Negotiating and Drafting International Software License Agreements (with Model

Agreement)
By Lisa Wannamaker and E. Gail Gunnells
Theres more to an international licensing agreement
than translating the U.S. version into another language.
Lisa Wannamaker is Vice President and General Counsel of Jacada, Inc., an international software
company. E. Gail Gunnells is head of the Technology Practice Group at Long Aldridge & Norman
LLP, resident in the Atlanta office, where her practice concentrates on counseling clients in
licensing transactions, copyright, trademark, and Internet/E-commerce matters. This article is based
on a paper the authors prepared for a seminar sponsored by the ABAs Young Lawyers Division.
LICENSORS OF SOFTWARE sometimes enter foreign markets with more zeal than
wisdom. Some of them make the mistake of believing that success in the United States
can be easily reproduced in other parts of the world, and have no inkling of the
differences between licensing their products domestically and licensing them in overseas
markets. But these differences are very real. The products will probably have to be
marketed differently and distributed differently, and the licensing agreement will have to
account for differences in foreign law. Failing to take such matters into account can doom
the licensing arrangement even before it gets
underway.
A lawyer can assist clients in easing the transition from domestic to international licensor by
identifying some of the challenges the licensor will face in entering a foreign market and explaining
why changes to the licensors established way of doing business may be necessary in some
instances. In this article, we will explore:
Protection of intellectual property;
Payment;
Differences in language and culture; and
Use of foreign lawyers.
In addition, we have included a standard software license agreement that has been annotated with
comments the vendor should consider. This annotated agreement and overview of issues for the
software vendor to address when entering into a foreign market are intended as starting points. In
many cases, there is no substitute for engaging legal counsel in a foreign market.
PROTECTION OF INTELLECTUAL PROPERTY The first issue for a software
vendor to confront is whether it can adequately protect its intellectual property in the
foreign country. Technology companies based in the United States are used to the
protection afforded by our laws, and may not be aware that much of the globe is
significantly behind the United States in intellectual property protection. Vendors are
often surprised that the patent and trademark registrations they hold in the United States
may offer no protection in a foreign country. Vendors should review the laws regarding

copyrights, patents, trademarks and trade secrets, as well as any technology transfer laws
or restrictions, when making the decision to enter a foreign marketplace.
Copyright Protection
The United States is a participant nation in the Berne Convention, the Universal Copyright
Convention, and the Buenos Aires Convention. This participation extends copyright protection to
authors of copyrighted material in any member country. But that protection is available for software
only if the foreign member country recognizes software as copyrighted material. If software is
recognized as copyrighted material, the U. S. author is afforded the same copyright protection that is
given to a citizen of the foreign country. If copyright protection for software is not available in a
country, the vendor faces difficulty in combating piracy in such country.
Patent Protection
Unlike copyright protection, a U.S. patent does not give the patent holder any rights in a foreign
country. An inventor who desires patent protection in other countries must apply for a patent in
each of the other countries or in regional patent offices, in accordance with the specific
requirements of the other country or regional patent office. The United States is, however, a
participant in the Patent Cooperation Treaty (PCT). This participation provides for the benefit of
nationals of member countries a system that facilitates the obtaining of patent protection for
inventions in several countries upon the filing of a single international patent application for a single
filing fee.
How the PCT Works
The PCT is a way of filing many foreign applications en masse and provides preliminary
searching and opinions regarding patentability. A patent is not granted by the PCT; the
PCT application is published and notice is given to other designated countries for further
prosecution of the application. After the preliminary examination, the applicant must
enter the national stage in each country he has designated. Thus, the real examination
occurs in each separate country after the preliminary PCT stage is finished. Therefore,
one can end up with very different patent claims in each country, even though the claims
started out in each country identical to that filed in the PCT application. Not only does the
applicant pay a PCT filing fee, but the applicant must also pay extensive national stage
filing fees, including fees for translations into each countrys official language.
Designation of the European Patent Office (EPO)
When a PCT member designates the EPO, the application moves from the PCT stage to the EPO
stage, where a European patent may be granted. Once the European patent is granted, it is then
ratified by each of the European member countries. Thus, the applicant can end up with a PCT
publication, a European patent, and then patents in each separate country.
No Grace Period for Publication, Disclosure, or Sale Abroad
Another important factor to note is that determination of patentability in the United States differs
from that in foreign countries in a very important way. In the United States, once there is activity
such as publication, public disclosure, offer for sale, sale, or public use of the invention by the
applicant, there is a one-year grace period in which the applicant may still file a U.S. patent

