adware is a software that contains advertisements in the
program, thus helping the software developer generate revenues
through it. These types of software often load into the users’ systems
undetected, and retrieve user data in order to display customised
advertisements according to the users’ preferences.

• Nagware: nagware is a type of software which constantly nags,
begs, annoys, reminds or alerts users to buy or upgrade to the
premium version of a software, by frequent displays of pop-up
windows also known as nag screens, during the use of the software
or at the time of starting or quitting the software. Hence, a nagware
is also known as begware or annoyware. Popular examples of
nagware include Norton Antivirus, Spotify, Adobe Flash Player and
WinRAR.

• Demoware: a demoware provides a demonstration or a trial version
of a software. A demoware is available in two forms – software
limited by trial period called trialware, and software limited by
functionality, which is known as crippleware. A trialware software
is a software which is available to end-users with all its features but
only for a limited period of time after which it expires; whereas, a
crippleware does not have an expiry period, instead it restricts the
software from performing certain functions which would otherwise

6 ‘What is Shareware?’ https://usa.kaspersky.com/resource-center/definitions/sharewareaccessed 7 January 2019

be fully functional in its paid counterpart. For instance, a
crippleware may disable the saving or printing functions of the
software, or prevent users from downloading a full suite of
products/services. Thus, a crippleware ‘cripples’ the software in
terms of its functionality or performance.

3.2.4 Freemium

In this version of shareware, the non-premium version of a software is
available to the users free of cost, whereas the premium version of the
software is chargeable. In other words, a freemium software offers both
free and premium services, meaning that users can enjoy a simple and
basic version of the software without paying any charges or costs, but
require to pay subscription fees if the user wants to enjoy an upgraded
version of the software with more advanced and additional features which
are not offered by the basic version.

Popular examples of freemium software include Dropbox, LinkedIn,
JioSaavn, SurveyMonkey and OneDrive.

3.2.5 Donationware

Under a Donationware license, end-users can obtain the software without
paying for the license, meaning it is available free of charge; however, the
software requests for a donation to be paid to the software developer or a
charity of his choice. Irrespective of whether the user chooses to comply
with the donation, s/he still gets to enjoy a fully functional and unrestricted
software; thus, the donation is optional.

3.2.6 Bespoke Software License

Bespoke software is a software which is tailor-made or customised to
satisfy specific requirements of a customer. A bespoke software is not
developed for mass consumption, but cater to specialized needs of an
individual consumer. From a commercial perspective, a bespoke software
helps businesses maintain a competitive advantage over rival companies,
since the software is specifically designed to align with and improve the
customer’s business requirements. Further, a bespoke software is less
susceptible to cyberattacks like hacking or any other form of security
breach, since the source code is not known to attackers unlike most
commonly used ready-made programs. Also, with a bespoke software, a
customer need not worry about a third-party server host, since the bespoke
software will have a customised server dedicated to match with the
specific business operations, practices, goals and objectives of the
organization. A bespoke software also comes with personalized software
support services and upgrades. Unlike an off-the-shelf software, a bespoke
software offers greater scope for mobile and remote connectivity, thus
ensuring a seamless workflow. A bespoke software helps a business
establish and promote its brand equity, by providing customised software
design and features. They are characterised by high levels of scalability,
that is they are flexible and agile enough to support fast growing needs of
the business organization, for example, upgrading the database to
accommodate a larger client base, or disabling features that are no longer

compatible with the industry needs of the organization, with minimal
service disruptions and specialized software solutions. However, a
bespoke software tends to be expensive (high initial purchase costs), and
its design and development process is time-intensive.7

3.2.7 Open Source Software

An open source software is one where the source code of the software is
available to the public, and they are free to reuse, change, modify and
distribute the code. The primary objective behind an open source software
is to foster non-discriminatory use and access of software, distribution and
perpetuate innovation.8

3.3 WHAT IS A SOFTWARE LICENSE AND SUPPORT
AGREEMENT

An agreement between the software developer or vendor (called the
software licensor) and the purchaser/user of the software (called the
licensee) that sets out the rights and obligations of both the parties as well
as provides the terms and conditions of use of such software by the
licensee is termed as a software license agreement. The software license
agreement also contains the terms and conditions of providing software
maintenance and support services by the licensor to the licensee, either
incorporated as a separate clause in the license agreement, or as a separate
software support agreement as a whole.

