Software License
(Tandem Use with Software Escrow) (Identifying and Managing Bankruptcy Risk)

Summary

This software license clause may be used in a software license agreement to address the effect that the licensor's bankruptcy and the rejection of the license will have on the license. This clause works in tandem with the software escrow. This template includes practical guidance and drafting notes. A licensee should protect its rights in the event the licensor files for bankruptcy. The licensee will want the license to contain payment and other terms that will apply after a rejection in a bankruptcy case. These bankruptcy specific terms should be designed to reflect the responsibilities of the parties in the event that the licensee elects to retain the licensed software and related source code after a rejection. Counsel should include such language in a license agreement even if it is not clear that the licensee would be entitled to the protections of Section 365(n). A licensor should consider a provision that the licensee must continue to make royalty payments post-rejection if the licensee is permitted, by court order or otherwise, to continue using the license post-rejection. This clause should be used in tandem with the Source Code Escrow Clause(Identifying and Managing Bankruptcy Risk) which is a provision that requires a deposit of source code of data and other relevant materials with a third-party escrow agent. For more information, see Intellectual Property Agreements: The Assumption/Rejection Risk.