Practical Issues in licensing of Software

Pravin AnandAnand & Anand

WIPO-UNIDO National Seminar 200724th January, 2007

Why Licence?

• Software i.e. Source Code & Object Code enjoys literary copyright.

• Copyright includes right to reproduce, sell etc or even use.

• Mere use of software necessarily requires reproduction in RAM, hence purchase of physical software usually not sale but a license to avoid infringement.

Licensing principles

• License is a contract - permission to use

• Subject to terms & conditions

• Terms & conditions stated on:– Printed paper in a box (shrink wrap

license)– On a computer screen ( click wrap license)– In a written contract ( negotiated license)

Essentials of a contract

• Offer

• Acceptance

• Communication of Acceptance

• Consideration

Who is licensing ? For what?

• End User eg Bank, Architect firm etc

• Developer– Web site

• Advertising management scripts, Affiliate management script, Search scripts, Loomia Recommendation etc

– Customised Software Solution for home loans eg Kensoft and Oracle case in India

Value added resellers (VARs)

• Package applications modified by VARs to suit specific customers and individual needs

• VAR agreement must allow reselling and modification of original software

• Sometimes source code needed to make changes

• SAP appointed Siemens in India (ERP software)

Types of licenses

• Three perspectives for classification– Way in which contract entered – Relationship between the two parties– Freedom available to download, copy,

modify etc

How entered?

• Negotiable – B2B transactions – goods or services?– Bespoke – if skill and labour exercised –

services

• Non-negotiable – consumer transactions mass produced – sale of goods– Shrink-wrapped– Click-wrapped

Shrink wrap License

Click wrap License

Issues with shrink and click wrap

• Terms not visible to purchaser

• Acceptance not communicated

• Are terms of shrink wrap accepted by opening package and loading software on hard disk?

• Are terms of click wrap accepted by electronic signatures or clicking on an icon or button?

Issues with shrink and click wrap

• Does registration card have to be filled up or can communication of acceptance be waived?

• Unreasonable clauses such as limitation of liability may not be enforced

• Terms can be implied when sale of goods

Types of Software Licenses (Contd.)

• User License Agreements1. Shrink Wrap Agreements Issues: No meeting of Minds- Users believe they are

purchasing the software and not getting a license; Contracts of Adhesion- Unequal Bargaining Power- public policy is against it

Validity of Shrink Wrap Agreements- interpreted differently by courts. E.g.: it has been considered valid provided the customer has the opportunity to read-reject terms by returning the product in a reasonable period

2. Click Wrap Agreements No room for negotiating terms. Have been considered valid in PRO CD Inc Case(No. 95-C-

0671-C) and the Beta Computers Case [1996] FSR 367

Types of Software Licenses - relationships

• Developer-Publisher License Agreements

• Developers include clauses on royalty, limited geographical scope, machine types,

• Publishers specify clauses under which royalty is given as being the milestones achieved for development of each version etc.

Publisher-Distributor License Agreements

• Domestic and Foreign Distributor Arrangements in order to maximize profits and market penetration.

• May also include Original Equipment Manufacturers (OEMS e.g. Toshiba PDA with Palm Inc. software), Value Added Resellers (VARS)

• Issues: Exclusive Distribution Arrangements may be anti competitive in some jurisdictions as EU.

• Possibility of Product Liability Cases

Types of Software Licenses (Contd.)

• User License Agreements3. Cross Licensing ( Sun Java & Microsoft

Windows)

4. Manufacturing License ( Silicon Graphics- Indian subsidiary)

5.Collaborative License Agreements ( Sony Optics & Ericsson for Telephone-PDA)

6.Run Time License Agreements

Open source, free and Proprietary

• Firefox 11.5% (Internet Explorer 85.9%) the open source web browser had 200 million downloads in 2006.

• Openoffice.org, the open source productivity site was used on desktops by more than 200 million people.

India Predictions

• Open source software’s transparent and low cost nature makes it more attractive to countries like India and China.

