Free software license agreement template

How to fill it in

Four decisions drive the rest: what the Software is, the license model, the metric, and the fees. Schedule A is where most of it lands, so fill the schedule and the clauses together.

• Clause 1 and Schedule A Part 1: name the product, the version and the modules, and decide the Major Release question while you are there.
• Clause 2: exclusivity, transferability and territory. Silence reads as non-exclusive.
• Clause 3: keep one model and one metric, and record both in Schedule A Part 2 with the term dates.
• Clause 5 and Schedule A Part 3: list the affiliates and sites covered. Leaving this blank is a common source of audit disputes.
• Clause 8 and Schedule C: list every open source and third-party component.
• Clause 9 and Schedule A Part 5: fees, payment terms, the unit price for true-ups, and the renewal cap.
• Clauses 11, 12 and 22: keep maintenance option (a) or (b); for on-premise or no-escrow deals, replace the text of Clause 12 or 22 with the word Reserved instead of deleting the clause, so later numbers and cross-references still resolve.
• Clause 30: the governing state and the courts. Fill both.

Licensee or owner of a copy, and why the answer moves money

The first line of this template says the Licensor grants a license and does not sell the Software, and that wording does work. Two provisions of the Copyright Act give rights to the owner of a copy of a program, not to a licensee. 17 U.S.C. 109(a) lets the owner of a lawfully made copy sell or otherwise dispose of it. 17 U.S.C. 117(a)(1) lets the owner make another copy as an essential step in using the program with a machine, and 117(a)(2) allows an archival copy. Vernor v. Autodesk, Inc., 621 F.3d 1102 (9th Cir. 2010), set a three-factor test: whether the copyright owner specifies that a license is granted, significantly restricts transfer, and imposes notable use restrictions. Calling the deal a license is only the first factor, so the label alone decides nothing. And this is Ninth Circuit law. The Second Circuit asks instead whether the economic realities make the user an owner, and in Krause v. Titleserv, Inc., 402 F.3d 119 (2d Cir. 2005), found ownership of copies despite license language where the customer had paid once, kept the software indefinitely and had no duty to return it. That describes a paid-up perpetual license, which is the version most exposed. Clause 14 of this template declares the Licensee is not the owner of a copy for those sections, and Clause 2 grants the backup and archival rights contractually instead, but the declaration is only ever as strong as the surrounding facts.

• Most exposed: a perpetual license, paid once, with no return obligation and liberal transfer rights.
• Least exposed: a subscription with real transfer restrictions and a defined end date.
• Clause 28 of this template permits transfer to a merger successor, which cuts against Vernor's second factor. A licensor relying on licensee status should narrow it.

Pick the model and the metric, then match them to the deployment

The model is how long the license lasts. The metric is how much use it permits. Mix them up and you get an agreement nobody can audit or price at renewal.

• Perpetual. Paid once and kept indefinitely. Common for on-premise enterprise software.
• Fixed term. Runs for a set period and stops. Useful for a pilot or a project.
• Subscription. Runs and renews, and the right to use ends with it. Standard for anything hosted.
• Named users suit software where individuals hold accounts. Concurrent users suit shared tools where peak usage sits well below headcount.
• Installations or devices suit desktop software. Processors or cores suit server software, and are where virtualization causes trouble: say whether you count allocated resources or the physical host, which Clause 3 settles in favor of allocated.
• A site or enterprise license trades audit simplicity for a higher price, and earns it when the alternative is counting seats across a group.
• Hosted access does not work with the installation, core or site metrics, because the hardware is the vendor's. Keep a user-based or volume metric for the hosted part.

On-premise, hosted, or both

An on-premise license delivers a copy the customer installs and runs. A hosted arrangement gives access to an instance the vendor runs. The legal shape differs because the copyright grant differs: installing needs a license to reproduce, logging in does not. This template is built for on-premise, with Clause 12 bolted on for the hybrid case. The practical trap in a hybrid is that Clause 12 switches off Clause 4, so there is no delivery, and the warranty in Clause 15(b) runs from delivery. That is why Clause 15(b) now also starts on the subscription period for a hosted instance, and why Clause 19 indemnifies software made available as well as delivered.

