Software License Agreement

A software license agreement is a negotiated commercial contract under which the licensor grants the licensee specified rights to install, access, and use software, typically on the licensee's own infrastructure ("on-premise") or hosted by the licensee in a third-party cloud. The software license agreement is distinct from a SaaS agreement (services-based, vendor-hosted) and a consumer EULA (form, non-negotiated). It is the principal commercial document for enterprise software transactions where the licensee will run the software in its own environment.

License grant and scope

The license grant defines (1) permitted uses, install, copy, run, modify, integrate, internal-only, restricted to specific affiliates; (2) the user metric, named users, concurrent users, CPU cores, instances, or capacity-based; (3) the environment, production, development, testing, disaster recovery; (4) territorial restrictions; and (5) duration, perpetual, term, or subscription. Each enumerated right is a separate grant; rights not granted are reserved.

Support, maintenance, and service levels

Most software license agreements include a separate exhibit or appendix governing support and maintenance, typically a recurring fee equal to 18-22% of the license fee per year. Support exhibits define severity levels, response time SLAs, escalation procedures, and the version/release support window. The licensor's right to discontinue support of older versions is a critical negotiation point for licensees with long deployment cycles.

Source-code escrow

Source-code escrow protects the licensee against the licensor's bankruptcy, acquisition, or discontinuation of the product. Source code is deposited with a neutral escrow agent (typically Iron Mountain, EscrowTech, or NCC Group), updated on each major release. Release events, defined contractually, trigger delivery of the source code to the licensee for limited maintenance purposes. Standard release events: licensor bankruptcy, cessation of business, material breach of support obligations, or acquisition followed by support discontinuation.

Warranty and limitation of liability

Standard licensor warranties cover (1) ownership and authority to grant the license; (2) limited media warranty (90 days, replacement remedy); (3) general performance warranty for a defined warranty period (typically 90 days, replacement remedy); and (4) IP non-infringement, with carve-outs for licensee modifications, combinations, and post-knowledge use. Limitation of liability typically caps damages at fees paid in the preceding 12 months, with carve-outs for IP indemnification, breach of confidentiality, and gross negligence/willful misconduct.