7Arun Jandu, ’10 Benefits of Bespoke Software Development’ (Codevate, 21 September 2018)
https://www.codevate.com/blog/19-10-benefits-of-bespoke-software-development accessed 7 January 2019
8Morin (n 6)

A software license seeks to protect the original copyright owner of the
software by restricting any unauthorized use, redistribution, reproduction,
modification, alteration, or creation of derivative works of the licensed
software. It serves the licensee by setting out software warranties by the
licensor and the licensee’s right to software maintenance and support,
while also defining limits to the licensor’s liabilities.

3.4 KEY CLAUSES OF A SOFTWARE LICENSE AGREEMENT

Key provisions of a software license agreement includes the following:9

• Software license grant: the license grant provision states in explicit
terms that the licensor grants to the licensee, the licensed software
for use by such licensee, as per the terms and conditions of the
license agreement, for the duration of the license subscription period
(that is, duration of the software license agreement). Further, this
provision also specifies the permissible number of installations of
such software in physical machines or virtual environments, and
clarifies that the software license is to be used as per the ‘approved
purpose’ only. This section may also mention circumstances under
which licensees are permitted to distribute copies of the licensed
software to certain ‘approved third party users’, provided agreements
between the licensee and an approved user does not adversely affect
the agreement between the licensor and the licensee; the licensee

9 ‘Software License Agreement’ (Acronis, 31 Jan 2018)
http://dl.acronis.com/u/pdf/Acronis_consumer_EULA_en-US.pdf accessed 27 January 2019; ‘Software
Subscription License Agreement’ (E-Con Solutions, January 2018) https://e-consolutions.com/wp-
content/uploads/2017/12/e-
Con_Solutions_SLA_V2.0_Software_Subscription_License_Agreement_Dyn365Sales.pdf accessed 27 January
2019

assumes full responsibility for any possible breach by the approved
users; the licensee agrees to indemnify the licensor against claims
made by the approved users; and, the approved users are not a party
to agreement between the licensor and the licensee and thus not
entitled to the warranties or software support services provided by
the licensor.
• Scope of license: this provision clearly delineates the terms upon
which the grant of the software license is conditioned, such as, using
the software for purposes approved by the licensor; prohibition from
unauthorized alteration/modification, reproduction, redistribution,
sublicensing or reverse engineering; not transferring or assigning
rights in the software to any third party user; acknowledging and
accepting the licensor’s intellectual property ownership in the
software; protecting the software from unauthorized access or
copying by external users; and, preserving all copyright notices and
references in the software as well as the medium of delivery of such
software.
• License type: this provision specifies in clear terms the type of
software licensed by the licensor to the licensee. The provision
should expressly state if the software is a non-exclusive, non-
assignable, non-transferable and/or a limited license.
• Fees: this clause sets out that the licensee is mandated to pay all the
requisite fees in order to procure the delivery of the licensed
software and related support and maintenance services from the
licensor.
• Intellectual property rights: to avoid confusion regarding ownership
of IP rights in the software, this section must lay down that the

licensor owns and retains all the IP rights in the software licensed,
related documentation, and any other materials or product items
developed in relation to the licensed software. Further, it must also
clearly state that the licensee is prohibited from redistributing the
software to third party users, accessing the source code, tampering
with the intellectual property rights notices or references in the
software and/or the medium of distribution of such software; and
reverse engineering the software source code.
• Permitted copying: this clause shall state the conditions or
exceptional circumstances under which the licensor permits copying
of the software by the licensee, such as for purposes of backup,
archiving, testing and research/development, or when mandated by a
statutory legislation.
• Warranties: pursuant to this section, the licensor warrants to the
licensee that the software delivered by the licensor is in substantial
conformity with its user documentation, and does not infringe the
intellectual property rights of any third-party users. The provision
defines a ‘warranty period’, within which any defects in the software
performance shall be repaired by the licensor without any additional
charges, provided the licensee has brought such malfunction/s to the
notice of the licensor promptly. It is prudent for the licensor to,
however, specify that a completely error free or bug free software is
not guaranteed, and the software warranty does not extend to defects
in the software caused by unauthorized alteration or modification of
the software by the licensee or other unauthorized third party users.
The licensor must also state that there are no implied warranties and
that the warranties are limited only to those laid down in the license

