A software license agreement in Cyprus is a legal contract between the software owner (licensor) and the user (licensee) that governs the use, distribution, and protection of the software. The main principles of such agreements in Cyprus are shaped by local laws, European Union (EU) regulations, and international intellectual property (IP) frameworks, particularly in the context of copyright, contract law, and Cyprus’s IP Box regime.
Below we provide a brief description of the key principles and the main clauses, tailored to the Cypriot legal environment, that should be taken in consideration when drafting a Software License Agreement.
1. Definition of the License Scope
The agreement must clearly define the rights granted to the licensee to use the software, specifying whether the license is exclusive or non-exclusive, perpetual or time-limited, and whether it allows use on a single device, multiple devices, or a specific site.
The agreement must specify permitted uses, such as whether the software can be used for internal business purposes, resold, or sublicensed. For example, restrictions may limit use to a specific geographic area (e.g., Cyprus or the EU) or a defined number of users.
Cyprus’s adherence to EU regulations, such as Directive 2009/24/EC on the legal protection of computer programs, ensures that the license scope aligns with EU standards, protecting the licensor’s copyright while defining user rights.
2. Intellectual Property Protection
The agreement must explicitly state that the licensor retains ownership of the software’s intellectual property rights (e.g., copyright, trademarks, or patents). In Cyprus, software is protected as an intellectual creation under copyright law, in line with the Berne Convention and EU directives.
Clauses often prohibit reverse engineering, decompiling, or modifying the software, except where permitted by law (e.g., for error correction or interoperability under EU law). The agreement may also include penalties for unauthorized use or reproduction.
Cyprus offers a favorable tax regime for IP-related income (e.g., royalties from software licenses), with effective tax rates potentially under 2%. The agreement should ensure compliance with this regime by maintaining proper records and specifying qualifying IP assets (e.g., copyrighted software or patented algorithms). Cyprus’s IP Box regime incentivizes licensing by taxing royalty income at a low rate, but the agreement must specify the territory of use (e.g., EU or Cyprus) to align with the territorial nature of IP protection.
3. Liability and Indemnity
Such agreements typically limit the licensor’s liability for damages caused by the software (e.g., data loss or business interruption), except for cases like negligence causing death or injury, which cannot be excluded under Cypriot and EU law.
The licensor may indemnify the licensee against third-party claims (e.g., if the software infringes another’s IP). Conversely, the licensee may be required to indemnify the licensor for losses due to misuse. These clauses require careful negotiation to cap financial exposure.
Cypriot law, influenced by EU consumer protection standards, may limit the enforceability of overly restrictive liability clauses, especially if they breach reasonable consumer expectations.
4. Usage Restrictions and Compliance
The agreement should specify how the software can be used, including restrictions on copying, redistribution, or sublicensing. For example, it may limit use to a specific business location or prohibit use outside Cyprus unless explicitly allowed.
Many agreements include clauses allowing the licensor to audit the licensee’s compliance with the license terms, with details on frequency, cost, and process to avoid disputes.
Under EU law, licensees have inalienable rights, such as decompiling software for interoperability or making backups, which cannot be waived by the agreement. The agreement must reflect these rights in Cyprus.
5. Support and Maintenance
The agreement should clarify whether the licensor provides updates, bug fixes, or technical support and whether these are included in the license fee or require additional payments.
For Software as a Service (SaaS) models, the agreement may include provisions for automatic updates and internet-dependent features, requiring the licensee to maintain appropriate internet services.
Maintenance contracts are often separate but linked to the license agreement, classified as service contracts under Cypriot law.
6. Termination and Revocation
The agreement should specify conditions under which either party can terminate the license, such as breach of terms (e.g., non-payment or unauthorized use) or convenience (with notice). It should also detail the licensor’s right to revoke the license if terms are violated.
Upon termination, the licensee typically must cease using the software and destroy or return any copies.
Termination clauses must comply with Cypriot contract law, ensuring fairness and transparency, especially for consumer contracts under EU directives.
7. Data Protection and Privacy
If the software processes personal data, the agreement must include terms ensuring compliance with the EU General Data Protection Regulation (GDPR), which applies in Cyprus. This includes specifying how data is collected, stored, and protected.
If the licensor processes data on behalf of the licensee, a Data Processing Agreement (DPA) may be required under GDPR, outlining responsibilities and security measures.
Failure to include GDPR-compliant terms can lead to regulatory fines from Cyprus’s data protection authority and disputes with customers.
10. Non-Disclosure and Confidentiality
If the software involves trade secrets or proprietary information (e.g., source code), the agreement may include a non-disclosure agreement (NDA) to protect confidential information, especially during early development or limited distribution phases.
NDAs are particularly relevant for software developed under Cyprus’s IP Box regime, where maintaining confidentiality can enhance tax benefits and IP protection.
Closing this article, it worths to mention that Cyprus’s business-friendly environment, with no specific license required to start a software company, simplifies the creation and enforcement of software license agreements. As an EU member, Cyprus aligns with directives like 2009/24/EC, ensuring that software license agreements respect user rights (e.g., backup copies) and licensor protections (e.g., copyright). Finally, the IP Box regime encourages software licensing by offering low tax rates on royalty income, but agreements must be carefully drafted to qualify for these benefits, including proper documentation and territorial clarity.
Kindly note that this article is intended to provide a general guide to the general principles of software license agreements in Cyprus and does not constitute legal advice. We recommend that you seek professional advice on your specific matter before acting on any information provided. For further information or advice, please contact the author of this article, Mrs. Maria Kannava at [email protected]