Covenant or condition, and why it decides whether you can sue for copyright

Restrictions in a license are not all the same kind of thing. A condition limits the scope of the grant, so breaking it means the use was never licensed and the claim is copyright infringement. A covenant is a promise, and breaking it is breach of contract. The Ninth Circuit drew the line in MDY Industries, LLC v. Blizzard Entertainment, Inc., 629 F.3d 928 (9th Cir. 2010): a licensee's breach supports a copyright claim only where the term is a condition limiting the scope of the license and there is a nexus between that condition and an exclusive right of copyright. Apply that to this template honestly. Clause 6(a) on copying and Clause 6(d) on modification map straight onto exclusive rights, so breach of either is likely infringement. Clause 6(c), exceeding the user count, is the one a court may well treat as contract only, because running too many seats does not by itself make a new copy. Excess installations are different, since each is a copy. The infringement route also carries a precondition people forget: statutory damages and attorney fees need registration before the infringement began, or within three months of first publication, under 17 U.S.C. 412.

The warranty disclaimer has to name merchantability

Whether software is "goods" under Article 2 of the Uniform Commercial Code is still contested. 2-105(1) defines goods as things movable at the time of identification to the contract, and courts have gone both ways on software delivered without a physical medium, with Advent Systems Ltd. v. Unisys Corp., 925 F.2d 670 (3d Cir. 1991), treating off-the-shelf software as goods. Drafters assume Article 2 applies, because the cost of guessing wrong runs one way. Section 2-316(2) requires language excluding the implied warranty of merchantability to mention merchantability by name and, in a writing, to be conspicuous, and an exclusion of fitness to be in a conspicuous writing. Capitals are one way to be conspicuous, not the only one: 1-201(b)(10) also accepts larger type, or contrasting type, font or color. What fails is a disclaimer set in ordinary type, buried mid-clause, that never uses the word.

• Two states, Maryland and Virginia, adopted UCITA, which has its own rules for software contracts.
• Louisiana never adopted Article 2, so a Louisiana governing-law choice puts the 2-316 and 2-719 analysis aside entirely.
• A B2B license does not need the consumer-facing "some jurisdictions do not allow" line, which only weakens the disclaimer above it.

A limited remedy is not exclusive unless you say so

Two provisions of the UCC shape Clause 17, and most templates get both wrong. First, 2-719(1)(b) says resort to a stated remedy is optional unless the remedy is expressly agreed to be exclusive. A clause that offers repair or replacement without the words sole and exclusive has not limited anything, which is the more common drafting error and the reason Clause 17 now carries them. Second, 2-719(2) says that where an exclusive or limited remedy fails of its essential purpose, the party may have the remedies the Act provides. So a clause that limits the remedy and stops there can open the full range of damages in courts that treat the remedy limit and the damages exclusion as linked. Courts split on that. Some read the consequential-damages exclusion in 2-719(3) as independent and leave it standing; others treat the two as rising and falling together. Clause 17 takes the first side expressly by saying the Clause 18 limits survive a failure of the remedy, which is the best a drafter can do. The cap itself is governed by 2-719(3), which permits excluding consequential damages unless unconscionable and says a commercial loss limitation is not prima facie unconscionable, and by 2-302, which lets a court refuse to enforce an unconscionable clause or limit its application.

A ban on reverse engineering is enforceable, which is why the carve-out is a concession

This is where template pages usually mislead. There is no general right to decompile software under United States law, unlike Article 6 of the EU Software Directive. Federal courts have enforced contractual prohibitions on reverse engineering and held them not preempted by copyright law, in Bowers v. Baystate Technologies, 320 F.3d 1317 (Fed. Cir. 2003), and in Davidson & Associates v. Jung, 422 F.3d 630 (8th Cir. 2005), which rejected a defense built on 17 U.S.C. 1201(f) because the licensee had agreed not to reverse engineer. So what is 1201(f)? A narrow DMCA exemption. It permits someone who lawfully obtained the right to use a copy to circumvent an access control for the sole purpose of identifying and analyzing the elements needed to make an independently created program interoperate, and only to the extent the acts involved are not themselves infringing. It is a defense to a circumvention claim, not an override of a contract. Separately, decompiling involves copying, which is a fair use question rather than a licensing one. Clause 7 of this template keeps an interoperability carve-out anyway, because it is the usual concession to a licensee and costs a licensor little. It is a negotiated term, not a legal necessity, and the drafting note says which side should push for it.

• Licensor position: delete the carve-out paragraph. You are entitled to.
• Licensee position: insist on it, especially where you will integrate the Software with your own systems.
• Middle ground, and what the clause does: the licensee asks for the interface specification in writing first, and may only proceed if the licensor does not supply it.

