Software license agreements generally require the customer to pay fees for the software license and related services, which fees are usually based upon the duration of the license and the manner in which the customer is allowed to use the software, together with applicable taxes and withholdings. Customers should understand the total cost of ownership of the software throughout its expected life cycle.
KINDS OF FEES
- Software License Fees: The fee for a software license generally reflects the value the customer will derive from using the licensed software, based upon the duration of the software license (perpetual or fixed term) and the manner in which the customer is allowed to use the software (e.g. the purposes for which the licensed software may be used and the number of permissible software installations and end users). Software license fees are usually payable in advance, on either a one-time basis (for a perpetual license) or a periodic basis (for a fix-term license). The customer may have the option to increase the scope of the license (e.g. adding additional software installations or end users) by paying additional license fees, either in advance or periodically in arrears on a "true-up" basis.
- Maintenance and Support Fees: The fee for software maintenance (bug fixes/updates and upgrades) and technical support (troubleshooting advice/assistance) generally reflects the nature of the services and their value to the customer. Maintenance and support fees are often calculated using a formula (e.g. a specified percentage of the corresponding software license fee), and are usually payable in advance on a periodic basis.
- Additional Services Fees: Software vendors usually charge fees for additional services, such as implementation services and training. Those fees are often based on a fee schedule or calculated on a time and materials basis using the vendor's applicable hourly/daily rates.
FEE INCREASES/PRICE PROTECTION
Most software vendors change their fees periodically to adjust for inflation and changes in market conditions. Software license agreements often impose time-limited restrictions on the vendor's ability to increase fees, which can be particularly important to customers who expect to use the licensed software and related services for many years.
TAXES AND WITHHOLDINGS
Software license agreements usually require the customer to pay all applicable taxes and duties on fees payable under the agreement. Software license agreements also often include a "gross up clause", which requires the customer to pay fees in full without any withholding or deduction, and provides that if the customer is required by law to make a withholding or deduction from a fee payment then the customer will "gross up" the payment so that the amount actually received by the vendor (net of withholdings and deductions) is the full amount of the specified fee.
Software license agreements often require the customer to provide the vendor with periodic reports regarding the customer's use of the licensed software (e.g. the number of installations and users) so the vendor can verify that the customer has paid all applicable software license fees. Software license agreements usually allow the software vendor to conduct audits of the customer's facilities and records to confirm the accuracy of the customer's reports and verify the customer's compliance with the license agreement. Some licensed software requires periodic reactivation using vendor-provided license keys or codes, which the vendor may be allowed to withhold if the customer fails to pay applicable fees or deliver required reports. Software license agreements usually allow the software vendor to terminate the license if the customer fails to make required fee payments.
When negotiating a software license agreement, a customer should understand the total cost of ownership of the software throughout its expected life cycle. This requires that the agreement specify all fees payable for the software and related services, allocate responsibility for taxes and withholdings, and put appropriate limits on fee increases. The customer should also understand its obligation to deliver periodic reports to the software vendor and the vendor's remedies for late payment.About BLG
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