IT contracts: which license provisions and copyrights must be observed when drawing them up. In the field of IT law, many forms of contract are used to regulate various tasks and sub-areas. There are no IT contracts that are regulated by law.

All IT contracts must be negotiated on a legal basis, regardless of whether they relate to the purchase of hardware, the licensing of software, maintenance or the administration and management of the IT infrastructure.

In this article, we will inform you about what you need to consider when drafting IT contracts.

IT contracts in the field of information technology

IT law is characterized by innovation and is therefore constantly evolving. In recent years, information technology has experienced enormous growth. It is therefore clear that the legal framework does not adequately reflect the interests of the parties.

However, this should not be a reason to abandon a project! Rather, it must be ensured that the interests of both parties are adequately represented by well-formulated contracts and that the legal situation that would exist in the event of a change in legislation is adapted in an acceptable manner.

The different types of IT contracts

IT contracts: minimize liability risks with 6 contract types. Hardware and software development contracts as well as IT service contracts are commonplace (e.g. consulting, maintenance and support contracts, hosting contracts). There are separate contract types for freeware, open source software, application service providers (ASP) and software as a service (SaaS).

You need to know which legally regulated contract type applies to the IT contracts in question (e.g. a purchase contract or a service contract or a leasing contract). Unless otherwise agreed in the contract, the statutory regulations apply.

The following section provides an overview of all contract types.

IT contracts are also license agreements

Once a work has been created, the copyright holder has the right to control the use of the work, regardless of whether it is registered.

To the extent that his work is protected by copyright law, every software developer has the right to claim ownership of the intellectual property he has created.

Therefore, it is important that the parties agree how and when the rights of use (licenses) are transferred, sold or made available.

The leasing contract for software

By leasing IT systems (hardware and/or software), companies can benefit from the advantages of flexible IT solutions and at the same time protect their liquidity and equity. This business model has become firmly established in recent years.

Various leasing options are available, depending on whether the asset is leased directly from the manufacturer or via a third-party provider. Leasing contracts are basically IT contracts for the transfer of usage rights.

In most cases, the lessor is the one who acquires and finances the leased asset and makes it available to the lessee. In the case of an operating lease, the lessee has the option of terminating the contract at any time.

This type of lease is referred to as a “finance lease” if it serves to finance and amortize the leased assets. Leasing contracts are often long-term.

The legal situation is complicated, as there is usually a three-party relationship between the manufacturer (supplier), lessor and lessee. In the case of finance leases, it is important to be familiar with the provisions of credit contract law in addition to sales and leasing laws.

The legal effects of a leasing contract

An essential element of leasing contracts is that the leased asset is temporarily transferred to the lessee in return for an installment payment. The legal classification is controversial.

The leased asset is the property of the lessor until the lease is repaid in full. Consequently, the lessee is responsible for maintenance and any problems associated with the lease.

Initially, the question was raised as to whether a leasing contract for software was possible because it is not tangible. However, this is now common practice in Germany, as the Federal Court of Justice recognizes software as a “thing”.

The rights of lessees in IT contracts

In the event of a defect as a result of the above assignment, the lessee has no rights under tenancy law against the lessor, but does have warranty rights under sales law against the supplier of the software solution.

The tenant is responsible for contacting the supplier of the solution if the IT system does not work or problems arise.

IT contracts regulate triangular relationships

A three-party relationship is often the basis for leasing contracts. By concluding a purchase agreement, a lessor receives the IT solution from the manufacturer/provider of the IT solution.

The lessor then transfers the IT solution to the end customer and future user (lessee) for use in return for payment of installments by concluding a lease agreement. As a result, two contracts often form the basis for this constellation.

The purchase agreement forms the basis of the business relationship between lessor and supplier, while the rental agreement, which forms the basis of the business relationship between lessor and lessee, is linked to a loan agreement.

Assignment provisions are widespread in leasing agreements, as the lessor typically wants to avoid the (strict) warranty rights incumbent on it under tenancy law.

In order to achieve this goal, the lessor transfers its warranty rights from the purchase agreement in relation to software and/or hardware solution providers to the lessee.

In return, the lessor agrees to waive any contractual warranty vis-à-vis the lessee. In other words, the lessee (customer) effectively assumes the rights of the lessor.

