Software sits at the heart of almost every modern business in Australia, from cloud-based accounting platforms to bespoke applications powering advanced manufacturing. Yet poorly drafted licence terms can erode intellectual property (IP) value, trigger Australian Consumer Law (ACL) breaches and expose licensors to unlimited liability.
Whether you’re a founder, in-house counsel or software provider, the fine print of a software licence agreement can make or break your business. This checklist, prepared by our technology and intellectual property law team, highlights legal risks to avoid, clauses to get right, and best practices for Australian agreements.
Key Takeaways
- Clearly distinguish between selling and licensing software to preserve ownership
- Align fee structures (subscription, usage-based, perpetual) with defined service levels
- Draft IP clauses that reserve copyright under s 13 Copyright Act 1968 (Cth)
- Ensure any limitation of liability complies with ss 64–64A ACL and is not unfair under Part 2-3
- Embed privacy and data security obligations consistent with the Privacy Act 1988 (Cth) and the Notifiable Data Breaches scheme
What is a Software Licence Agreement?
A software licence agreement (also referred to as an End-User Licence Agreement or SaaS agreement) is a contract in which the software owner grants another party limited rights to install, access, or use the software. Unlike the sale of goods, these agreements do not transfer ownership of the underlying code – ownership remains with the licensor.
Learn more about intellectual property rights in our guide.
Understanding the distinction between a licence and a sale is critical:
Licence vs Sale
Key Feature | Licence | Sale |
Ownership of code | Retained by licensor | Transfers to buyer |
Rights granted | Limited, revocable | Broad, permanent |
Revenue model | Ongoing fees possible | One-off consideration |
Continued IP control | High | Low |
Key Clauses to Get Right in Your Software Licence Agreement
When drafting or negotiating a software licence agreement, it’s important to ensure that each key clause is clear, enforceable, and aligned with your commercial goals. Here’s what to focus on:
1. Scope of the Licence
Define exactly what the licensee is permitted to do with the software to avoid ambiguity or misuse.
- Territory: Is use limited to Australia, the Asia-Pacific region, or global?
- Permitted users/devices: How many users or installations are allowed?
- Permitted uses: Can the software be displayed, configured, or modified?
- Source code access: Is source code available, and under what conditions (e.g., escrow release)?
2. Fees, Billing and GST
Align your pricing structure with tax obligations and service expectations.
Billing models: Use clear structures – upfront perpetual fees, recurring subscriptions, or usage-based pricing (e.g. per API call or per seat).
GST compliance: Under the A New Tax System (Goods and Services Tax) Act 1999 (Cth) fees must be GST-inclusive or expressly state otherwise.
Late payments: Set out remedies such as interest, service suspension, or recovery of debt collection costs.
3. Support, Maintenance and Updates
Establish transparent service level expectations to manage technical performance such as:
Response times: For example, critical issues (Priority 1) must be addressed within 2 hours.
Resolution targets: Set clear repair or workaround timelines.
Maintenance windows: Allocate regular downtime periods for updates.
Remedies: Provide service credits for service level failures.
4. Intellectual Property Rights
Preserve ownership and protect your proprietary technology from unauthorised use. You can do this by:
Retaining IP: Clearly reserve all IP rights under section 13 of the Copyright Act 1968 (Cth).
Prohibiting reverse engineering: Except where permitted by section 47D for interoperability purposes.
Maintaining proprietary notices: Require that all copyright and trademark notices are preserved.
Learn more about Intellectual Property Licence Agreements in our article.
5. Privacy and Data Security
If personal information is handled, privacy compliance is non-negotiable. Set out how the parties will:
Comply with the Privacy Act: Align with the Australian Privacy Principles (APPs).
Store Data: Clearly disclose where data is hosted and whether cross-border transfers occur.
Respond to a Breach: Outline obligations for responding to a data breach under the Notifiable Data Breaches scheme (Part IIIC).
Learn more about Data Breaches and who is responsible for Information Security in our article.
6. Warranties and Statutory Guarantees
Australian Consumer Law (ACL) imposes mandatory consumer guarantees that cannot be excluded. The agreement should:
Acknowledge guarantees: Confirm that the contract doesn’t override ACL protections under ss 64–64A.
State intended use: Define the software’s expected purpose and system requirements.
Limited warranties: For example, guarantee conformity with documentation for 90 days.
7. Limitation of Liability
Cap liability appropriately to avoid open-ended exposure – but remain compliant with ACL. This can by done by:
A monetary cap: Limit liability to the greater of fees paid in the past 12 months or a specified amount.
Excluding indirect loss: For example, lost profits, loss of business, or reputational harm.
Preserving non-excludable liability: Such as death, personal injury, fraud, or breach of confidentiality.
Check out our article on limitation of liability to find out more.
8. Term, Renewal and Termination
Clarify when the agreement starts, ends, and how either party can exit.
- Commencement: Signature date, activation, or first use?
- Term: Fixed, rolling (evergreen), or milestone-based?
- Renewal: Automatic renewal? If so, provide a reasonable opt-out window (e.g., 30 days’ notice).
- Termination triggers: Include material breach, insolvency, and termination for convenience.
9. Dispute Resolution and Governing Law
Avoid jurisdictional ambiguity by locking in dispute processes and legal frameworks, such as:
Tiered approach: Good-faith negotiation → mediation → arbitration or litigation.
Governing law: Clearly nominate (e.g., laws of New South Wales).
Jurisdiction: Specify courts with exclusive authority under the Cross-vesting Act 1987 (Cth).
Compliance Hotspots for Australian Licensors
Australian licensors face strict compliance expectations. Here are common risk areas and how licensors can mitigate them:
Issue | Relevant Law | Practical Tip |
Unfair terms in standard-form EULAs | ACL Part 2-3 | Avoid unilateral variation rights without notice Learn more about unfair contract terms in our guide. |
Bundled open-source software (OSS) | GPL, MIT, Apache | Maintain an OSS register and flow-down obligations |
Export controls on encryption | Autonomous Sanctions Act 2011 (Cth) | Screen customers in embargoed jurisdictions |
GST treatment of cross-border SaaS | GST Act 1999 (Cth) | Determine if supplies are “connected with Australia” |
Need help negotiating a mission-critical software deal or rolling out a SaaS platform? Speak with our technology and IP team today
Frequently Asked Questions
What is the difference between a perpetual licence and a subscription licence?
A perpetual licence grants indefinite use of a specific software version for a single fee, while a subscription licence provides time-limited access that continues only while periodic fees are paid
Can a software licensor exclude all liability for defects?
No. The ACL imposes non-excludable consumer guarantees and any exclusion or cap must be reasonable and clearly drafted
Do I need user consent to store data overseas?
If personal information is involved, APP 8 requires reasonable steps to ensure the overseas recipient upholds the APPs, or the user must give informed consent
Is automatic renewal of a software licence enforceable?
Yes, provided the renewal mechanism is prominent, the notice period is reasonable and the term is not unfair under Part 2-3 ACL
Can licensees reverse engineer software for interoperability?
Section 47D Copyright Act 1968 permits limited decompilation to achieve interoperability, but broader contractual bans may be unenforceable to that extent .
Learn more about copyright ownership in our article.
