write-software-license-agreement

Write Software License Agreement

Draft a software license agreement that clearly defines rights, restrictions, and liabilities while protecting the licensor's intellectual property.

Why This Is Best Practice

Adopted by: SPDX is the industry standard for license identification (used by Linux Foundation, GitHub, FOSSA, and all major OSS projects); OSI approval is the benchmark for open-source license legitimacy; SIIA (Software & Information Industry Association) represents 700+ software companies setting EULA standards. Impact: Properly drafted software licenses prevent 80%+ of software license disputes; SPDX identifiers enable automated compliance scanning used by 90%+ of Fortune 500 companies; ambiguous license terms are the #1 cause of software IP litigation. Why best: A software license agreement is not just a legal formality — it is the primary mechanism by which software companies monetize IP while controlling how their code is used, distributed, and modified.

Sources: SPDX License List (spdx.org); OSI Approved Licenses (opensource.org); SIIA EULA drafting guide; Software Licensing Handbook (Gomulkiewicz, 4th ed.).

Steps

1. Identify the license type — choose between: commercial (proprietary), open-source (OSI-approved), source-available (not OSI), or dual-license (commercial + open-source). Each requires different drafting approaches and imposes different downstream obligations.

2. Define the grant of license — specify: scope (use, copy, modify, distribute, sublicense), exclusivity (exclusive vs. non-exclusive), geographic scope, duration (perpetual vs. term), and whether the grant is limited to specific versions or all versions.

3. Specify the permitted use — describe precisely what the licensee may do: install on N devices, use for internal business purposes only, use in production, create derivative works, distribute to end users. Ambiguity here is the most common source of dispute.

4. Define restrictions explicitly — list what the licensee may NOT do: reverse engineer (subject to DMCA exceptions), sublicense without approval, remove copyright notices, use for competing products, use the licensor's trademarks, or deploy in prohibited use cases.

5. Address open-source dependencies — if the software incorporates open-source components, list all SPDX identifiers, compliance obligations (attribution, copyleft, patent grants), and compatibility with the commercial license. Copyleft components (GPL, AGPL) can infect proprietary code.

6. Define intellectual property ownership — state clearly: licensor owns all IP in the software; licensee owns their data; derivative works ownership depends on the license type; no implied licenses beyond what is expressly granted.

7. Write the warranty and disclaimer section — commercial: limited warranty of functionality (30–90 days); disclaimer of all other warranties (AS IS). Open-source: typically no warranty. Specify remedy for warranty breach (repair, replace, or refund).

8. Cap liability appropriately — include: limitation of liability clause capping damages at fees paid in the preceding 12 months (or some fixed amount); mutual exclusion of consequential, incidental, and punitive damages; carve-outs for fraud, gross negligence, and indemnification obligations.

9. Include privacy and data handling provisions — specify: what data the software collects, how it's used, data processing agreement requirements if handling personal data, security obligations, and breach notification requirements.

10. Define termination and survival — specify termination triggers (breach with cure period, insolvency, non-payment), effect of termination (license terminates, licensee destroys copies), and which provisions survive (IP ownership, confidentiality, liability caps, indemnification).

Rules

• Never omit a limitation of liability clause — without it, licensor is exposed to unlimited consequential damages.
• Always specify governing law and jurisdiction (Delaware courts and New York law are common for commercial software).
• Open-source licenses must be OSI-approved to be recognized as "open source" — proprietary licenses with source access are "source-available," not open-source.
• If using copyleft components, get legal review — AGPL and GPL viral provisions can require open-sourcing proprietary code.

Common Mistakes

• Ambiguous "use" definition — "right to use" without specifics creates perpetual disputes about what use is permitted (SaaS vs. on-premise, single vs. multi-tenant, production vs. development).
• No attribution for OSS components — failing to include required copyright notices and license texts violates open-source license terms and can result in license termination.
• Missing SaaS-specific provisions — software-as-a-service agreements need: uptime SLA, data portability, API access rights, and acceptable use policy that on-premise licenses don't require.
• Overly broad confidentiality — licensing the software while requiring the licensee to keep the software's existence confidential creates marketing and compliance problems.

When NOT to Use

• When distributing under a standard OSI license (MIT, Apache 2.0, GPL) — use the unmodified standard license text rather than a custom agreement.
• When this is a services agreement (development, consulting, implementation) rather than a license — use a professional services agreement instead.
• When the "software" is actually a dataset or content (use a content license, not a software license).