Software licensing agreements often provide that the licence is granted for an unlimited time. But what does this mean in practice and what legal consequences does it exert?
Under Polish law, a licence to a copyrighted work authorises the holder to use the work in the fields of exploitation listed in the agreement, specifying the scope, place and time of such use (Art. 67 of the Act on Copyright and Neighbouring Rights of 4 February 1994). The licence should therefore specify the period for which authorisation to use the work is granted, i.e. either specify in months or years the duration of the period during which the software may be used, or authorise the holder to use the software for an indefinite period. But what if the agreement does not address the issue of the period when the holder may benefit from the licence? The Copyright Act then provides that the licence agreement authorises the holder to use the work for a period of 5 years in the territory in which the licensee has its registered office, and at the end of that period the rights obtained under the licence agreement expire.
The current copyright regulations in Poland distinguish between three different situations:
Licences for an indefinite period. A licence granted for an indefinite period may be terminated in compliance with the notice period specified in the agreement or in the law.
Licences for a definite period of up to 5 years. The agreement for a definite period is binding on the parties, and in principle neither party has a right to terminate the agreement upon notice prior to the end of the period.
Licences for a definite period of longer than 5 years. When a licence is granted for a definite period of longer than 5 years, after 5 years the licence is deemed to be granted for an indefinite period. The commentaries and the case law indicate that the legislative intent was that after the end of 5 years such licence agreement is still for a definite period, but the agreement may be terminated in compliance with the same termination notice period as that provided for licences granted for an indefinite period.
A practical tip here for licensees: Many software licence agreements refer to granting of a licence indefinitely, without end, or perpetually. If termination notice periods are not addressed, such a statement by the licensor only partially benefits the licensee. In practice, when the parties enter into a software licence agreement identified as endless, perpetual, or for an unlimited time, their intention is for the duration of the licence and continual use of the software to be assured. However, the intention of the parties can be significantly modified by applicable law. Thus if a licence agreement for an indefinite time does not specify the termination notice period, the law steps in and establishes the possibility of terminating the agreement on one year’s notice, effective at the end of a calendar year (Copyright Act Art. 68( 1)).
In other words, if the licensee does not ensure that the termination notice period is addressed in a licence agreement for an indefinite period, then the licensee is exposed to the risk that the agreement will be terminated by the licensor in compliance with the statutory termination notice period—which may be quite short in relation to the licensee’s needs.
As a consequence of termination of the licence agreement upon notice, it may be necessary for the licensee to uninstall, delete or destroy software installed in its equipment. If the software is applied to such uses as operating production equipment, termination of the licence could have significant organisational and financial ramifications for the licensee’s business. The licensee should therefore take care to specify the termination notice period in the case of a license agreement for an indefinite period, in order to guarantee itself adequate time if it is necessary to adapt its equipment to use different software. Although in some cases it takes just a few weeks or months to change software, in extreme cases it could even take years, for example to switch an entire manufacturing plant over to new software.
The question then arises of how long a termination notice period for a licence may be permitted. Unfortunately there are no uniform guidelines on this issue. Each instance must be considered on a case-by-case basis. In some situations a termination notice period of several years will not be questioned, but in other situations the same notice period of several years may be regarded as an attempt to circumvent the law.
Therefore, it is important not only to negotiate a licence for an indefinite period, but also to ensure that the agreement provides for an adequate termination notice period.