Software is rarely sold anymore, it is usually licensed. These licenses restrict how the software can be used and if the software can be resold. Even open source licenses, which convey rights to the users instead of take them away, have conditions on how the software can be used. When considering what to include in a software license or which open source license to use, it is important to consider how software licenses are enforced and what terms you want in your license.

License Terms vs. Covenant Terms

The enforceability of the license depends on what clause in the license is being breached and what remedy the developer is seeking. When someone breaches a copyright license, the courts look to the term that was breached to determine if it limited the scope of the license or if it was a mere covenant in the contract. For example, if the term limited the distribution method of the code, it would most likely be considered to be restricting the scope of the license. However, if the term involved how warranty claims were to be submitted, it would most likely be considered a mere covenant.

If the term being breached is considered a mere covenant, the remedies available are the traditional breach of contract remedies. While there are many of these remedies, for the most part this means that the remedy will be actual damages – how much money was actually lost because of the breach. This is not very easy to determine as the amount must be proven by evidence. For example, terms regarding the warranty of the software are usually considered covenants.

If the term being breached is limiting the license, then the breach is considered copyright infringement. This has advantages over a breach of contract action. The most important being that if the copyright was registered with the Copyright Office before the infringement, the copyright holder may be entitled to statutory damages between $750.00 and $150,000.00 per infringement. The copyright holder may also be entitled to attorney’s fees and costs. If the work is not registered before the infringement, the copyright holder is usually stuck having to prove the actual damages from the infringement. Whether or not the work was registered before the infringement, the copyright holder can also ask the court for an injunction to prevent the infringer from continuing to use the software.

When a developer is ready to license her software, what should she look out for?

• Register the software with the Copyright Office. As stated above, having the work registered opens the door to remedies that do not require proof of damages. To make this even more attractive, it only costs $35.00 to register. There is no reason not to do this.
• Ensure that your goals are met by the license. Whether you are using an open source license or a custom license, make sure that the terms that control the way your software is distributed are written in a way that actually accomplishes what YOU want to have happen with your software. Do not settle on a license because it is popular. Ensure that its terms meet the goals of your software project.
• Consider a liquidated damages clause for covenants. Proving actual damages, especially with software licenses is extremely difficult to do. A liquidated damages clause can give a number to the actual damages in the case that one party breaches.
• Prepare for if things go bad. You may want to disclaim any liability and warranties. You may also want to add a clause for attorney’s fees and costs. Also, you may want to add a choice of forum or arbitration clause to determine where or how any dispute would be handled.

What if someone is breaching your license?

• If you have not done so already, register your work with the Copyright Office. To bring a claim in federal court, the work must first be registered. Get that process started as soon as possible.
• Consider alternate options. If you have not registered with the Copyright Office prior to the infringement, or if the infringer has no money, a federal lawsuit may not be worth it financially. However, the Digital Millennium Copyright Act (DMCA) may offer some cheaper alternatives. This act offers a takedown procedure that asks web hosts to remove infringing material. If they refuse, they can be held liable for infringement. If the infringing work is being distributed via the Internet, a DMCA takedown notice may be a viable alternative to prevent the infringer from continuing to distribute the work without breaking the bank.
• Talk to an attorney. Every situation is unique. An attorney can help you understand your situation and what your rights and options are.

If you or your company need help writing or enforcing a software license, contact us at Smith & Associates.