On the technology, sourcing and complex contracting team, we regularly counsel clients on the licensing and negotiation of software, SaaS, and other technology. The license grant is the essence of these engagements, yet we find that it is frequently overlooked. Over the coming weeks, we will be publishing a series of posts examining common license grant concepts and the risks they create. We begin with one of the more problematic constructs that we encounter: the conditional license grant.
Is Your License Grant “Subject to” Something?
Many software, SaaS, and other technology agreements contain license grants that are expressly conditioned on the licensee’s ongoing compliance with the agreement—including, for example, the timely payment of fees. While such conditions may seem reasonable on their face, in practice, however, they create serious and underappreciated legal exposure.
When a license grant is made “subject to” a licensee’s compliance with the terms of the agreement, any breach of the agreement, even if it is technical or immaterial in nature, or a single late payment, can automatically revoke the license. That revocation can occur without any notice from the licensor and without any opportunity to cure the alleged breach. The consequences are significant: continued use of the solution during the revocation period may expose the licensee to copyright infringement claims.
This structure creates unnecessary uncertainty for any business that depends on software, SaaS, or other technology to operate. A licensee should not face the prospect of an inadvertent revocation of its license grant and copyright liability simply because an invoice was processed a day late or a minor contractual obligation went unmet. Well-drafted agreements instead remove the “subject to” conditional language and clarify that the licensee is granted the right to use the software, SaaS, or other technology “in accordance with the [agreement].” This preserves the licensor’s ability to enforce the agreement’s terms while eliminating the risk of automatic license revocation. In our experience, when presented with the concerns created by a conditional license grant, licensors typically agree to this alternative.
Have you ever had a software vendor threaten to terminate or suspend your license? Knowing what you now know about conditional license grants, how might you have approached that situation differently?
