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Warranties

When using vendor forms as a starting point for software license agreements, you will quickly notice that vendors typically disclaim all liability with respect to the licensed software and all warranties with respect to the licensed software. As we discussed earlier, the nature of the warranties that you seek, and the number of them, will depend on your company’s answer to the questions posed early in this chapter, particularly with respect to how critical the software that you are licensing is to your company. In this section, we have described some of the more common warranties in software license agreements.

■ The software will perform in accordance with the “specifications.” Typically there is a period of time during which this warranty will apply (e.g., twelve months after acceptance of the software by the customer). Beware the trend in the industry is to shorten the duration of warranties, with some warranties only lasting thirty (30) days.

■ The vendor has the authority to enter into the software license agreement and to grant the rights (particularly the license rights) that are contained in the software license agreement.

■ The vendor’s performance under the software license agreement does not violate any other agreements that it is a party to or any laws.

■ There is no pending or threatened litigation that would have a material impact on the vendor’s ability to perform its obligations or grant the rights that it grants under the software license agreement.

■ The software will conform in all material respects to the documentation, specifications, and any other applicable materials.

■ Your company’s permitted use of the software will not violate the intellectual property rights of any third party.

■ The software does not and will not contain any destructive mechanisms such as viruses, time bombs, worms, trap doors, and the like.

■ Any services that are provided by the vendor will be provided in a professional and workmanlike manner.

■ The software will comply with all federal, state, and local laws.

■ The vendor will promptly correct and repair any deficiencies in the software.

Many software license agreements also contain warranties with respect to the vendor supporting and providing updates to the software for a predetermined period of time (e.g., ten years from the effective date of the software license agreement). This can be used as a mechanism to prevent the software that your company is using from becoming obsolete.

As noted in the preface to this second edition, there is a small, but growing trend among vendors to offer their solutions complete as is, without warranties of any kind. That approach may be entirely acceptable in the context of a $5,000 off-the-shelf software purchase for a noncritical application, but unworkable for larger, more important transactions.

Indemnification

Many, if not most, information technology contracts contain provisions that require one party (the indemnitor) to indemnify the other party (the indemnitee) for third-party claims arising out of certain events. Most commonly, software license agreements contain indemnification obligations of the vendor with respect to third-party claims against the customer that the software infringes the intellectual property rights of the third party.

■ The intellectual property infringement clause should extend to claims arising out of a claim that the software infringes any third-party intellectual property including any trademark, trade secret, copyright, patent, and any other intellectual property or proprietary rights.

■ Include the vendor’s obligation to indemnify, defend, and hold the customer harmless from all liability including any damages and expenses incurred, arising out of or relating to the third-party claim.

■ The vendor will typically seek and it is common in these provisions to include a clause that requires the customer to promptly notify the vendor of the claims and to cooperate in the defense or settlement of the claim.

■ Include a provision that provides a remedy to the customer in the event of such a claim or the vendor determines that the software is likely to become the subject of a third-party intellectual property claim. These types of remedies commonly include the obligation of the vendor to replace the infringing or potentially infringing software with noninfringing software that contains the same functionality as the replaced software or the obligation of the vendor to promptly procure the right for the customer to continue using the software that is the subject matter of the claim or the potential claim. If neither one of the remedies is available, the vendor will typically require that the customer return the software, the agreement would then terminate, and the vendor should be required to return any license fees paid by the customer to the vendor for the infringing software.

Depending on the nature of the software license agreement and the software and services to be provided by the vendor, there are other indemnities that are commonly included in these types of transactions. These include indemnities with respect to third-party claims arising out of the vendor’s failure to comply with applicable laws, property damages, and the vendor’s negligence or misconduct.

 
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