Author Name:   parikshitsingh

It is a general overview of software licensing agreement and its applicability in India...

Software Licensing Agreements in India- General Overview

Allowing an individual or group to use a piece of software is Software licensing[2]. Nearly all applications are licensed rather than sold. There are a variety of different types of software licenses. Some are based on the number machines on which the licensed program can run whereas others are based on the number of users that can use the program. Most personal computer software licenses allow you to run the program on only one machine and to make copies of the software only for backup purposes. Some licenses also allow you to run the program on different computers as long as you don't use the copies simultaneously. A software license (or software license in commonwealth usage) is a legal instrument governing the usage or redistribution of copyright protected software.[3]

1.2 Genesis Of Software Licensing Agreement
In the early day’s software development focused on the creation of customized software for mainframe computers and other computers. Contracts for this type of custom software were few, and involved two distinct parties whose lawyers could discuss all the terms of such agreement between them. This model changed when personal computers and their accompanying software became mass-market items and available off the shelf.

In such market, the number of users increases by big numbers. The software programmer and the user could not face to face for the license negotiate terms. Thus the terms of such licenses had to be standardized and concise. The software license agreement needed to be presented to the customer in a fashion that would allow for mass distribution of software, yet would draw the customer's attention to the conditions under which the publisher offered to allow use of the software the standardization also arose because of the provisions of the Copyright Act and other Acts in USA.

1.3 Types Of Software Licenses
Software licenses can generally be fit into the following categories: proprietary licenses, free software license, open source licenses. The features that distinguish them are significant in terms of the effect they have on the end-user's rights.

(a) Proprietary software is computer software which is the legal property of one party. The terms of use for other parties is defined by contracts or licensing agreements. These terms may include various privileges to share, alter, dissemble, and use the software and its code.[4]
(b) A free software license is a software license which grants recipients rights to modify and redistribute the software which would otherwise be prohibited by copyright law. A free software license grants, to the recipients, freedoms in the form of permissions to modify or distribute copyrighted work.

(c) Open source software refers to any program whose source code is made available for use or modification by users and is made freely available. Open Source enables the users to view and modify the source code.[5]
Among the three types of licenses the Open source software license had a major hue and cry in the market

i. The typical open source project contains contributions from many people. It is almost impossible to audit the entire code base for violations of previous license conditions. This creates many opportunities for contributors to introduce infringing code.
ii. Some open source software projects, such as the Linux initiative, have one or more stewards who monitor code quality and track bugs. Other initiatives, however, are the product of hobbyists and do not enjoy the same code quality and rigorous testing protocol.
iii. As mentioned above, some open-source licenses, such as the GPL, require licensees to provide royalty-free copies of their derivative works in source code form for others to use, modify and redistribute in accordance with the terms of the parent license agreement or in other words Copyleft[6] licensing.

1.4 Factors Affecting Licensing Provisions
Ø What type of software is being licensed?
Ø What is the potential market for the software?
Ø What are the potential risks in distributing the software?
Ø How easy or difficult will it be to charge different users different prices?

1.5 Few Examples Of Software Licensing Policies By Major Vendors:
i. MICROSOFT[7]: Offers three forms of licensing

· OEM license: For the PC manufacturer who bundles the OS with the PC.

· Retail license: For off-the-shelf products.

· Volume license: Where the spend is a minimum of Rs 5 lakh on a specific product

However, it is Open Licensing which is more popular. In addition, the company introduced a new policy for businesses last year, i.e. the Software Assurance Programme. The programme received mixed responses from the industry, and some were against the idea of paying for software in advance.

ii. ADOBE[8]: Has three volume licensing programmes.
Ø Transactional licensing programme: This is for organisations with less than 10 workstations. This programme is open to corporate, government, education and small business customers, and covers most Adobe products.

Ø Contractual licensing programme: This is targeted at larger organisations which require the latest version of Abode’s software. By participating in the CLP they get the benefit of a large purchase discount, and have the option to spread license fees and thus expenditure over the duration of the agreement.

