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Look Before You Click “Agree”: The Importance of Negotiating Your Company’s Software License Agreements

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Laura Marston
BKK Business Law Newsletter
November 2014

People sometimes forget that when you click “I Accept” or “I Agree”, you are entering into a legally-binding contract with the software company or website owner. And usually, the terms of the contract are extremely one-sided in favor of the Licensor. Particularly when your business purchases software licenses, simply clicking “I Accept” or “I Agree” without fully understanding the legal consequences of the contractual terms can put your company at significant financial risk.

For example, when you download and install iTunes, did you know you are agreeing to protect Apple by paying any damages and legal fees involved if Apple determines you have breached the License Agreement? You may be surprised at how easily you could inadvertently breach the terms of the Agreement if, say, you burn an audio playlist to a disc eight times rather than the permitted seven. If Apple sued you, you are contractually bound to travel to the courts in California to defend yourself (all while paying the associated court costs and legal fees). If, on the other hand, installing iTunes crashed your entire network and cost you thousands or even millions, you contractually agreed that you will not sue Apple and that Apple has no liability to you for any damages. Also, like most other license agreements, Apple’s agreement permits Apple to change the terms of the contract whenever and however it wishes, and you are bound to the new terms by continuing to use iTunes.

What’s the lesson for companies? To avoid potentially astronomical legal fees and substantial financial liability, always negotiate your software license agreements to obtain terms favorable to your company.

There are a number of clauses you almost always want to include in an agreement between your business and a software company/Licensor:

The above list of clauses is certainly not exhaustive. Each software license agreement should be tailored to the specific needs of your business while understanding and limiting the business’s potential liability to the fullest extent possible. Even if the software is free, your company’s potential legal and financial liability may be unlimited. Always negotiate your license agreements!