Licences for ready-made software

The contractual nature of the licence

Ready-made software is a term used to describe software which is acquired as a complete package ready for installation.  Common examples include Adobe Reader and Microsoft Office.  Others are firewalls and anti-virus programs.  The software can be free or subject to payment of a licence fee.  The main legal difficulty in this area is in deciding what the contractual nature of transactions involving ready-made software is.  Four possibilities are considered: a licence agreement, a sale of goods contract, a combination of these two, or another, unique (sui generis) form.  Whatever the form, the purpose is always the same: to transfer certain intangible rights, the main one being the right to use the software.  This right requires a licence from the copyright holder; otherwise the copyright and other rights will be infringed.  Clarifying the nature of the contract is essential to determining the legal control of the terms it contains.

Licence agreement

If no tangible items are transferred to the person acquiring the software, such as when the software is downloaded from the internet, the contract necessarily takes the form of a licence agreement.  A potential user will be given the opportunity to read the licence agreement before they download the software.  If they agree with the terms they can click a box and the download process will usually follow.  The licence will usually contain standard terms, such as on the author’s moral rights and the governing law, and will often be of unlimited duration.  There will also be terms on terminating the licence, such as if its conditions are breached. 

Sale of goods contract

A contract to acquire computer software, where the main purpose of the transaction is to acquire the software, is unlikely to be regarded as a sale of goods contract.  With ready-made software there can be no sale of goods contract as this defeats the purpose of the contract, that is, the right to use the software, which requires a licence from the copyright owner.  This does not mean that a contract to acquire ready-made software is not protected by the safeguards provided in the Sale of Goods Act 1979, specifically as regards implied terms, as the common law can be used to imply appropriate terms into such contracts (see, for example, St Albans City & District Council v International Computers Ltd (1997))

Part licence, part sale of goods

It is possible for tangible property to be transferred to a user along with the rights to use software, for example, when software is bought on a disk.  There may be two separate contracts here, a licence to use the software, and a sale of goods contract regarding the disk the software comes on.  If this disk is damaged, for example, and cannot be read by a disk drive, there will be redress under s14(2A) of the Sale of Goods Act 1979 since the disk is not of satisfactory quality.  There is a potential source of conflict, however, with software bought on a disk, as regards the terms of the licence to use it.  If the user is unable to read the licence in advance of buying the disk, then, if the contract is made at the time of purchase, and the licence is only available to read after the disk has been opened, then new terms will have been unilaterally introduced after the contract was made.  This, however, is unlawful.  Manufacturers may use techniques such as exposing the licence in clear plastic on the outside of the packaging, or by stating that if a seal is broken this signifies acceptance of the licence.  There will usually be a proviso that the software can be returned if the seal remains unbroken, and a refund can be demanded (see Beta Computers (Europe) Ltd v Adobe Systems (Europe) Ltd (1996) in support of this view).

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For more information on:

  • Sui generis form
  • Standard terms in licences for ready-made software
  • Misrepresentation
  • Back-up copies