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Technology Agreements: License Grants

DEFINING USERS
A Licensee (one who pays for the right to use, access and benefit from some type of technology) should ensure that the license grant is broad enough to allow all necessary members of the Licensee’s organization to use, access and benefit from (“Use”) the technology licensed. This group of users should be determined early in the process to ensure that the license negotiated and paid for is broad enough to include all contemplated users.

DANGERS OF A NARROW DEFINITION
Failure to have a broad enough license grant is the number one reason Licensees get sued by Licensors.

Mistakes made in this early evaluation of who the potential users are can also be very expensive. Often, the Licensee determines after the agreement is signed that some of its necessary users were left out and now need to be added in to the agreement. Such additions cannot be accomplished by just buying more “seats” or “users” if the definition of who can be a user does not include the right people. Therefore, broadening who are authorized users becomes very expensive after the agreement is signed.

DON’T FORGET AFFILIATES
One thing for a Licensee to consider is whether the organization is owned by a parent company or has subsidiaries commonly called Affiliates. A license grant that is “to Company X” is not sufficient if Company X has Affiliates that will need to Use the technology licensed.

NON-EMPLOYEES AS USERS
Additionally, the Licensee should ensure that all types of workers, not just its employees can Use, the technology licensed. A license grant to “Company X and its Affiliate’s and their employees” is not broad enough if Company X has contingent or contract employees, consultants, suppliers, vendors, third party sales networks, or customers (commonly defined collectively as End Users) who need to Use the technology licensed.

LOCATION, LOCATION, LOCATION
Furthermore, the Licensee should ensure that its End Users can Use the technology licensed wherever the company has locations. A license grant to “Company X and its Affiliate’s and their End Users located in the United States” will not be broad enough to allow End Users located outside the United States to Use, the technology licensed.

Additionally, the Licensee should be careful that the license grant is broad enough to accommodate how the Licensee’s End Users currently work and how that may change in the future. Does the Licensee have End Users who travel, or work remotely, that will need to Use, the technology licensed? If so, a license grant to “Company X and its Affiliate’s and their End Users located at any of Licensee’s or its Affiliates worldwide locations” will be too narrow to allow employees to have remote access while traveling or working from home.

TERM AND LICENSE KEY
Finally, the Licensee should ensure that the term of the license granted, and any license keys received, are sufficient to cover the time period contemplated and paid for. License keys are a device used by software vendors to activate licensed software for a set period of time. If the Licensee has negotiated and paid for a perpetual license, the license grant and any keys issued should be perpetual. If the Licensee has negotiated and paid for a five year license, the license grant and any license keys issued should be good for five years to avoid any issues around not receiving a new or updated license or license keys.

RECOMMENDED GRANT LANGUAGE
For a Licensee, good language in a perpetual license grant would be “to Company X and its Affiliate’s and all of their End Users a perpetual, worldwide, fully paid up license to use, access and benefit from the technology licensed” provided “Affiliates” and “End Users” are defined broadly enough to encompass the Licensee’s intended use. A license grant like this provides the Licensee the best chance to avoid litigation, or threats of litigation, from the Licensor.

ABOUT OUR LAW FIRM AND WORKSHOPS
Leslie Marell is a business and commercial law attorney with over 25 years of experience in business contracts, purchasing and sales law, technology law & day to day business legal matters. She heads her own Los Angeles firm which specializes in providing legal services to the manufacturing, industrial and high technology industries. For more information about the firm, click here. If you’d like a complimentary consultation, call Leslie at 310.372.8663.

Leslie’s workshops are a blend of lecture, dynamic coaching, and audience participation. She brings her contract knowledge to the corporate classroom in lively and valuable workshops, translating “legal mumbo jumbo” into understandable, useful concepts in an entertaining way.

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