The Software Licensing Dilemma

This Article makes two arguments. First, the dilemma posed by software transactions-sales or licenses?-should be answered by dynamic contract law. Dynamic contract law has as its objective effectuating the intent of the parties but weighs that objective against policy considerations. Second, the validity of a license grant should not be inextricably tied to the validity of the contract as a whole. The problem with relying on contract doctrine in the context of software licensing is that, too often, the application of that doctrine is static and formalistic. A new doctrine is not necessary to address software licensing issues; rather, the old doctrine needs to be reinvigorated to address changes in the marketplace. A license grant is not solely and exclusively a contractual term, the validity of which depends on the validity of the contract in its entirety; rather, in the event that a software license fails as a contract, the license grant may be considered-separate from the contract as a whole-as a promise made by the licensor that is contingent on the licensee\u27s performance and adherence to its terms. Part II discusses the implications of the licensing dilemma and the ramifications that flow from a determination of the transaction as either a license or a sale. Part III summarizes existing approaches to the software licensing dilemma and proposes a dynamic contracts approach to examining software transactions. A dynamic contracts approach identifies the nature of the transaction as relevant to determining the intent of the parties. Part III also proposes several criteria for distinguishing a sales transaction from a licensing transaction and acknowledges that most software transactions contain aspects of both. In addition, Part III discusses the effect of written terms that accompany a product in both a licensing and a sales transaction. Because software license agreements are contracts, their validity and enforceability should depend first and foremost on their validity and enforceability as contracts; however, rather than examining the written agreement in order to characterize the transaction, we should look to the transaction to determine how to interpret the written terms. In a sales transaction, the license grant is effective as a promise independent from the other terms contained in the contract. Recognizing the independence of license grant provisions exposes the binary proposition of license versus sale as a false dichotomy. Part IV examines two common license restrictions and discusses how each should be interpreted using a dynamic contracts approach. Part V discusses and responds to anticipated objections to this approach. This Article concludes that the software licensing dilemma is a red herring. Technology has created challenges for software producers, but those challenges are not unique to the software industry. Before we distort existing legal doctrine in an effort to accommodate the perceived needs of a specific market segment, we should carefully consider the impact of doing so on other market segments. It would be much wiser to take the long view to address technological changes than to create exceptions that morph into rules with regrettable implications