Perpetual licensing agreements have long been favored in the software world, but in an ever-changing environment, more companies are moving to subscription-based licensing or term licensing. What do these different agreements mean, and which type of agreement is right for your company?
Perpetual Licensing Agreements
It is important to note that licensing agreements do not convey ownership; They provide only the rights of access and use. Companies wanting to transfer ownership rights should look into legal tools outside of licensing agreements.
Perpetual licensing agreements allow users indefinite access to software. These agreements do not expire, and they generally involve one large, up-front cost paid by the licensee in exchange for the rights to access and use the software in perpetuity. Software updates and technical support usually require additional fees to be paid by the licensee. Licensers and licensees often prefer this type of agreement because it guarantees unlimited software use for a one-time payment.
Subscription Licensing Agreements
Recently, many companies have started to offer subscription-based software licensing. These agreements typically have lower up-front costs and allow the licensee to pay on a monthly or yearly basis for rights to use the software. The subscription also includes access to regular updates and technical support. Numerous software companies find this option attractive today because of the continual stream of subscription revenue. Licensees also like the subscription option because they benefit from the most up-to-date software versions and on-demand support.
Some companies choose to take advantage of both a perpetual agreement and a subscription agreement. In this type of arrangement, the licensee pays for perpetual software rights with a one-time payment, then pays for updates and support on a subscription basis. Under this model, licensers have continued revenue, and licensees do not have to worry about their software becoming obsolete.
Term Licensing Agreement
Another option in licensing agreements — and something more companies have started to use — is term licensing. This type of licensing allows user access for a fixed period of time. The duration of the agreement can vary from company to company, and the licensee has access to the software, updates, and support as long as the agreement is in effect. The agreement then terminates at the end of a set period of time.
Term licensing generally offers smaller costs up front and fixed pricing during the agreement period. While they were previously somewhat unpopular compared to perpetual licensing, term licensing agreements have gained steam with some major software companies in the last few years.
Which Licensing Agreement is Right for You?
Decisions in licensing your software require careful consideration. Each licensing option involves certain benefits and drawbacks, and you want to be sure you select the agreement that will maximize your opportunities while protecting your assets. An experienced and knowledgeable software licensing attorney can assist you in making these important choices.
If you are interested in creating or amending a licensing model for your software in Colorado, contact Larsen Law Offices, LLC, today (303) 520-6030.