Be clear on rights and limitations of software licenses

Recently a physician practice group asked me to review a software licensing contract. The contract was related to the physicians' plan to upgrade computers and software to improve scheduling and billing functions and efficiencies.

The practice group was seeking to contract with an outside vendor for the provision of software and computer support. In light of the practice's objectives to increase productivity and profitability by utilizing new software, I focused on the following issues when reviewing the contract: ownership rights, software licensing, support services, and liability.

This column will highlight key issues that physicians and practice groups should consider when negotiating and reviewing software licensing contracts.

First, ownership rights.

Physicians should carefully review software licensing contracts to determine what their rights and limitations are in relation to the licensure and ownership of the software.

Usually the ownership rights stay with the company instead of the practice because of patent and copyrights, and that's what you want in your contract. If the software vendor sells the software outright to the practice, it would be difficult for the practice to receive any updated versions or modifications. Also, it is advantageous for the practice to license the software and let the ownership stay with the vendor because the vendor is responsible for updates and defending against any patent or copyright infringement cases or challenges that are brought by outside entities.

Make sure you include a provision in your contract requiring your software vendor to provide you with any necessary technology or mandatory updates for regulatory compliance. You should also look for a representation by the company that the software is in compliance with the HIPAA security requirements and includes appropriate safeguards for protected health information.

You should make sure that you are not prohibited from making the software available to any third party, including your accountants, attorneys and consultants who need access to provide services to your practice.

The software licensing agreement I reviewed included a provision requiring the prior written consent of the software vendor before the physicians or their staff could provide access to any outside party. You don't want such unnecessary roadblocks for granting access to your advisers and consultants.

The software licensing contract might also include a provision that states that your practice group may not copy, in whole or in part, any software or any other materials supplied by the software vendor in printed or other form, except for use by the practice group for its own purposes within the scope of the license granted pursuant to the term of the contract.

However, you should reserve the rights to have a copy of the software for emergency restart purposes; for replacing a worn copy or to understand the contents of such machine-readable material; for backups; for use in training or archiving; and for the development and testing of customizations or other such internal use.

Most software licensing contracts contain a licensing provision granting the practice group a nonexclusive and nontransferable license to use the software. Make sure that your practice group is entitled to use the software on any computer that it currently owns or will own in the future, leased or otherwise used by the practice and located at your office.

You should also consider the availability of remote access of the software from off-site computers. If remote access is vital to your practice and you require the use of the licensed software off-site, make sure that you negotiate for inclusion of access from outside the main site by a telecommunications network or other means.

You should also ensure that the license term begins on the effective date and is perpetual in duration of the contract subject to any termination provisions as set forth in the agreement.

Support services from the software vendor and its representatives should also be included within the software fee. Upon the practice's receipt of the software, the vendor should designate a representative to answer the practice's questions regarding implementation and use of the software.

That person, or persons, should also assist the practice group's staff in processing financial reports using the software.

In the contract I reviewed for the practice group, the duration of the software support was the lesser of six months from the effective date of the agreement, or 300 work hours. The practice group had the option to purchase additional software support from the company for additional fees as mutually agreed upon by both parties.

A potential pitfall regarding support services for the implementation and use of the software is if your practice underestimates the duration or amount of actual hours that will be required to ensure that the software is operational and being utilized in its maximum capacity.

Consider including a contract provision that enables you to purchase additional support for a reasonable amount of money.

It is important that you carefully review the liability provisions in your software licensing contract to ensure that the disclaimer and limitation of liability terms do not preclude or waive any action against, or recovery from, the software vendor for lost data, lost revenue, or lost profits that result from the use of the software.

The software licensing contract I reviewed for the practice group contained boilerplate disclaimer and limitation of liability provisions that were spelled out in capital and bold printed letters. They limited the software vendor's liability arising out of the contract to the cost of the license fee paid by the practice group to the company for the software.

I revised the liability provision so that the software vendor's liability is tied to actual damages resulting from the contract or the use of, or inability to use, the software by the practice group.

You should also make sure that you are not liable for any claim of copyright infringement by a third party for the use of the software.

It might be tempting to skip over the liability provisions because of the density and use of legal terms. However, you should carefully read the disclaimer and limitation of liability provisions in order to understand what your future remedies are in the event of a breach of contract or other claim against the software vendor. You should also consider including a provision that obligates the software vendor, at its sole expense, to defend your practice against any claims brought against the practice alleging an infringement of any patent, copyright or other intellectual property rights.

If you receive software and/or technology support from a hospital or health care system, you should make sure that the hospital has the authority and right pursuant to its software agreement to grant the license for use of the software in your practice.

The health care system should also ensure that there is no known litigation pending against the software vendor that would limit, restrict or prevent the health care system's or your practice's use of the software. Also make sure that the software does not contain any disabling code.