When is a software licensing commonly used in Singapore?
Software licensing is commonly used whenever a software owner grants another party permission to use software they have developed, ranging from off-the-shelf commercial software licensed to end users, to bespoke enterprise software licensed for use within a specific organisation, to software components licensed for incorporation into another developer’s product.
Software licences are used across a wide range of commercial contexts, including perpetual licences granting ongoing rights to use a specific version of software, term-based licences granting rights for a defined period, and licences for open source software components, each carrying different terms and considerations depending on the specific licensing model used.
Businesses commonly encounter software licensing both as licensees, acquiring rights to use software developed by others, and as licensors, where a business has developed proprietary software and wants to commercialise it by licensing it to customers rather than selling the underlying intellectual property outright.
Because software licensing terms directly determine what a business can and cannot do with software central to its operations, and because non-compliance with licence terms can expose a business to infringement claims, businesses acquiring or granting software licences should ensure the terms are properly reviewed, ideally with the assistance of a lawyer experienced in software licensing, before finalising the arrangement.
Which parties should sign the agreement and who should have authority to bind them?
The licensor, being the owner of the software or an authorised party with rights to license it, and the licensee, being the party receiving permission to use the software, are the parties who sign a software licensing agreement, and each should ensure the signing party has proper authority to bind the entity concerned.
Where the licensor is not the original developer of the software, such as a company that acquired the software through a business acquisition or an assignment from the original developer, the licensor should be able to demonstrate clear title to the software before the licensee relies on the licence being properly granted.
For enterprise software licensed for use across an organisation, the licence agreement should clearly address which specific entities within a corporate group are permitted to use the software, since licences are commonly granted to a specific named entity rather than automatically extending to related companies within the same corporate group.
Because using software beyond the scope of what has actually been licensed, whether in terms of the permitted users, entities, or specific use cases, can constitute infringement even where the business believed in good faith it had adequate rights, licensees should carefully confirm the specific scope of their licence and ensure their actual use aligns with what has been granted.
What essential commercial terms should be included?
The licence agreement should clearly specify the scope of the licence granted, including whether it is exclusive or non-exclusive, perpetual or for a defined term, and any restrictions on the number of users, devices, or specific entities permitted to use the software under the licence.
The agreement should address whether the licensee is permitted to modify the software, create derivative works, or reverse engineer it, since these activities are commonly restricted under software licences unless expressly permitted, and unauthorised modification or reverse engineering can constitute a breach of the licence terms.
Payment terms, including any upfront licence fee, ongoing maintenance or support fees, and the consequences of late payment, should be clearly specified, along with provisions addressing what happens to the licensee’s rights if the agreed fees are not paid.
Because these commercial terms directly determine what the licensee can lawfully do with the software and the financial basis of the arrangement for the licensor, both parties should ensure they are clearly and comprehensively addressed, and licensees in particular should carefully review any restrictions on modification or use that could affect their intended purpose for the software.
How should payment, performance standards and timelines be addressed?
Payment for a software licence is commonly structured as either a one-time perpetual licence fee, a recurring subscription fee for a term-based licence, or a combination involving an initial licence fee alongside ongoing maintenance and support fees, and the agreement should clearly specify which structure applies and the consequences of non-payment.
Where the licence includes ongoing maintenance or support, performance standards such as response times for support requests and the scope of included updates or bug fixes should be clearly defined, since vague support commitments can lead to disputes about what level of ongoing service the licensee is actually entitled to.
Where the software is being customised or configured for the licensee’s specific needs as part of the licensing arrangement, implementation timelines and acceptance criteria should be addressed, similar to considerations relevant in a broader technology contract, to provide clarity on when the licensee’s obligations to pay corresponding fees are triggered.
Because ambiguity in payment and performance terms is a common source of software licensing disputes, particularly around what ongoing support is actually included in the licence fee, both parties should ensure these terms are clearly documented and understood before signing, rather than relying on informal understanding of what is typically included.