application. Abroad, there is no such grace period and therefore, any publication, disclosure, sale,
etc. is an absolute bar to patentability abroad.
Paris Convention Protection
The United States is also a member of the Paris Convention, which provides certain protection for
industrial property, including patents. Vendors should be made aware of the limits of protection of
their U.S. patent and should consider whether seeking patent protection in a foreign country is
possible before entering into the foreign marketplace.
Trademark Protection
Like patent registrations, a U.S. trademark registration provides no trademark protection in a
foreign country. Until recently, an owner of a trademark seeking to protect it internationally had no
alternative but to comply with the requirements and formalities of more than 200 trademark
jurisdictions.
Trademark Law Treaty
In October 1998, however, the U.S. Congress passed the Trademark Law Treaty, which simplifies
the procedures for U.S. companies to register their marks abroad. Among the administrative
provisions that ease the registration burden for U.S. trademark owners are:
Standardization of forms for applications, powers of attorney and changes of name, address, and
ownership;
Prohibition on certain requirements for notarization or other certifications of signature and for
certificates or extracts from a register of commerce; and
Adoption of the International Classification of Goods and Services.
Other Laws Affecting Registration of Trademarks
The Council Regulation on Community Trademarks regulates the law and the registration of
trademarks in the European Union. The Paris Convention and the Madrid Protocol are two other
major international agreements. The Paris Convention provides that a trademark filing in a foreign
country which is a member of the Convention will relate back to the earlier filing of the trademark
in the owners own country which is also a member, if the filing in the foreign country is within six
months of the native country filing. The Madrid Protocol permits the owner of a registered
trademark to register the mark in all member countries by filing a certificate of registration in a
central registry in Switzerland. Although the United States is a member of the Paris Convention, it
is not a signatory to the Madrid Protocol.
Trade Secret Protection
Trade secret protection is not always available in foreign countries. Even in countries that have a
history of common law, courts may be reluctant to enforce civil and criminal penalties against those
who steal or misappropriate intangible information. While few international treaties and
conventions address the protection of trade secrets, both NAFTA and GATT provide some
protection for undisclosed information and trade secrets.

Governmental Approvals
Some countries, especially in Latin America and the Far East, may require that contracts for
technology transfers (including licenses) be approved by government agencies or authorities. Often
a condition of these approvals is that the technology is deemed to be owned by the foreign company
at the end of a specified term, which essentially eliminates all of the restrictions on use contained in
the software license agreement.
PAYMENT In many circumstances, technology vendors whose sole source of revenue
is derived from licenses of their technology in the United States give very little thought to
what it means to be paid by a licensee in a foreign country.
Vendor Must Consider Deductions and Exchange Rates
Used to dealing in dollars, the inexperienced vendor may not specify the currency for payment and
may neglect to provide that such payment is net of any taxes, withholding, VAT, and the like. The
vendor then finds itself in the unhappy position of dealing with a payment in foreign currency from
which deductions have been made which the vendor did not contemplate. By failing to take into
consideration the fluctuations in exchange rates as well as the different exchange rates that can be
used, the vendor may end up with significantly less money that it bargained for. To further
complicate payment issues, however, some countries may require a foreign exchange permit for the
licensee to make payments in a foreign currency.
What the Vendor Can Do
There are at least three things the vendor can do to more accurately anticipate the proceeds of its
license and get the full benefit of its bargain:
Insist on billing and collecting in its own currency;
Gross up its license fee to compensate for the taxes to be deducted from the fee; and
Provide that the license fee is net of any taxes or withholdings.
The tax laws of the United States and of the foreign country where the payment originates govern
the taxes to be collected and paid on the transaction. Some tax treaties between the United States
and other countries reduce the taxes payable. The vendor needs to understand what taxes are
assessed on the transaction so that the license fee payable to the vendor can be adjusted accordingly.
DIFFERENCES IN LAWS Every vendor realizes that there will be differences
between U.S. law and the law of the nation where the license transaction will be carried
out. However, few of them realize which differences will most significantly affect the
terms and enforceability of the agreement.
Warranties and Disclaimers
U.S. software vendors and customers are accustomed to seeing certain standard warranties,
disclaimers of warranty, and limitations of liability in software license agreements. For commercial
transactions, no state law dictates what warranties must be given by a software vendor to a
customer; commercial law generally provides that the parties are bound by the provisions in the
contract. In addition, state law permits the vendor to disclaim implied warranties provided for in the
states commercial code, provided that the vendor complies with the specific requirements of the
code as to how the disclaimer must appear, if any. Finally, state law permits the parties to contract