Open source components are what diligence finds

Schedule C exists because this is where software deals come apart. In Jacobsen v. Katzer, 535 F.3d 1373 (Fed. Cir. 2008), the Federal Circuit held that the "provided that" terms of the Artistic License were conditions of the copyright license rather than independent covenants, and vacated the denial of a preliminary injunction. Note the limits of that: it was the Artistic License, not a GPL-style copyleft, and whether a given open source term is a condition turns on its wording. Where it is one, exceeding it can be infringement and not merely breach, and an injunction is on the table. For a licensor that means knowing which components are in the product, under which license, and how they are combined, since the combination is what triggers a reciprocal obligation. For a licensee it means reading Schedule C before signing, because nothing in a commercial license can remove a right an open source license already granted, and Clause 8 says so. One drafting point the review of this template surfaced: Clause 8 carries its own warranty about copyleft contamination, and a disclaimer that excepts only the warranties in Clause 15 would wipe it out. Clause 16 now excepts Clauses 8, 12 and 15 together.

How a form license gets accepted

Shrinkwrap and click-through terms have been enforceable since ProCD, Inc. v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996), where the software displayed the terms on screen and would not run until the user accepted, and the buyer could return the product. The counterweight is Specht v. Netscape Communications Corp., 306 F.3d 17 (2d Cir. 2002): terms behind a link below the download button, which a user never had to visit, did not bind someone who downloaded without seeing them. The rule that falls out is about notice and assent, not about where the text lives. Put the terms in front of the user, require a deliberate act, and keep a record of who assented and when.

Audit clauses, and a true-up with real numbers

Clause 10 is the clause licensees skim and later regret, because the back-license fee is rarely the whole bill. Work a concrete case. You licensed 100 named users at a unit price of $400. An audit finds 130 in use, 30 over. At the Schedule A unit price the back license is $12,000. Add maintenance on those 30 at 20 percent of license for the 18 months they were over, and that is another $3,600. If Clause 10's cost-shifting threshold is 10 percent, a 30 percent overage also puts the licensor's verification costs on you. Had the clause stayed silent on pricing, the quote would have come at list price on the audit date, with any discount you negotiated years ago gone.

• Limits worth negotiating: once a year at most, written notice, business hours, no competitor as auditor, and a self-assessment before anyone visits.
• Price the true-up in Schedule A Part 5 now. That is the single highest-value edit in the clause.
• Back maintenance is normal in a true-up, not just maintenance going forward.
• Make payment of a true-up settle the claims for the use that audit found, which Clause 10 does, and make it clear the overage is then not also a breach of Clause 6(c) carrying uncapped liability.
• Keep the records Clause 10 requires. In a deployment dispute, whoever has records wins.

Government customers, and shipping across borders

If the customer is a United States federal agency, the operative rule is 48 C.F.R. 12.212: commercial computer software is acquired under the licenses customarily provided to the public, so far as those licenses are consistent with federal law and meet the Government's needs, and the Government gets only the rights the license grants. So a commercial license is broadly accepted; what happens is that particular terms drop away rather than the whole document. Under 48 C.F.R. 52.212-4(u) certain commercial terms are unenforceable against the Government, and the usual casualties are a customer-side indemnity, automatic renewal, state governing law and venue, and late-payment interest. The Federal Acquisition Regulation clause at 48 C.F.R. 52.227-19 applies where the contract calls for it, and for Department of Defense buyers 48 C.F.R. 227.7202 is the commercial software policy. Classification matters before you quote: software that is not commercial, or was developed with government funding, falls under 48 C.F.R. 252.227-7014 instead, which gives the Government considerably broader rights. Clause 23 covers export. The Software is subject to the Export Administration Regulations, encryption functionality attracts extra rules including 15 C.F.R. 734.17, and sanctions are a separate screen: Clause 23 also bars making the Software available to a party targeted by the Office of Foreign Assets Control.

Where the template leans, and when to get a lawyer

This template is drafted down the middle, which means neither side should sign it unread. A licensor will want to narrow Clause 2's transfer rights, delete the Clause 7 carve-out, and resist the Clause 27 refund. A licensee will want the Major Release question in Clause 1 answered in its favor, the Clause 9 renewal cap tightened, the Clause 10 unit price fixed in Schedule A, and real escrow under Clause 22 rather than a promise of it. Use it as-is for a standard product, one entity each side, and fees you can state in a schedule. Get a lawyer first where the software is critical enough that switching would hurt, where the fees reach a level you would litigate over, where you are licensing in something you will embed in your own product, where a federal or regulated customer is involved, or where the license is exclusive. Exclusivity is the trap: under 17 U.S.C. 101 an exclusive license is a transfer of copyright ownership and 204(a) requires a signed writing, which puts it at odds with the recital and Clause 14 of this template as drafted. An electronic signature is effective for an agreement like this. Under the E-SIGN Act, 15 U.S.C. 7001(a), a signature or contract cannot be denied legal effect merely because it is electronic, and the state UETA provisions do the same work.