How can liability, indemnities and limitations of liability be drafted?
Software licensors typically seek to limit their liability significantly, often through provisions disclaiming warranties beyond the software performing in accordance with its documentation, and capping any liability at the amount of licence fees paid, reflecting standard industry practice for software licensing arrangements.
Licensees should consider whether these standard limitations are adequate given how the software will actually be used, particularly for software that will support critical business functions, where the potential business impact of a significant software failure could substantially exceed the licence fees paid.
An indemnity from the licensor protecting the licensee against claims that the licensed software infringes a third party’s intellectual property rights is commonly included and is particularly important, since a licensee using infringing software in good faith could otherwise face significant exposure to a third party claim through no fault of their own.
Because the standard liability terms offered by many software licensors may not adequately reflect a specific licensee’s actual risk profile, particularly for software supporting important business functions, licensees should carefully review these provisions and negotiate for appropriate protection, particularly regarding intellectual property infringement indemnities, before finalising a significant software licensing arrangement.
What termination rights and consequences should be included?
The agreement should specify the circumstances in which either party can terminate, such as material breach not remedied within a specified notice period, non-payment of licence fees, or, for term-based licences, simply the natural expiry of the licence term if not renewed.
The consequences of termination should be clearly addressed, including the licensee’s obligation to cease using the software and, in some cases, to certify destruction of any copies, and whether the licensee retains any rights to data generated through use of the software after the licence itself has ended.
Where the licensed software has become embedded in the licensee’s critical business operations, the agreement should ideally address transitional arrangements, such as a limited period of continued use permitted after termination to allow the licensee to migrate to an alternative solution, reducing the risk of significant operational disruption.
Because termination of a software licence can leave a licensee without access to software their business has come to depend on, licensees should pay particular attention to termination consequences and data access provisions when negotiating a significant software licensing agreement, rather than focusing solely on the initial commercial terms.
How should confidentiality, personal data and intellectual property be handled?
Software licensing agreements should include confidentiality provisions covering the specific commercial terms of the licence and any confidential information exchanged between the parties, such as details of the licensee’s business processes shared during implementation or support.
Where the licensed software processes personal data as part of its function, the agreement should address compliance with the Personal Data Protection Act, including the licensor’s obligations where it has any access to the licensee’s data through providing support or hosting services connected with the software.
The agreement should clearly confirm that the licensor retains ownership of the underlying software and its intellectual property, with the licensee receiving only the specific rights expressly granted under the licence, avoiding any ambiguity that the licensee might otherwise acquire broader ownership rights simply through extensive use of the software.
Because intellectual property ownership is fundamental to the entire licensing relationship, with the licensor’s business model typically depending on retaining ownership while granting only usage rights, both parties should ensure the agreement is unambiguous on this point, and licensees should understand that a software licence, unlike an assignment, does not transfer ownership of the underlying intellectual property.
What happens if a party breaches the agreement?
If a licensee breaches the agreement, such as by using the software beyond the scope of the licence, for example exceeding permitted user numbers or using the software for an unauthorised purpose, the licensor typically has the right to require the breach to be remedied and, if not remedied, to terminate the licence and pursue a claim for any resulting loss.
If a licensor breaches the agreement, such as by failing to provide agreed support services or by the software failing to perform in accordance with its documented specifications, the licensee may have a claim for damages, or in serious cases, may be entitled to terminate the licence and seek a refund of fees paid for a licence they were unable to properly use.
Where a licensee continues to use the software after a licence has been properly terminated, this continued use becomes unauthorised and can itself constitute copyright infringement, exposing the former licensee to a claim quite separate from the original contractual dispute over the licence itself.
Because the consequences of breach can be significant for both parties, and because a terminated licensee’s continued use creates a fresh infringement exposure beyond the original contractual dispute, both licensors and licensees facing a potential breach situation should seek legal advice promptly to understand their rights and obligations before taking further action.