agreement. The licensee, in turn, warrants that s/he will use the
licensed software solely for the purpose as approved by the licensor,
and not violate the licensor’s rights in the licensed software.
• Confidentiality: through this clause, the licensee is mandated to
maintain the confidentiality of the licensed software and the
licensor’s trade secrets in such software, by exercising reasonable
duty of care. The confidentiality clause also prohibits the licensee
from carrying out any unauthorized use or access, and, redistribution
of the licensed software and relevant confidential information to any
external user or authority, without obtaining a written consent from
the licensor.
• Permitted disclosure: pursuant to this clause, the licensor enlists
certain circumstances under which the confidentiality requirement of
the software license agreement may be waived by the licensee. Some
examples of such circumstances include disclosing the software and
relevant documentation as per statutory requirements; disclosure to
professional advisors on a ‘need to know’ basis; or in cases when the
confidential information is available in the public domain without
any fault of the licensee.
• Indemnity: this provision states that the licensor shall hold the
licensee innocent, indemnify and further defend the licensee from
any liabilities, damages or expenses, which may arise out of disputes
if a third party alleges that the licensee’s use of the software
infringes such third party’s copyright in the impugned software.
However, the indemnification is subject to fulfilment of certain
conditions by the licensee which must be clearly outlined. Some of
those pre-conditions include notifying the licensor about the alleged

copyright infringement claim immediately after the licensee is aware
of such allegations; permitting the licensor to have complete control
over the defense and/or settlement process, and cooperating with the
licensor by disclosing complete and accurate information required
for such defense.
• Transfer: this clause expressly provides that a licensee cannot, under
any circumstances, sell, lease, rent, or transfer or assign his/her right
to use the software, or any right or obligation under this agreement,
to any third party.
• Software updates: the software updates clause provides details
regarding the licensor’s obligations to provide software upgrades,
support and maintenance services to the licensee. The licensor may
release regular software patches, bug-fixes or provide access to its
knowledge base to help licensees satisfy general queries regarding
the software. The provision also specifies the terms and conditions
accompanying such support services. Typical conditions on which
the licensor is obliged to maintain and support a software license
include payment of all due fees by the licensee besides maintaining a
credit account balance to cover any paid support services; authorized
use and modifications to the software; maintaining a proper and
secure operating environment for using the software; and,
compliance with other provisions of the licensing agreement.

3.5 KEY PROVISIONS OF A SOFTWARE SUPPORT
AGREEMENT

Some of the key provisions of a software maintenance and support
agreement are as follows:10

• Overview of maintenance services: this clause provides a general
overview of the maintenance and technical support services to be
provided by the software licensor to the licensee. It outlines the
scope, schedule, mode and methods of providing such services.

• Scope of software maintenance: this clause outlines the scope of
software maintenance services to be provided by the licensor.
Typical maintenance services include notification and access to
periodic and new software version releases, software patches to
rectify defects encountered in the functionalities of the software,
bug-fixes to tackle erroneous or erratic software performance,
requisite security updates, and occasional modifications or
alterations to the software code or additions to its functionalities,
along with access to relevant updated documentation, as necessary.

• Maintenance services not included: this clause mentions the
services which are excluded from the software maintenance services
provided by the licensor. Typical maintenance services exclusions
include de-installation or re-installation of the software; modifying
or changing the software environment or software interface to enable
the licensee to accommodate new features released via new software

10 ‘Software Maintenance and Support Agreement’ (Kofax, April 2017) https://www.kofax.com/-
/media/Files/Legal/kofax-software-maintenance-and-support-agreem ent.pdf accessed 27 January 2019;
‘Maintenance and Support Agreement’ (Sencha, 17 October 2017) https://www.sencha.com/legal/maintenance-
and-support-agreement/ accessed 27 January 2019

