Software Agreements Line by Line. How to Understand & Change Software Licenses & Contracts to Fit Your Needs

1. Specifications and Performance Standards.

The specifications are one of the most and often the most important part of the license agreement. Most vendor-provided agreements tie all warranties, representations and the performance of the licensed software to the "documentation." Agreeing to this approach has several pitfalls:

• The documentation is subject to change at any time by the vendor, likely without notice to licensee. This is frequently referred to as "functionality creep," where over time the functionality of the software gradually changes to exclude functionality that may have been critical to the licensee when the agreement was originally executed;

• The ability to change the documentation at any time means that the vendor can (i) delete functionality that licensee views as essential or (ii) change the interoperability/interface requirements of the software; and

• The documentation will not include any reference to specific representations made by the vendor's sales representatives and technical staff regarding the performance of the software in licensee's environment (both hardware and software) or its ability to meet the licensee's objectives.

To avoid the foregoing pitfalls, the following procedure should be followed:

• The licensee should identify any specific performance, functionality and/or interoperability requirements for the software. These requirements should be reduced to writing and specifically identified in the body of the agreement or, more preferably, in an exhibit or other attachment.

• A defined term, such as "Specifications," should be added to the agreement. This term should be defined as follows: "Specifications shall mean the Licensed Software performance, functionality, and interoperability requirements set forth in this Agreement and, to the extent not inconsistent with the foregoing, the Documentation." ^[1]

• All warranties and other performance representations that originally required compliance with the Vendor's "documentation" should be revised to require compliance with the newly defined "Specifications."

• Acceptance and testing provisions should be revised to require compliance with the Specifications as a condition to passing the test and acceptance.

• Expand the vendor's definition of documentation to include all materials the vendor has provided to the licensee relating to the software, including training manuals, online help files, technical information, etc.

The most important point to take away from this discussion is that a prudent licensee should not rely on the vendor's documentation to ensure the licensed software will perform as the licensee requires. Rather, the licensee should take the time to identify the elements of the software that are critical to achieving its goals in licensing the application and to specifically incorporate those elements into the agreement.

Example Revision:

• 1.4 "Documentation" shall mean Vendor's training course materials, system specifications, hardware requirements, technical manuals, and all other user instructions regarding the capabilities, operation, installation and use of the Licensed Software, including all online help files and other user instructions Vendor's then current documentation for the Licensed Software.

• 1.5 ^[2] "Specifications" shall mean the requirements set forth in this Agreement, Exhibit A (Required Functionality) ^[3], and, solely to the extent not inconsistent with the foregoing, the Documentation.

^[1]If licensee has prepared a Request For Proposals and the vendor has provided a Response to the Request for Proposals, those documents should be included in the definition of "Specifications": "Specifications shall mean the Licensed Software performance and interoperability requirements set forth in this Agreement, licensee's Request for Proposals, Vendor's Response to the Request for Proposals, and, to the extent not inconsistent with the foregoing, the Documentation."

^[2]Proposed new section defining "Specifications" for the Licensed Software.

^[3]In this agreement, the licensee has attached an Exhibit A that lists all of the critical functionality for the software.