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Software may be ubiquitous, but it can still catch enterprises out when it comes to rights. In a two-part column, DLA Piper's Chris Edwards outlines some of the legal issues organisations need to consider when buying software.

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By  Chris Edwards Published  October 7, 2007

As IT professionals, we understand you are well aware of the importance of software to a business. From small start-ups to multi national corporations, every business has to deal with the issue of identifying and procuring the correct software for its business operations.

For these two columns we will deal with a selection of discrete issues which we as specialist IT lawyers often encounter in advising both suppliers and customers on software agreements. We also propose some practical advice and solutions to these issues which can be used to alleviate common pitfalls.

Have the parties identified the rights which need to be granted?

Software is protected as intellectual property (IP) by the laws of copyright and in some cases by way of patents. For another party to use a software developer's IP, a licence must be granted allowing such use. In large software and IT contracts the ‘rights' which are granted are some of the most fiercely negotiated provisions.

The scope of such rights is crucial to both parties. A supplier will often want to limit the use of the software provided under an agreement by, for example, reference to time, location, the number of simultaneous users, type of use permitted and possibly even the hardware it is used on. Conversely, a customer is likely to require flexibility in how the software is implemented across its business. For example, a large organisation may want the ability to transfer the software to different sites or onto new hardware platforms.

Before negotiations begin a customer should consider carefully the rights it requires in the software to be procured. Will it need to enable an outsource service provider to use the software? Will it need to use the software in different jurisdictions? How many users will require the software application? In our experience, better understanding by all parties of how the software will be used in practice can often save time in negotiations - minimising the chance of a customer trying to obtain licence rights which are of little practical value.

Can the supplier grant the rights that are required?

Another common issue in software agreements are rights in relation to "Third Party Software". A common scenario sees a main supplier (often a systems integrator) use a variety of software (sourced from different developers) which is combined and provided as part of a "system" to the customer.

A customer will not want to deal with numerous software suppliers in obtaining its new system so an agreement with one main ‘lead' supplier who promises to supply everything required is an attractive proposition. However, under such an arrangement it is crucial that a customer ensures that it has the ability to use such third party software as it requires. It may want to request from the supplier the terms on which the supplier itself has procured the software from the third party. This element of due diligence is beneficial particularly if it identifies potential problems early on in the contractual negotiations.

From a drafting perspective, one simple method to minimise risk in this area is to accurately define each different type of software to be provided, for example "supplier software" or "third party software", and then through careful drafting attach the appropriate licence rights to the relevant definitions.

Both parties should be wary of standard provisions which purportedly grant wide rights in all software procured under an agreement without first investigating whether such rights can be granted in the first place.

Chris Edwards is a legal consultant at the Dubai office of DLA Piper.

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