How many software licenses does your firm have?
Let’s start with the easy ones: Microsoft Windows for the PC-based computers in your organization, and iOS for the Apple products you own. Then we add the applications, like Microsoft Word and Excel, and Adobe Acrobat. But then it gets harder and more subtle. What about all the games and apps and widgets installed on all the mobile devices used by your employees?
In theory, every piece of software installed on either a stationary or mobile device throughout your enterprise is subject to either an express or implied software license of some kind, a legal relationship under which you are called the “licensee” and are burdened by obligations relative to your use of the software. If asked, could you locate and produce copies of all such software licenses to which your law firm is a party? Probably not. And that’s a problem.
A “software license” is a legal construct that implies that someone owns rights in and to software—for example, rights arising under copyright law or patent law—and they wish to permit you to violate those rights in the software by committing copyright or patent infringement. That may seem counterintuitive until you remember that a “license” is defined as “a covenant not to sue.” Thus, when you become a party to a software license as a licensee, you are being granted rights to infringe the licensor’s rights in the software! Such infringements occur when you install or make copies of or use the software, and thus without a license you would be an active infringer who might get sued.
Years ago, most software licenses were actual paper contracts negotiated by teams of lawyers representing large corporate clients and involving software worth millions of dollars. Then came the personal computer and the proliferation of so-called “shrink-wrap” licenses, named for the fact you had to open the shrink-wrapped jewel case containing the CD from which you installed the software onto your computer. Then came “browse-wrap” licenses, named for the fact you were deemed to have entered into them by virtue of your browsing to — and continuing to browse to and use — a website. And “click-wrap” licenses connote that you must click on an “I Agree” button to download the code, and by clicking you become a party to a contract.
Thus, licenses have multiplied by virtue of the proliferation of the Internet. It is not absurd to say that you enter a software license each time you visit a website and you concomitantly agree to the covenants contained within that “browse-wrap” license. Similarly, each time you download an app or a game or a utility to a mobile device you are likely entering into a “click-wrap” license.
So, back to my question: If asked, could you locate and produce copies of all software licenses to which your company is a party? Does your managing partner know and keep track of all click-wrap and browse-wrap licenses entered into each day by all of your employees? If you answered either or both questions “no,” I recommend that you set goals to get your in-bound software licensing practices under control so that you at least know what legal covenants you are accepting by virtue of all these licenses. Here are some reasons why, and some suggested best practices:
1. Software licenses typically contain provisions favorable to the licensor, NOT you, the licensee. For example, you might be agreeing to indemnify the licensor, or consenting to jurisdiction and venue in a hostile location if a dispute arises regarding the license. You might be agreeing to something that violates a law in your jurisdiction, or which causes you to breach another contract, like a non-disclosure agreement, you have with another party. You might be agreeing to a very limited set of permitted uses, which cause the software to have limited utility.
2. If your company is ever sold or if you need an infusion of capital, during due diligence you will very likely be asked to schedule out all your software licenses. Your inability to do so means that the deal might crater since the buyer/investor is being asked to assume unknown and potentially large liabilities by virtue of all the “hidden” software license to which you are a party.
3. If you are ever in litigation involving your software, or if you are ever audited by, e.g., the Business Software Alliance, you will need to produce evidence that you are licensed for all the copies of the implicated software deployed in your enterprise.
4. Setting good, robust top-down employee policies regarding the downloading and use of software on company-owned hardware (including mobile devices) is a critical step in gaining control over what I refer to a “click-wrap hell”: that condition that results from unrestrained and unregulated clicking and downloading of apps, games and utilities by employees.
You may disagree, but most courts have held that click-wrap and browse-wrap software licenses are enforceable as contracts, and if you get sued for breaking one, the defense that you did not read it and clicked anyway is not particularly strong. Far better to be proactive and implement controls and policies now, before the click and before your next investment round or litigation.
Brad Frazer practices Internet and intellectual property law in Boise, Idaho.