Software Licensing and Use Restrictions

Since the right to sub-licence software originates from the owner of the software, it is essential that the head licence agreement contain provisions authorizing the foreign licensee to sub-licence the software to other parties for use in the agreed territories during the agreed term of the licence agreement. Further, since the sub-licence agreement is a cross-border contract, the validity of the sub-licence agreement will depend on the nature of the technology involved under the sub-licence. Under the PRC legal regime, software licensing from a foreign licensor to a Chinese user will be deemed as technology importation and shall be subject to different procedures according to the classification of the technology to be licensed. The technologies to be imported are classified into three classes: prohibited, restricted and freely imported.

It is necessary to verify the nature of the software. In order for the sub-licence agreement to be valid, the technology must not be a technology the importation of which is prohibited or restricted under the applicable regulations.

Scope of the Licence and Possible Infringement

In one case, the software sub-licence agreement between licensee and sub-licensee contains a restriction that the sub-licensee can only use the software for manufacturing purposes. The licence has express restrictions for sale of the products during the term of the agreement.

According to the PRC Copyright Law(中华人民共和国著作权法) and the PRC Computer Software Protection Regulations, if a licensee proceeds to sell software beyond the scope of a licence agreement or otherwise in an unauthorized manner, the licensee should be considered as committing infringement of the software copyright. Software copyright protects the owner of the copyright from unauthorized sale or distribution of the original version of the software or its copies. A software copyright owner who permits others to use the copyright in the software shall enter into a software licence contract. The licensee is only allowed to use the software according to the express scope of use as provided under the software licence contract. If such software licence contract does not grant certain rights in express terms, such rights are reserved to the copyright owner and the licensee cannot use these rights.

In the above scenario, the licensee only sub-licenses the user to use the software for manufacturing purposes and not for sale of the products. If the user proceeds to sale of the products directly, it will be considered as infringing the software in the products. The infringing user should assume the relevant civil liabilities, such as cessation of infringement, elimination of the influence, etc., according to Chinese law.