Ø Site licensing programme: Simplifies deployment of Adobe Acrobat 5.0 throughout the organisation as it gives a single site-license serial number and reduces compliance risks too.

1.6 Typical Licensing Provision In The Licensing Agreement:
Ø Use of the software on only a designated computer[9]
Ø Use of the software only at a designated physical location[10]
Ø Use of software only to process the licensee’s data[11]
Ø Prohibition on the use of software on any computer system that can be accesses that can be accessed by remote terminals
Ø Prohibition on the use of software on a computer network
Ø Prohibition on copying for all but adaptation and archival purposes
Ø Prohibition on the reverse engineering of the object code
Ø Prohibition on the modification of the software

1.7 Classification Of Software Licensing Agreements:
There are various kinds of software licensing agreements but most commonly used agreements are
· Click wrap agreements
· Shrink wrap agreements
· Browse wrap agreements
· Network licensing agreements

Ø Click wrap agreements
First and foremost are the Click-wrap agreements[12]. Click-wrap agreements are those whereby a party after going through the terms and conditions provided in the website or program has to typically indicate his assent to the same, by way of clicking on an "I Agree" icon or decline the same by clicking "I Disagree". These types of contracts are extensively used on the Internet, whether it be granting of a permission to access a site or downloading of software or selling something by way of a website.

The question of the validity of Click-wrap agreements came for consideration for the first time in 1998 in the famous case of Hotmail Corporation v. Van $ Money Pie Inc, et al [13] where the court for northern district of California indirectly upheld the validity of such licenses where it said "that the defendant is bound by the terms of the license as he clicked on the box containing "I agree" thereby indicating his assent to be bound”[14]. This decision was followed and upheld in a catena of judgments like Groff v. America Online, Inc,[15]

Ø Shrink-wrap agreements
Shrink-wrap agreements[16] have derived their name from the "shrink-wrap" packaging that generally contains the CD Rom of Software’s. The terms and conditions of accessing the particular software are printed on the shrink-wrap cover of the CD and the purchaser after going through the same tears the cover to access the CD Rom. Sometimes additional terms are also imposed in such licenses which appear on the screen only when the CD is loaded to the computer The user always has the option of returning the software if the new terms are not to his liking for a full refund.

The validity of the Shrink-wrap agreements first came up for consideration in the famous case of ProCd, Inc v. Zeidenburg [17]where it was held "that the very fact that purchaser after reading the terms of the license featured outside the wrap license opens the cover coupled with the fact that he accepts the whole terms of the license that appears on the screen by a key stroke, constitutes an acceptance of the terms by conduct.

The Step-Saver Case[18]:
In the seminal Step-Saver case, a software vendor made a number of sales to a value-added reseller (VAR).

In the first transaction, the vendor sent the VAR a copy of the software to try out. The trial copy was in the vendor's standard packaging with shrink-wrap license terms.

The court held that, in this first transaction, the shrink-wrap license terms formed part of the contract and therefore the warranty-disclaimer language was effective.

Subsequent transactions between the vendor and the VAR involving the software, however, were made by telephone order, with no pre-sale mention of shrink-wrap license terms. The court held that in those transactions, the shrink-wrap license terms did not constitute conditions to the licensor's acceptance of the contract under UCC § 2.207(1), but instead were proposed additional terms to a sales contract under UCC § 2-207(b).

Thus, the shrink-wrap license terms did not become part of the subsequent contracts, and therefore the warranty-disclaimer language was not given effect.

Ø Browse wrap agreements:
There are many contracts posted on internet websites that do not require any affirmative act or assent before the licensed use of the software.