version releases; configuring the licensee’s hardware or software;
and any other activities outside the express purview of the
maintenance services clause as set out in the software maintenance
and support agreement.
• Scope of technical support services: this clause outlines the scope of
technical support services to be provided by the licensor. Typical
support services include allowing a specified number of support
requests by the licensee per year; granting online access to the
software support portal thereby granting access to the software
documentation, information knowledge base, and user communities.
The clause also specifies if the licensor is to provide the software
support services remotely or on-site, and details the procedure for
requesting such support services by the licensee.
• Support exclusions: this clause mentions the technical support
services which are excluded from the software support services by
the licensor. Common exclusions include operation of the software;
new software solutions; fixing software irregularities or damages
caused by use of unauthorized third party products; installation of
new version releases/software patches/upgrades; correction of
software defects arising out of improper installation of new version
releases/software patches; or, fixing software issues arising out of
virus attacks or force majeure clauses.
• Terms of support: in this clause, the licensor lays down the terms of
support services, such as, the hours of availability of the support
services, the response time for support requests, and the
responsibilities of the licensor in provision of the support services.
Typically, a software license grants access to its web-based support

platform including online user communities and help forums
24/7/365 except for inadvertent internet network interruptions or a
scheduled unavailability which is however, intimated to the
customers well in advance. The clause also specifies the response
time supported by the licensor, that is, the estimated time taken by
the licensor to resolve the software defects after receipt of the
support request from the licensee. Further, it is prudent for the
licensor to clarify in this clause that the actual resolution time may
be more than the estimated response time provided in the support
agreement depending on the gravity of software defects, and that, it
is outside the purview of the licensor’s responsibility to provide any
support solutions exceeding its scope.
• Customer responsibilities: this clause clearly delineates the major
obligations and responsibilities of the software customer or the
licensee in relation to software support and maintenance services.
Some of these responsibilities include immediate notification of
issues, inconveniences, problems or faults relating to software
maintenance and support to the licensor; being adequately familiar
and proficient in using the customer support portal; preserving the
integrity and confidentiality of the licensor’s technical information
and other forms of crucial data released to the licensee through the
software maintenance and support portal; ensuring proper
application of all software patches, bug-fixes, or new versions of the
software released by the licensor, in a timely manner; conforming to
the licensor’s requirement for designating a key personnel to handle
all software maintenance and support related communications;
providing the licensor adequate access to its (the licensee’s) servers

and other requisite IT infrastructure so the licensor can collect
relevant data for software maintenance/technical support and for
troubleshooting purposes; supplying details of such troubleshooting
data such as software error messages, system error messages,
software log files, or details of alterations/modifications made by the
licensee; adhere to the software maintenance and backup procedures
and maintaining software interface; compliance with technical
requirements as specified by the licensor for proper functioning of
the software; and, ensuring that the computer network along with the
IT equipment in entirety is free from virus or malware.
• Key service steps: this clause outlines the major steps to undertaken
by the licensor in order to fulfil its software maintenance and support
obligations. Such steps include review or discovery of issues with
the software, analysis of such issues, delivery of the software
maintenance and support services, and services close-out. At the
review stage, the licensor collects information pertaining to storage
processor configuration and event logs, switch configuration and
event logs, faulty version releases or erroneous software patches and
bug-fixes. At the analysis stage, information collected at the review
stage is analysed to identify existing and potential defects that (may)
adversely affect the software functionalities and performance.
Following the review and analysis stages, the licensor delivers
necessary software updates, revised or new software versions and
patches, and requisite software upgrades to the licensee. The final
stage of services close-out is attained by verifying that the software
updates/upgrades are performing as desired, along with relevant

documentation reflecting the details of the services provided and
duly acknowledged by the licensee.
• Limitations: the limitations clause limits the liability of the licensor
to provide software maintenance and support services to the licensee
under certain circumstances. It lays down that the licensor is not
liable for maintaining and supporting the licensed software if the
licensee’s use of the software exceeds the terms and conditions set
out in the software license agreement; if the licensee misuses,
improperly uses or abuses the software; or, if the licensee has caused
damage to the software, either by performing unauthorized
alterations or modifications, by misconfiguration, by using it on a
hardware or software interface not provided or supported by the
licensor, or, by failing to install a software update or a version
release in a timely manner. The licensor must also clarify that its
liability does not extend to loss or damage of customer’s data,
irrespective of the cause of such loss.
• Fees: this clause lays down the fee schedule for availing software
maintenance and support services provided by the licensor. It
provides in express terms whether the services fees are to be paid on
the effective date of the software license agreement, or on renewal of
the software license. It also clarifies if the licensee is required to
maintain a credit account balance with the licensor so as to pay for
various software updates and other related support services prior to
availing such services. Further it specifies the consequences for not
maintaining sufficient balance in the credit account or non-payment
of services fees upfront, namely, suspension of services, or

termination of the services in case of continued non-payment for a
pre-defined time period.
• Termination of services: this clause mentions the grounds on which
the software support and maintenance services may be terminated by
the licensor, such as, prolonged non-payment of applicable fees for
services availed by the licensee; at the end of the services term if the
licensee has opted for a software services plan without auto-
renewals; or, on non-renewal of the services plan if the licensee has
opted for a services plan with auto-renewals and chooses not to avail
the maintenance services by informing the licensor with a written
consent.

