License Ambiguities in Software Audits

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Without a contractual provision to the contrary, ambiguous terms in a software license will be construed against the software publisher. Provided that there are no other business factors that would make litigation unwise, an ambiguous license agreement is the situation most likely to lead to litigation.

Construction against the Drafter
When dealing with ambiguities, it is important to determine whether the license in question contains a provision indicating that ambiguities will not be construed against the drafter. If there is no such provision, the general rule in most jurisdictions is that ambiguities in software license agreements will be construed against the drafter. If the contract is silent on construction against the drafter, it is important to review any choice of law provision and determine if the specific jurisdiction follows the general rule.

Parol Evidence
The Parol Evidence Rule, which is applicable in most states, provides that when a court determines that a contractual provision is ambiguous, the parties may introduce extrinsic evidence to prove that their interpretations of the contract are consistent with the parties’ intent when entering into the contract.

In a software dispute, parol evidence will include testimony from both the software company and the end user regarding pre-contract discussions and negotiations as well as pre-contract writings including e-mails, faxes, purchase orders and draft license agreements. All of this evidence would be precluded in a contract dispute where there was no ambiguity in the contract. In such instances the court would be confined to what is called the “four corners” of the software license agreement when conducting its interpretation.

Software licenses often discuss technical matters, and are therefore frequently ambiguous. These ambiguities require the parties to develop and present extrinsic evidence in court. Typically, the evidence is developed through pre-trial discovery mechanisms such as requests for production of documents and depositions, which can be very expensive.

Triable Issues of Fact
Contract disputes, including those involving software licenses, are frequently resolved before the trial begins through motions for summary judgment. The interpretation of a non-ambiguous contract is decided as a matter of law by the court. In addition, because the parol evidence rule precludes the introduction of evidence in contravention of the plain meaning of an unambiguous contract, litigation costs are reduced because the extrinsic evidence regarding the parties’ pre-contract intent is not considered by the court.