Specht v/s Netscape Communications Corporation:[19] specht sued the Netscape for violation of privacy on the ground that Netscape allowed the downloading of the Specht software from its websites. On the Netscape site there was a DOWNLOAD button, whereby clicking it the visitor could initiate the download. Only if the visitor scrolled down the next screen there was license agreement. The visitor was not required to assent to this agreement. The court refused to enforce this browse wrap license finding it no assent to its terms.

Ø Network licensing agreements[20]:
License agreements and related pricing must be consistent with current network environments. The proliferation of networks is causing licensing practices to evolve even faster to accommodate both users' and vendors' needs. Current primary network licenses are applicable for concurrent use, site, enterprise, and nodes. Concurrent use licenses authorize a specified number of users to access and execute licensed software at any time. Site licenses authorize use at a single site but are losing favor to enterprise licenses that cover all sites within a corporation because of more virtual computing environments. Node licenses are becoming less appropriate in the client/server environment, since the licensed software may be used only on a specified workstation which a user must log on to in order to access and execute the application.

Measurement software ("license manager") is allowing vendors to be more flexible in licensing arrangements. This management software monitors and restricts the number of users or clients who may access and execute the application software at any one time. This is important as a user pays only for needed use and a vendor can monitor such use to protect intellectual property.

Other innovative, use-related approaches have also been welcomed by users, such as currency-based licenses. Currency-based licensing provides a user with a specified monetary amount of software licenses, i.e., licenses for different business application software, as long as the total value in use at a given time is less than the preset limit.

1.8 Breach Of Software Licensing Agreement
Breach of licensing agreements can be done in two ways:

(a) Exceeding the scope of the licensed right[21]: since a license is a grant of rights to the licensee to engage in a conduct which would be violation of the licensor’s intellectual property rights, any conduct of the licensee which exceeds the rights granted under the license will be both the breach of breach of the licensing agreement and one or more intellectual property right infringement.

(b)  Use of disabling code in the software[22] : there have been instances where the software vendor has implanted the code in the software which would cause the software to cease working under certain circumstances- most often licensee’s failure to pay. The use of this mechanism has been disfavoured by the court.

The remedies available for the breach of the software licensing agreements are the same as those of breach of any contract.

1.9 Legal Framework Of Software Licensing Agreements In India
Software licensing agreements are basically dealt under three laws in India. They are copyright laws, contract law and Trade secret laws.

• Copyright’s Law
India’s copyright law is contemporary and adequate. Moreover the copyright law has been framed according to the changes required by TRIPS.

1. the doing of any act necessary to obtain information essential for operating inter-operability of an independently created computer programme with other programmes by a lawful possessor of a computer programme provided that such information is not otherwise readily available;

2.  the observation, study or test of functioning of the computer programme in order to determine the ideas and principles which underline any elements of the programme while performing such acts necessary for the functions for which the computer programme was supplied;

3.  The making of copies or adaptation of the computer programme from a personally legally obtained copy for non-commercial personal use; are not regarded as copyright infringement.

· • Contract Law
Breach of contract under section 75 can very well protect the violations under software licensing agreements. The violation of the conditions of license is however subject to interpretation and logic. The licensor however can protect such license by expressly providing the terms and conditions under the agreement relating to the rights and liabilities of the licensee and licensor himself. Only problem prevalent in the practical market is the “standard terms” of the license which the licensee often ignores while accepting the license before downloading the software. The Indian courts have a fractured opinion regarding these STANDARD TERMS. Some have favoured the vendors and some have favoured the licensee.

• Trade Secret Law:
There is no proper trade secret law in India but breach of confidentiality can very well be dealt with according to the Indian Contract Act.

• Income Tax
software licensing , income arising from allowing ‘right to use’ to Indian software buyers is actually sale of copyrighted article which does not involve transfer of copyright and such receipt is not royalty either under Sec 9(1)(vi)

1.10 Legal Framework Of Software Licensing Agreements In us[23]
In the United States, Section 117 of the Copyright Act gives the owner of a particular copy of software the explicit right to use the software with a computer, even if use of the software with a computer requires the making of incidental copies or adaptations (acts which could otherwise potentially constitute copyright infringement). Therefore, the owner of a copy of computer software is legally entitled to use that copy of software. Hence, if the end-user of software is the owner of the respective copy, then the end-user may legally use the software without a license from the software publisher.

