What Is An Enterprise License Agreement?

Enterprise license agreements (ELAs) are legally binding agreements between companies and software vendors. Also known as enterprise service agreements, ELAs typically give companies unlimited use at a discounted rate for a period of time. They can provide organizations several benefits, such as more accurate budgeting, simplified software licensing management, reduced software spend, and improved efficiency. In return, software vendors get to sell more of their products with fewer contracts.

Read on to learn more about enterprise license agreements and how to create one. You’ll also learn how you can use contract management tools like Ironclad to draft and manage enterprise license agreements.

The purpose of ELAs is to align software vendors’ and companies’ interests by streamlining the software acquisition process. ELAs achieve this by:

• Creating a scalable system that aligns with your organization’s objectives
• Optimizing tech spend and lowering the costs of asset management and software compliance
• Providing Geographic Information System (GIS) and mapping services when and where it’s needed
• Uniting all software licensing agreements (SLAs) into one single organization-wide agreement.

You’re likely to encounter ELAs if you’re working at software companies. Big-name companies like Cisco, Rosetta Stone, and VMware are particularly likely to use ELAs since they routinely enter into agreements with large companies that use hundreds of apps at the same time.

Keep in mind that ELAs aren’t one-size-fits-all solutions. The specifications of each enterprise services agreement differ greatly depending on the size, industry, and needs of your company. However, there are some elements that all ELAs have in common. We’ll cover these below.

Here’s what you need to include when creating an enterprise license agreement.

Parties

Like all other contracts, you need to list out the full legal names of the parties to the agreement. The names must match the parties’ official documentation (i.e., Articles of Incorporation for companies and driver’s license for individuals).

Period

Most ELAs last anywhere from three to five years. You can choose to include an out or grey year, which is an additional discounted year at the end of the contract. After the grey year, you can revert to full-price or sign a new ELA with the licensee.

Minimum net purchases

Most ELAs require licensees to meet a minimum value before they can enter into an ELA with the software company. For instance, you can require licensees to buy a minimum of $250,000.

Definitions

Include detailed definitions of the terms you use throughout the ELA. These typically include the following:

• Authorized end user: This typically refers to the employees, students, and other personnel designated by the licensee as their users. Make sure you’re both on the same page when defining this term. Otherwise, some people won’t be able to use the software.
• [Company name] Product: You should also define what products you’re licensing to the licensee. For example, if you were developing a language learning product, you should mention that “Product” refers to online products, companion materials, and also any related training, documentation, products, and materials, including new updates and new releases of anything that’s made available to the licensee.
• Deployment: Define what “deployment” refers to in your contract. Does the ELA begin as soon as the licensee receives the hardware? Or, does it only begin after they install the software?

Important dates

ELAs are very strict about deployment and reporting dates. Include a schedule or timeline showing when the licensee needs to deploy certain software and what the cut-off dates are. Consider attaching the schedule or timeline as an Exhibit if it gets too long for the ELA.

Security and passwords

Many software vendors that offer ELAs will provide authorized end users with passwords to access certain materials. If your company does this, use this section to detail the process of providing the licensee with a username and password for each authorized end user. Be as detailed as possible and include who gets to appoint enterprise administrators to administer authorized user access.

To ensure that end users are using your software properly, you should include language that gives you the right to replace existing passwords with new passwords. You should also have the right to suspend authorized end users who are misbehaving or otherwise disregarding the terms of use.

License substitutions

You can give your licensee the ability to change or substitute their license. This is an attractive option for many companies, particularly companies that expect a lot of growth and change in the next three to five years. 

To cover your bases, make sure that this clause clearly outlines how and when exchanges can happen. You should also discuss what happens to the software units that your licensee doesn’t deploy. Specify whether they can be converted into credits or used in other products and services.

Usage restrictions and rules

Outline how the licensee can use the software and what kind of updates and support they’ll get. Here are some typical things that ELA restrict licensees from doing:

• Access or use any part of the product for any purpose other than what’s specified under the ELA
• Modify, comply, alter, translate, change, or collect information that can be used to create derivative works from all or any part of the product
• Permitting others to indirectly or directly revere compile, reverse assemble, or reverse engineer any part of the software

To make sure that the licensee is keeping up their side of the deal, you should state your right to request audits of the licensee’s usage and deployment.

Ownership of intellectual property

State that you own all of the rights in the product you’re licensing to the licensee. Be as specific as possible and list out all of your intellectual property. This may include:

• All software, interfaces, photographs, animations, music, video, text, and audio in your product
• New functionalities or features suggested by the licensee that you decide to adopt for your product
• The trade look, dress, and feel of your product
• URLs that incorporate any of your company’s trademarks
• Your company’s trademarks and logos

Support

Talk about the support you will offer licensees. Include the following:

• Hours of operation
• Means of access (e.g., web portal, email, phone)
• Your right to make changes to these provisions at any time

Termination

Establish how the parties can terminate the agreement. To encourage the licensee to follow the terms of the ELA, you should consider terminating the agreement if the licensee fails to comply with any terms of this agreement.

All the rest

Like other types of agreements, you should include the following clauses:

• Default
• Dispute resolution
• Jurisdiction

With so many clauses to draft, ELAs can be tough to write. Managing them can be even more difficult, particularly if you’re already up to your nose in contracts.

If your organization is still storing contracts in hard drives, physical cabinets, and USBs, consider getting digital contract management tools like Ironclad. Unlike traditional contract management tools, Ironclad comes with an arsenal of powerful tools that will transform the way you see contracts forever.

For example, our Data Repository empowers you to write, draft, and manage ELAs. Zero-training-required and codeless, Data Repository lets you bring in contracts from all over your company. You can also let team members from any department access your ELAs. This will break down your organization’s contract silos and give Legal the help they need to work on ELAs that concern more than one department. Storing all of your ELAs on a centralized hub will speed up the process of answering questions about upcoming contractual obligations and deadlines. 

Ironclad also comes with a Workflow Designer that lets you draft and approve automated workflows for ELAs. A user-friendly tool that anyone can learn to use within a few minutes, our Workflow Designer allows Legal and other team members to create and launch ELAs and approval processes within minutes. They just need to:

• Upload a template
• Tag fields that need to be provided
• Add signers and approvers

What’s more, all of our templates are up-to-date and contain guardrails to ensure 100% automatic contract compliance. This means you can rest assured that your ELAs will comply with relevant legislation. If you want to change our template language, however, you can easily do that. You can also tweak approval routing workflows and ship updates instantly.

An enterprise license agreement or ELA is a licensing agreement that allows licensees to deploy software across their organization for a fixed cost and period of time. Many software companies use ELAs to cut costs and simplify the process of licensing software to licensees.

ELAs can be quite complicated if you’re using them to license complex software or services. That’s why you should get Ironclad Editor. An enterprise-grade contract management software, Ironclad will boost business agility and bring processes, data, and teams together to make faster and better ELAs. With our Data Repository, Workflow Designer, and other functionalities, you’ll be able to keep track of deadlines, break down contract silos, answer contract questions within minutes, and draft complex ELAs without a single line of code.

Interested in experiencing the Ironclad difference? Try our sandbox demo today to experience the Ironclad difference.