It is possible that a business-to-business lease agreement allows the lessor to completely exempt itself from liability for material defects in the terms of the contract.

As a condition of a leasing contract, the lessor must assign the lessee’s warranty claims against the supplier to the lessee in full and without restriction.

IT contracts for the copyleft license

The GNU General Public License (GNU GPL) is in theory a strict copyleft license. In this situation, users of open source software are normally only allowed to distribute modifications of the original GNU GPL.

The aim behind this is to ensure that open source software that was originally created with open source code can be used permanently free of charge or almost free of charge.

IT contracts: two versions of the GPL

Two versions of the GPL are available to developers of GPL software: Version 2 (GPL v2) and Version 3 (GPL v3), the most recent. The user, on the other hand, is entitled to charge a fee of any amount as long as the program remains open source in compliance with the other license restrictions.

Non-exclusive use of GPL-licensed software, including commercial use and the creation of proprietary software, is permitted under the terms of the GNU GPL.

Because it is open source code, the program can be examined and modified by the user, allowing for continuous development and improvement.

IT contracts: the distribution right is binding

The distribution right includes not only the distribution on data carriers, but also the availability via the Internet both for the original software and for all modifications derived from it. Application Service Providing (ASP) or Software as a Service (SaaS) are newer methods of distributing software (SaaS).

The agreement for the supply of software

As the name suggests, this agreement facilitates the sale of software to an end user by the company that created it (the manufacturer or the distributor). The latter pays an agreed fee for the use of the program for a specified period of time or indefinitely. When drafting such a contract, there are a few points to bear in mind.

IT contracts regulate the production of software

IT contracts are often classified as contracts for work and services. The first impression can be deceptive, as Section 651 of the German Civil Code (BGB) refers to the sale of movable objects that are manufactured or produced as movable objects.

In theory, the Federal Court of Justice (BGH) considers software to be a movable item. However, sales law does not apply to the manufacture of software when it comes to warranty conditions. This depends on the individual case.

Contractual provisions for the creation of software

The following provisions are stipulated in IT contracts for the creation of software.

  • First of all, the contract must specify exactly what type of software is to be developed.
  • In most cases, this is done in collaboration with the client to define a number of requirements that the program must meet.
  • Of course, the buyer must also be granted permission to use the program (= license).
  • Finally, the duration (usually permanent use) and the remuneration must be specified.
  • The contract for work and services must contain a warranty for defects and a liability provision if the statutory provisions of the law on contracts for work and services are to be deviated from.

Licenses for free software

Free software can be described as open source if it is licensed under a license recognized as open source by the Open Source Initiative (OSI).

Free use is guaranteed

The freely available source code is an important element of these agreements. They allow the user to use both the original and the modified version of the program without having to pay a fee.

However, this freedom should not be misunderstood as an unrestricted right to use OSS without any restrictions.

As a result, all open source licenses bind the rights of use granted to the user to certain restrictions that the user agrees to when using the program.

All licenses require the inclusion of a copyright notice and the text of the applicable license in any subsequent distribution.

Penalties for violations of the open source license

The rights holder can take legal action against the infringement in accordance with § 97 ff. UrhG (injunctive relief, removal and compensation claims) if the program is used in violation of the license. In addition to the payment of a hefty fine, the program may no longer be used in the future.

For this reason, we urge you to check the compatibility of open source components before using them and to observe the requirements of the respective license, especially the documentation, which is all too often overlooked.

The lawyers at Herfurtner can help you use open source components in your product without breaking the law.

Have IT contracts drawn up by lawyers

In the information technology industry, good contract drafting is very important. In recent years, software contract law has evolved considerably. When selling software, strategic contract drafting considerations are at the top of the list.

Every contract should contain provisions on the limitation of liability risks and the effects of guarantees. Recently, there have been several court decisions on the validity of contractual clauses and general terms and conditions (GTC).

Contracting parties should carefully analyze the rights granted to them and draft appropriate contractual terms, as copyright infringements are associated with serious and costly claims, e.g. injunctive relief, rights to information and damages.

Legal disputes that could be avoided if the infringer had taken the right steps in advance can result in the infringer facing serious consequences.