Consideration


copyright 1997 Donald M. Cameron , Aird & Berlis


Every contract must have "consideration": something valuable flowing between the parties.

In a Licence Agreement:

The consideration to the Agreement brought by the licensor is the right to use the computer program.

The consideration of the licensee is usually the payment of a fee to the licensor for the licence grant. The method of the payment of the fee is limited only by the imagination of the parties.

In an Employment Contract, the consideration for the transfer of intellectual property rights from the Employee to the Employer is usually the Employee's salary.

Most licensors want some form of lump sum payment at the commencement of the licence. Sometimes this is the only consideration paid by the licensee, as in the case of a perpetual licence or the purchase of shrinkwrapped software. In other cases, the lump sum payment constitutes the payment back to the licensor of all or a portion of its development costs.

The licensor may also require continuous periodic fee payments (sometimes called "royalties") which are paid on any regular basis (monthly or annually). These monies provide a continuous stream of revenue that the licensor can use to pay for further development of the software or attribute as profit from the development of the software.

In order to recognize the increases in the licensor's operating costs, the agreement may contemplate an incremental increase in the annual fee based either on inflation or an inflation index such as the Consumer Price Index.

The fees paid by the licensee may also be triggered by milestones in the installation or acceptance of the modules of the software or specific functionality being achieved in accordance with the product development.

The fee may also be based on the usage of the computer program: the greater the usage, the greater the fee. For example, if the licensee processes more transactions, it will be able to charge its customers on each transaction. The licensor may require a fee to be paid based on the number of transactions processed calculated as a linear relationship or as a series of step functions.

Additional fees may be charged for additional services. The agreement should define what services are included in the agreement and what services are "additional" attracting the additional costs. Some training may be provided for under the licence agreement but additional training may attract additional fees and disbursements. Servicing may be provided free during the warranty period but will be charged for as "maintenance" after the expiration of the warranty period. Additional fees may be charged for converting data from an older ("legacy") system to the licenced system or to export the data from the licenced system to another format upon the termination of the licence agreement.


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