3.6 ISSUES

Major issues which may arise in a software license agreement include:11

3.6.1 Scope of license

To avoid disputes at a later stage, the scope of the license must be clearly
defined. It is prudent for the licensee to choose a license type which is best
suited not only for its own organizational needs/business requirements, but
also one which favours use by its authorized third party subcontractors and
outsourcers. In doing so, the licensee must decide whether to select a per-
seat license (wherein the licensed software can be accessed by a defined

11Kenny Hoeschen, ’10 Common Pitfalls in Software License Agreements’ (Logic Gate Legal LLC, 25 August

2016) http://www.logicgatelegal.com/law-tech-blog/2016/8/24/10-common-pitfalls-in-software-license-

agreements accessed 30 January 2019

number of individuals, for instance, a 100 user per-seat license means that
the license is accessible by upto 100 different named individuals), an
enterprise-wide license (wherein a site license is provided to a large
organization, implying that one software package is installed in multiple
computers at the business location or ‘site’ enabling several employees to
use the software, instead of purchasing separate software licenses for each
computer) or a concurrent user license (wherein the licensed software can
be accessed by a defined number of users simultaneously, for instance, a
10 user concurrent license will allow upto 10 users to log onto the
software, but will prohibit the 11th user from logging in).

3.6.2 License overruns

The license agreement should provide for remedies or mitigating measures
in case the licensee unintentionally exceeds the purview of the software
license. Cases of inadvertent license overrun is quite common in per-seat
or named user software license models. The license contract should be
worded in such a manner so as to accommodate situations like these rather
than laying down a blanket penalty for exceeding the license scope, such
as allowing the licensee to pay for the additional (trespassed) licenses.
Often as a preventive measure, software vendors (licensors) insert an audit
rights clause to be able to monitor software license use by the licensee.
However, care must be taken to appropriately word such clause so that it
does not impose undue punitive fees on the licensee.

3.6.3 IP infringement indemnification

The license contract must ensure that the licensor accords adequate
protection to the licensee in the event a third party claims that licensee’s
use of the impugned software constitutes copyright infringement of such
third party, in the form of indemnification, ‘hold harmless clause’
(wherein the licensor holds the licensee harmless against third party
copyright infringement claims and any potential damages, liabilities and
legal expenses arising out of such claims) and defending/settling such
claims. The licensee must negotiate an acceptable level of protection from
the licensor to avoid issues arising out of vaguely worded indemnification
clauses.

3.6.4 Transfer of license

Software license agreements typically provide the license to be used by the
licensee only and the licensee is prohibited from transferring the software
license or assigning any of the rights contained in such software license, to
any external or third party users. However, care must be taken to address
issues arising out of a possible merger/acquisition situation where a
licensee organization is required to transfer its acquired licenses to third
party users, or otherwise transfer its licenses to a subsidiary or an affiliate
company, or any subcontractors.

3.6.5 Proprietary rights

In a software license agreement, all proprietary rights over the licensed
software and related documentation or products vest with the software

vendor or the licensor. While this is perfectly acceptable, the license
agreement should also address issues like what happens when the licensee
develops a software product or service based on the licensor’s proprietary
software, or whether creation of a derivative work from the licensor’s
proprietary software by the licensee gives rise to a new proprietary right,
and if so, who is the appropriate owner of such proprietary right in the
derived work.

3.6.6 Software updates and version releases

To avoid confusion and disputes at a later stage, this clause should be
drafted keeping in mind the licensee’s expectations as regards the software
updates and version releases. Not only should the updates clause cover the
detailed scope of the services to be provided and the responsibilities and
liabilities of both parties, it should also answer important questions such
as, consequences if the licensee opts not to purchase a new version release
of the software, whether the licensor will provide continued support to an
old software version when a new version has already been released,
whether the licensee will require to update its existing software
environment such as operating system in order to be compatible with new
version releases, or, the frequency of releasing new software versions by
the licensor.