• Marten Mickos, CEO of MySQL “the fast growing BRIC ( Brazil, China, Russia and India) will be breeding ground of open source in 2007”

• Governments and BIFS – increasing use• 60% of schools in Kerala are using GNU/Linux

software.

Reasons for growth of Linux

• Vendor Independence

• Large developer community to fall back on

• Cross platform interoperability

• “Open” nature supports product innovation

• Advantages and disadvantages

Growth of Open Source in the US Government

• US Postal Service used in 1998 more than 900 Linux based systems for recognize destination address.

• New Jersey State Police in 1998 used Linux based servers and network fileservers .

• Texas’s Dallas County uses Linux and Apache web servers to power it’s website.

Advantages of open source to government

• Low price as the procurement process for larger purchases in US governments is cumbersome.

• IDC Research-1998 :

25% of Federal Computing installations use Linux in their organizations.

16.6% of Large Companies and 12.2% of small companies use Linux.

Open source

• Unlike Freeware – not free

• Source code delivered to licensee

• Right to modify

• Must communicate changes

• Any product based on OS – also OS

• Effect of Open source – IT patents in India

Top Patent recipients in 2004 US

Preliminary Rank in 2004*

Preliminary # Patents in

2004*Organization*

(Final Rank in 2003)

(Final Number of Patents in 2003)

1 3,248 International Business Machines Corporation (1) (3,415)

2 1,934 Matsushita Electric Industrial Co., Ltd. ** (4) (1,774) **

3 1,805 Canon Kabushiki Kaisha (2) (1,992)

4 1,775 Hewlett-Packard Development Company, L.P. *** (5) (1,759) ***

5 1,760 Micron Technology, Inc. (6) (1,707)

6 1,604 Samsung Electronics Co., Ltd. (9) (1,313)

7 1,601 Intel Corporation (7) (1,592)

8 1,514 Hitachi, Ltd (3) (1,893)

9 1,310 Toshiba Corporation (13) (1,184)

10 1,305 Sony Corporation (10) (1,311)

         

829 U.S. GOVERNMENT (881)

Top Indian Patent filings

Filing Vs Grant

PCT

PCT

PCT

Patent Office Filing

Year Indian Foreign Total Granted

1990-91 1080 2684 3764 1791

1991-92 1293 2259 3552 1676

1992-93 1228 2239 3467 1272

1993-94 1266 2603 3869 1746

1994-95 1741 3589 5330 1759

1995-96 1606 5430 7036 1633

1996-97 1661 6901 8562 907

1997-98 1926 8229 10155 1844

1998-99 2247 6707 8954 1800

1999-00 2206 2618 4824 1881

2000-01 2179 6324 8503 1318

2001-02 2371 8221 10592 1591

2002-03 2693 8772 11465 1379

2003-04 3218 9389 12607 2469

2004-05 17462 1843

Void terms

• A prohibition to make back up copies

• A prohibition to study the program or carry out lawful de-compilation

• Prohibition to obtain information for achieving interoperability.

• Proprietors get waivers

Jurisdictional issues

• Shrink and click wrap licenses must comply with local laws

• Local consumer contract laws may bar unfair terms eg applicable foreign law

• Global software needs licenses with individual sections for different countries

License terms• Copyright infringement if exceeds scope of grant• User – right to use or reproduce for back up or

archive – may prohibit modifications or transfers• Reproduction House – reproduce for publisher or

distributor• Distributor – right to distribute by sale lease or

license or to display for marketing or training

Limitations

• License grant may be restricted to single computer, single network or single site

• License agreement with governments or corporations may be wider eg all departments or even global

• Exclusivity of territory may be barred by some laws

Duration

• Licenses can be perpetual

• Presumptions in indian copyright law– Territory – if silent then india– Duration – if silent then 5 years– Exercise of rights – if not exercised for one

year, rights revert unless contract provides

Conclusion

• The ability to license creates great opportunities for fresh development

• Software licensed on terms & conditions- breach amounts to infringement

• Open Source clear alternate to proprietary software- increasing in some sectors( advantages & disadvantages)