Accordingly, proprietary software licenses attempt to give software publishers more control over the way their software is used by keeping ownership of each copy of software with the software publisher. By doing so, Section 117 does not apply to the end-user and the software publisher may then compel the end-user to accept all of the terms of the license agreement, many of which may be more restrictive than copyright law alone.

When considered in the context of mass-produced software sold at retail, there are significant problems with the proprietary form of software licenses. In the United States, the Uniform Commercial Code (UCC) regulates most commercial transactions including the sale of goods. Retail sales of software have been repeatedly deemed by courts in the United States to be a normal sale of goods within the meaning of the UCC. Accordingly, as with the sale of all types of goods, ownership of a copy of software transfers to the buyer in a retail transaction. Consequently, the end-user of the software is the owner of the copy and, pursuant to section 117 of the Copyright Act; a license is not technically required in order for the end-user to use the software with a computer.

1.11 conclusion
Before you install any software following is the process:

·Start the Installer

·Choose Whether to Install Automatically or Manually

·Review the License Agreement

·Specify Installation Directory

·Enter the File Installation Key

·Select the Products to Install

· Specify Location of Symbolic Links

·Specify Location of License File

· Begin the Installation

·Complete the Installation

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For the license to take legal effect, the licenser must be able to present proof that the presumed licensee has been willing to sign away the copy owner rights granted under copyright: The international copyright treaty, Article 4, equates computer programs with literary works. Thus, computer programs are automatically placed under copyright, which grants the copy owner normal rights use, and others fair use of the computer material.

India very well recognizes the importance of the software licensing agreement. It is used in all sectors of Indian economy be it the finance sector, law, outsourcing, marketing. For proper enforceability of the Agreement there should be proper drafting of the agreement and there is a need of ROBUST LAW on the Licensing agreement to protect the interest of Ecommerce in India which is dependent on these soft wares.
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[2] http://www.webopedia.com/TERM/S/software_licensing.html
[3] http://en.wikipedia.org/wiki/Software_license
[4] http://en.wikipedia.org/wiki/Proprietary_software
[5] http://www.gnu.org/gnu/thegnuproject.html
[6] http://wgbis.ces.iisc.ernet.in/foss/index2.php?option=com_content&do_pdf=1&id=20
[7] http://www.expresscomputeronline.com/20021216/indtrend1.shtml
[9] Shrink-wrap Agreements
[10] Single user/CPU License
[11] Site enterprise licenses
[12] http://www.legalserviceindia.com/articles/econtracts.htm
[13] C98-20064 (N.D. Ca, April 20, 1998)
[14] 47 U.S.P.Q. 2D (BNA) 1020, 1025(N.D.Cal 1998)
[15] File No C.A. No PC 97-0031 1998 WL 307001 (R.I.Superior Ct 1998)
[16] http://www.legalserviceindia.com/articles/econtracts.htm
[17] 86 F.3d 1447 (7th Cir. 1996)
[18] http://www.indiaitlaw.com/eleccont.htm
[19] 150 F. Supp. 2d 585 (SDNY 2001)
[20] http://www.networkmagazineindia.com/200504/analystviewpoint01.shtml
[21] Michael D. Scott, “Scott on Information Technology law”, Vol. 2 (Volters Kluwer, 3rd edition) pg. 12-55
[22] Michael D. Scott, “Scott on Information Technology law”, Vol. 2 (Volters Kluwer, 3rd edition) pg. 12-56
[23] http://en.wikipedia.org/wiki/Software_license_agreement

The  author can be reached at: parikshitsingh@legalserviceindia.com

ISBN No: 978-81-928510-1-3
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