3.6.7 Source code escrow

It is desirable for the licensee to opt for a source code escrow to protect the
software from being orphaned by the vendor in the event the licensor
declares bankruptcy, goes out of business, materially changes its

ownership structure, discontinues the particular software or is otherwise
unable to maintain and support the software as agreed in the software
license agreement. The escrow agreement should be carefully drafted so as
to facilitate recovery of the software by the licensee in the event of an
abandonment by the licensor including but not limited to the above
mentioned conditions.

3.6.8 Termination rights

A software vendor or licensor often has multiple related agreements in
place in addition to the software license agreement such as software
installation agreement, or software maintenance and support agreement.
The termination rights clause should be drafted so that a party terminating
one agreement has the right to terminate the related agreements as well.
Further, it is desirable for the licensee to exercise the right to termination
under defined circumstances rather than granting an unilateral right of
termination to the licensor and provisions must be laid down whereby the
licensee is able to demand certain services prior to the termination of the
agreement such as extracting relevant data from the licensed software,
vendor’s assistance in transitioning to a replacement software, or a
mandatory destruction of all copies of the licensee’s data in possession of
the licensor following the termination of the agreement.12

12Saraann Parker and Melanie Rheinecker, ‘Eight Pitfalls in Software Licensing Agreements’ (Husch Blackwell
Sanders LLP, March 2010) https://hbfiles.blob.core.windows.net/files/16b2fe8f-434d-49ae-98d1-
316fd85580d0.pdf accessed 31 January 2019

3.7 IP PROTECTION OF SOFTWARE

The intellectual property rights in a software can be protected either
through copyright protection or patents. Copyright protection in software
derives its legitimacy from article 10 of the TRIPS (Trade Related Aspects
of Intellectual Property Rights) agreement which provides that “computer
programs, whether in source or object code, shall be protected as ‘literary
works’ under the Berne Convention (1971).”13 In the Indian context,
software or computer programs are protected under ‘literary work’ as per
the Copyright Act, 1957.14 Any program devised for the working of
computers15, or a computer program stored on any CD or magnetic tapes16
have been held to be literary works. Also, it has been held that copyright in
a software not only extends to its literal components, that is, source code
and object code17, but also to its non-literal components such as “general
flowcharts and more specific organisation of inter-modular relationships,
parameter lists and macros”18. Copyright infringement of a software
source code which comprises “a list of programs, computer commands,
design and layout, and program analysis of computer resource in any
form” has been held to be punishable under section 63 of the Information
Technology Act, 2000.19 Under section 14 of the Indian Copyright Act, the
‘original’ creator of a computer program or software is granted exclusive
rights and authorized to reproduce the program in any material form or
store such software in any electronic medium; distribute or translate the

13Article 10, Part II – Standards concerning the availability, scope and use of intellectual property rights,
Uruguay Round Agreement: TRIPS, WTO https://www.wto.org/english/docs_e/legal_e/27-
trips_04_e.htmaccessed 31 January 2019
14S. 2(o), The Copyright Act 1957
15Apple Computer v. Formula International 725 F. 2d 521 (9th Cir 1984)
16Rite Choice Technologies v. Circale Data Systems 1996 SCC OnLine Mad 347
17Lotus Development Corporation v. Paperback Software International 740 F.Supp. 37 (1990)
18Computer Associates International v. Altai 982 F.2d 693 (2d Cir. 1992)
19Syed Asifuddin v. State of Andhra Pradesh 2005 Cri LJ 4314

software; or sell/rent copies of such software.20 It is imperative to note that
the key word here is ‘originality’ of the software. Thus, the defendant’s act
of selling pirated copies of the plaintiff’s software in Rite Choice
Technologies v. Circale Data Systems21 was held to be a copyright
infringement of the plaintiff, as it lacked originality and involved
unauthorized copying and reproduction of the plaintiff’s software.
Similarly, reproducing the plaintiff’s software along with a similar
packaging in order to replicate the plaintiff’s original copy, so as to
intentionally mislead purchasers into believing that the software product
they are purchasing is genuine and belongs to the plaintiff; reproducing or
burning the plaintiff’s software onto a blank CD without any
representation or identification as to the genuineness of the product; or
reproducing several software programs of the plaintiff on a single CD in
the form of a compilation, all amounts to software piracy and thus, an
infringement of copyright in the plaintiff’s software.22

