Intellectual Property and TechnologyIP and IT in Corporate Transactions
Drafting Software License Agreements: Key Terms and Negotiation Points
Software runs modern business, which makes software license agreements among the most consequential contracts companies sign—and among the most misunderstood, with vendors presenting forms as non-negotiable and customers fixating on price while ignoring the terms that carry far greater risk. This article explains how to understand, draft, and negotiate these agreements across SaaS, on-premise, and hybrid deployments, following a fictional SaaS vendor and an enterprise customer through a single negotiation. It works through the copyright foundation, the license grant and its scope and exclusivity, the consequential covenant-versus-condition line drawn by MDY v. Blizzard, service levels, data rights and privacy, open source, warranties and disclaimers under UCC 2-316, IP-infringement indemnification, limitation of liability under UCC 2-719, audit rights, and the source-code escrow and Section 365(n) protections that keep a customer afloat if the vendor fails. The throughline: the best agreements allocate each risk to the party best able to manage it rather than letting one side extract maximum advantage.