Software License Agreement Philippines: Key Clauses to Include

A software license agreement in the Philippines is a contract between a software owner and a user. Under Philippine law, it is a legally binding obligation. The Civil Code states that obligations arising from contracts have the force of law between the contracting parties and must be complied with in good faith (Article 1159). For a software license to be enforceable, it must contain clear terms that define the rights, limits, and responsibilities of each side.

What Is a Software License Agreement?

A software license agreement grants a user the right to use software under specific conditions. It is not a sale of the software itself; it is a permission to use it. Under the Civil Code, an obligation is a juridical necessity to give, to do, or not to do (Article 1156). In a license, the owner gives a right, the user does certain acts (like paying fees), and both parties refrain from prohibited actions (like unauthorized copying).

The agreement must be crafted carefully. Philippine law allows parties to establish any stipulations they deem convenient, provided these are not contrary to law, morals, good customs, public order, or public policy (Article 1306). This gives parties wide freedom to design their license terms, but it also means illegal or unconscionable clauses will not be enforced.

Key Clauses to Include

A well-drafted software license agreement should address the following areas:

1. Grant of License. This clause defines what rights the user receives. It should state whether the license is exclusive or non-exclusive, perpetual or for a fixed term, and whether it can be transferred. It should also specify the number of permitted users or devices.

2. Scope of Use and Restrictions. The agreement must clearly state what the user can and cannot do. Common restrictions include prohibitions on copying, modifying, reverse engineering, or sublicensing the software. These restrictions create obligations "not to do" certain acts, which are valid under Article 1156.

3. Payment and Fees. The license fee, payment schedule, and renewal terms should be stated clearly. If there are additional charges for support, maintenance, or upgrades, these should be listed. Vague payment terms often lead to disputes.

4. Intellectual Property Ownership. This clause confirms that the licensor retains all ownership rights to the software. It should state that the user only receives a license to use the software, not ownership of the code or any associated trademarks.

5. Warranties and Disclaimers. The agreement should state what the licensor guarantees about the software, such as that it will perform substantially as described. It should also include a disclaimer of warranties for anything not expressly guaranteed. This limits the licensor's liability for issues not covered by the agreement.

6. Limitation of Liability. This clause caps the amount the licensor must pay if something goes wrong. Under the Civil Code, compensation for damages is limited to the natural and probable consequences of the act or omission complained of (Article 2201). A limitation clause can further define this cap, such as limiting liability to the fees paid by the user.

7. Confidentiality. If the software includes trade secrets or proprietary information, a confidentiality clause protects this data. It obliges the user to keep the information secret and use it only for the purposes of the license.

8. Termination. The agreement should state the conditions under which either party can end the license. This includes breach of terms, non-payment, or insolvency. It should also state what happens to the software and any confidential information after termination.

9. Governing Law and Dispute Resolution. The agreement should specify which law governs it. For a Philippine software license, the parties can choose Philippine law. It should also state how disputes will be resolved, such as through arbitration or court litigation.

Enforceability and Good Faith

Even with a written agreement, Philippine law requires parties to act with justice, give everyone his due, and observe honesty and good faith (Article 19). A contract that is unfair or oppressive may be challenged. Moreover, a person who willfully causes loss or injury in a manner contrary to morals, good customs, or public policy must compensate the injured party (Article 21).

This means a software license cannot contain clauses that are clearly unjust or that violate public policy. For example, a clause that completely absolves the licensor of liability for willful misconduct would likely be unenforceable. The courts will look at the overall fairness of the agreement.

Damages for Breach

If a party breaches a software license agreement, the injured party may claim damages. Under the Civil Code, whoever by act or omission causes damage to another, through fault or negligence, is obliged to pay for the damage done (Article 2176). This applies to quasi-delicts, but contract breaches are governed by the terms of the agreement and the general rules on obligations.

In a contract breach, the damages are typically the natural and probable consequences of the breach (Article 2201). For example, if a user illegally distributes the software, the licensor can claim the lost revenue from unauthorized copies. If a licensor fails to deliver the software, the user can claim the cost of obtaining an alternative.

Frequently Asked Questions

Do software license agreements need to be notarized in the Philippines? No, notarization is not required for a software license agreement to be valid. A written contract signed by both parties is generally enforceable. Notarization is only needed if the agreement must be registered or presented as a public document.

Can a software license be terminated without cause? Yes, if the agreement includes a termination-for-convenience clause. Without such a clause, termination typically requires a valid reason, such as breach of contract. The specific terms of the agreement govern this.

What happens if a user violates the license restrictions? The licensor can terminate the license and claim damages for the breach. The user may also be liable for copyright infringement under separate intellectual property laws.

Practical Takeaways

• Put everything in writing. A software license agreement must be a written contract to be enforceable. Oral agreements are difficult to prove and enforce.
• Be specific about the license scope. Clearly define the number of users, devices, and permitted uses. Vague terms lead to disputes.
• Include a limitation of liability clause. This protects the licensor from excessive claims. Philippine law supports limiting damages to natural and probable consequences.
• State the governing law. Specify that Philippine law governs the agreement to avoid conflicts over which jurisdiction applies.
• Review for fairness. A contract that violates public policy or good morals will not be enforced. Ensure the terms are reasonable and balanced.

This article is general information and not legal advice. For your specific situation, consult a lawyer or ask ASG Legal AI.