In India, software cannot be protected under patents. For a subject matter
to be patentable, it needs to have three essential elements: invention,
novelty and non-obviousness/inventive step. Under article 27 of TRIPS, it
is provided that “patents shall be available for any inventions, whether
products or processes, in all fields of technology, provided that they are
new, involve an inventive step and are capable of industrial
application”23. However, the Indian Patents Act, 1970 expressly states in
section 3(k) that “a mathematical or business method or a computer

20S. 14(b), The Copyright Act 1957
21PTC (Supp) (2) 761 Mad
22Microsoft Corporation v. Dr. Deepak Raval MIPR 2007 (1) 72
23Article 10(1), Part II – Standards concerning the availability, scope and use of intellectual property rights,
Uruguay Round Agreement: TRIPS, WTO https://www.wto.org/english/docs_e/legal_e/27-
trips_04_e.htmaccessed 31 January 2019

programs per se or algorithms”24 are not inventions that can be patented.
Since computer programs have been placed alongside mathematical
methods, business methods and algorithms, it can be argued that the
legislative intention is to treat them as though they belong to the same
category and as such, computer programs can be interpreted to mean as a
kind of algorithms, and algorithms, in turn, can further be interpreted as a
kind of mathematical methods.25 Since algorithms and mathematical
methods are unpatentable subject matter by virtue of being “abstract ideas
that are not useful”26, it can be deduced that computer programs are also
unpatentable. Further, invention is defined as “the act or operation of
finding out something new; the process of contriving and producing
something not previously known or existing, by the exercise of independent
investigation and experiment. Also the article or contrivance or
composition so invented”27, and computer programs fail this test by virtue
of being an “aggregation or compilation of the algorithms and
mathematical formulae known to the world”28, and is therefore barred
from protection as patents since section 3(p) of the Patents Act, 1970 states
that “an invention which, in effect, is traditional knowledge or which is an
aggregation or duplication of known properties of traditionally known
component or components”29is unpatentable.30 The US case of Diamond v.
Diehr31in relation to patentability of software held that “while a
mathematical formula or an algorithm, in abstract, is unpatentable in

24S. 3(k) The Patents Act 1970
25Pranesh Prakash, ‘Arguments Against Software Patents in India’ (Centre for Internet and Society, 5 February
2010) https://cis-india.org/a2k/blogs/arguments-against-software-patents accessed 31 January 2019
26State Street Bank & Trust Co. v. Signature Financial Group 149 F.3d 1368 (Fed. Cir. 1998)
27Smith v. Nichols, 88 US (21 Wall.) 112, 22 L Ed. 566
28 Software Programs: Protection in India
http://shodhganga.inflibnet.ac.in/bitstream/10603/20952/13/13_chapter_7.pdf accessed 31 January 2019
29 S. 3(p) The Patents Act 1970
30 Software Programs: Protection in India (n 27)
31450 US 175 (1981)

itself, however when that same formula or algorithm is employed in a
claimed invention, one must view the invention as a whole to determine
patentability and not summarily dismiss the invention as unpatentable
simply because a formula or algorithm (i.e., software) was used. In other
words, an invention that includes software may be protected via the patent
laws, provided the invention, as a whole, meets the criteria of
patentability”32. Further in a 1999 decision, a US Federal court found that
“unpatentable mathematical algorithms are . . . merely abstract ideas
constituting disembodied concepts or truths that are not ‘useful’. To be
patentable, an algorithm must be applied in a ‘useful’ way. Thus a
software program, which employs mathematical algorithms in its
operation, may be patentable subject matter if it has “some type of
practical application, i.e., ‘a useful, concrete and tangible
result.’”33Therefore, it can be concluded that the emphasis is on the
‘industrial application’ criterion for a software or computer program to be
patentable.

32 Stanley Nollen, ‘Intellectual Property in the Indian Software Industry: Past Role and Future Need’
(International Intellectual Property Institute, June 2004) http://iipi.org/wp-content/uploads/2012/10/India-
Software-Study-2004.pdf accessed 31 January 2019
33State Street (n 25)