What are the Implications of granting perpetual license to the Client to use the Service Provider’s Materials
The ownership of a company over a work product involving a software or a new technology is one of the most important issues that a Service Provider should take into consideration during the contract negotiation. In many cases, the vendor grants its clients, the call center company, the licenses to use its system for the duration of the contract. During the term of the contract, the Client is allowed to gain access to use the technology or software of the Vendor to its benefit.
What happens after the termination of the contract? Who owns the license to use the technology or the system? This is a matter that should be clearly set forth in the written agreement between the Vendor and the Client. A clear statement on the ownership of this system will go a long way in protecting the interest of the Vendor who developed the technology or software.
Loss of Prospective Revenue for the Vendor
Since the use of Service Provider’s intellectual property involves the latter’s proprietary interest , a grant of perpetual license will result to loss of prospective revenue on the part of the Vendor or the Service Provider. By the term itself, perpetual license will give the Client a license to use the Service Provider’s materials even after the termination of the agreement.
Disadvantages to the Service Provider
The foregoing situation will indeed prejudice the Service Provider’s proprietary interests due to 2 inevitable scenarios. First, after the termination of the agreement, the Client would be able to use the software or technology for free which will certainly result to a loss of income on the part of the Service Provider. Second, the Service Provider may likewise lose its advantage over its competitor in the industry because its competitor may be able to take hold of its technology through the Client which has been granted perpetual license. Through this situation, all subsequent providers of the Client after the termination of the agreement with the Service Provider would be able to know the latter’s technology or software, as the case may be.
Limited License to Use Vendor’s Technology and Software
Given the aforementioned implications of granting perpetual license, a Vendor or Service Provider should be cautious enough during contract review. It should ensure that its Client should only be given a limited license to use its materials such as its own technology and software. Limited rights means that the same can only be used during the term of the Agreement. The Vendor or Service Provider should insist that the license to use the technology or software beyond the term should already be for a certain fee or consideration, and of course the use should be accompanies by a restriction that the license should likewise be non-transferable to prevent the possible use/ discovery by a competitor.
Your take
How does your company protect your license over its technology or software
