Episode 2: What Most People Miss

Tactical Takes: Three Things to Watch in a Software License
​To go along with our latest Tactical Takes video, here are a few quick thoughts on reviewing software licensing agreements.

Software licenses tend to get signed in a hurry. The deal is agreed, the procurement team wants the tool live, and the contract feels like a formality. It isn't. A license is the document that decides what happens when something goes wrong, and a few clauses do most of the heavy lifting.

Don't Be Penny Wise and Pound Foolish

The most common mistake is skipping legal review to save a few hours of fees. Hire a lawyer. The cost of having counsel read the agreement before you sign is small next to the cost of discovering a one-sided term after a dispute has already started. Trying to save money up front by going without review is the textbook example of being penny wise and pound foolish—the savings are tiny and the exposure is not.

Read the Dispute Resolution and Choice of Law Clauses

Two clauses quietly decide how painful any future fight will be.

The dispute resolution clause tells you how and where a disagreement gets resolved—court or arbitration, and in which location. That can mean the difference between a manageable process close to home and traveling across the country (or to another country) to be heard.

The choice of law clause tells you whose law applies to interpret the agreement. The same contract language can produce very different outcomes depending on which jurisdiction's rules govern it.
Neither clause feels important when everything is going well, which is exactly why they get ignored. Read them before you sign, because you don't get to renegotiate them once a problem appears.

Always Check the Limitation of Liability

Finally, look hard at the limitation of liability. This is where the vendor caps what it can be held responsible for—often limiting damages to the fees you paid and excluding the consequential losses (lost revenue, downtime, data issues) that usually hurt the most. If the software fails and the cap is low, that clause defines the most you can recover. Make sure the ceiling matches the real risk to your business.

None of this is complicated, but it's easy to skip. Spend a little time on these three areas—and a little money on good counsel—and you'll avoid the surprises that show up far too late.

This article is general information, not legal advice. For guidance on a specific agreement, talk to a qualified attorney.