A software license is a right to use copyrighted software, granted by the rights holder. Software is rarely sold but licensed. In our practice, we assist Dutch software vendors with international licenses. Vague agreements regarding scope, auditing, and updates often lead to unrestricted use by customers and loss of revenue for the vendor. A well-structured license regulates all these elements in advance.
What is the legal issue?
A software license regulates the right to use, not ownership. Questions regarding scope (users, entities, territories), duration, sublicensing, auditing, updates, and termination must be precisely defined. Internationally, rules vary regarding exhaustion (UsedSoft), parallel import, scalability, and intellectual property. Vague clauses lead to abuse and uncontrollable distribution.
What does the law say?
Within the EU, the Software Directive (Directive 2009/24/EC) and the Court ruling in UsedSoft (CJEU 3 July 2012, C-128/11) apply: for permanently granted software licenses acquired within the EU, the right of distribution is exhaustion. Different rules apply to SaaS — exhaustion does not apply there. Under Dutch law, Article 45j of the Copyright Act grants specific user rights.
For export control of software with encryption or dual-use features, EU Regulation 2021/821 (recast Dual-Use Regulation) applies. For open source, GPL, MIT, and Apache 2.0 licenses apply — interaction with commercial licenses requires attention.
What risks do companies face?
Licenses that are too broad lead to unlimited use and loss of revenue. A lack of audit rights renders overuse invisible. Unclear version and update terms result in support for versions you would prefer to phase out. For customers, a poorly structured license means dependency and the risk of compliance claims retroactively. Export control violations under Regulation 2021/821 can lead to heavy fines and criminal prosecution.
Practical example from our practice
We advised a Dutch software vendor with an Indian client under a per-seat license without audit rights and with indefinite renewal. Upon inspection, the actual number of users turned out to be tenfold. The vendor could not assert any rights without clear measurement agreements. Upon contract renewal, we incorporated the following: a per-named-user license, quarterly reporting, an annual audit by an independent accountant, and a tiered charge for overuse. The subsequent audit resulted in a charge of 380,000 euros.
What can you do?
Clearly define the scope (users, entities, territories). Regulate duration, termination, and automatic renewal. Add audit rights and reporting obligations. Determine which versions and updates fall under the license. Align choice of law, choice of forum, and export control under Regulation 2021/821. Combine with a maintenance contract and SLA. See also our article on International License Agreements.