A customer that negotiates a software license agreement should understand the basic legal principles that will govern the interpretation of the agreement in the event of a dispute. In most circumstances, the customer’s rights and obligations will be defined and limited by the express words of the agreement (including external documents incorporated by reference into the agreement), which will be given their ordinary and natural meaning.

Interpretation Rules

A court will interpret a software license agreement by following generally applicable contract interpretation rules. The fundamental rule is that a written contract will be interpreted to ascertain, objectively, the contracting parties’ intention at the time the contract was made based on the words used in the contract construed in light of the surrounding circumstances at the time of contracting. In most cases, the words in a written contract will be given their ordinary and natural meaning, and the court will not consider other evidence (e.g. the parties’ post-contracting conduct) to interpret the contract. In particular, a court will not consider evidence of the parties’ subjective intention or understanding regarding the meaning or effect of the contract.

Disclaimers / Entire Agreement Clauses

Software license agreements usually contain  provisions, known as “disclaimers” and “entire agreement” clauses, that limit the customer’s rights and obligations to those expressly set forth in the written agreement. A disclaimer prevents the customer from relying  on  rights  (e.g.  minimum  standards of suitability or quality of the licensed software) that might otherwise be implied by law. An entire agreement clause prevents the customer from relying on promises by the software vendor (e.g. statements in the vendor’s advertising and marketing materials and assurances by the vendor’s sales representatives) that are not expressly confirmed in the software license agreement.

External Contract Documents

A software license agreement is often presented as a relatively short and simple document that incorporates by reference other documents (e.g. standard form terms and conditions) that are available to the customer (e.g. documents on the vendor’s website) when the agreement is made but are not physically attached to the document signed by the customer. In most cases, those external contract documents, which often deal with important business, technical and legal issues, will be part of the software license agreement even if the customer does not access or read the documents.

Signatures

In most circumstances, a signature on a contract document is a binding confirmation that the signer accepts and agrees to the contract. A person who signs a contract (including by using an electronic signature or clicking on an “I ACCEPT” button on a computer screen) will usually not be permitted to later resile from the contract on the basis that the person did not read or understand the contract (including external documents incorporated by reference into the contract) or intend to be bound by the contract. Accordingly, in most cases a customer who signs a software license agreement will be bound to the agreement regardless of the customer’s actual, subjective understanding or intention.

Recommendations

A written software license agreement will usually be interpreted in accordance with its ordinary and natural meaning regardless of the customer’s actual, subjective intention or understanding. Accordingly, a customer should carefully review the entire software license agreement (including external documents incorporated by  reference)  to ensure that the agreement as a whole, when given its ordinary and natural meaning, accurately and completely describes the intended agreement regarding the licensed software and all related matters.

Find out more, please contact the BLG Technology Law Group

Author

Bradley J. Freedman 
BFreedman@blg.com
604.640.4129

Expertise

Information Technology