Evaluation Agreements: Guidance for these Short but Useful Contracts

Evaluation agreements grant a temporary license to use a product for a limited time. They can also be called ‘pilot,’ ‘trial’ or ‘beta’ agreements more or less the same thing. Once the term of agreement is over, the buyer either returns the product and the license ends, or the buyer pays for the product for it to be used long term. To learn more about evaluation license agreements, read on.

Can the nondisclosure agreement (NDA) be used to cover trials?

There’s no budget to write evaluation licenses and I’m in a rush.

Good question. An NDA only relates to confidentiality and does not cover intellectual property in depth. The potential buyer who receives software or other technology could make changes to the product, copy the idea, come up with a great improvement, or design a new product using the beta product’s ideas. The NDA does not really talk about these issues, because it is more about confidentiality than licensing. (Free NDA template here.)

So using two agreements – one for discussions and one for evaluation is a matter of expediecy – if you’re just having a few conversations and then the business doesn’t proceed, then it’s only necessary to cover confidentiality. If the conversations are positive, then sending over a test product, an MVP or prototype to the buyer or investor is a logical next step. At this stage, it’s important to retain and protect the intellectual property in the product. The sample free evaluation license, available here, provides that with a short and quick document.

How does the evaluation license protect IP?

The sample evaluation license agreement protects intellectual property by

• Clearly stating what the buyer (evaluator) is permitted to do when trying the product.
• Expressly prohibiting activities that can damage the product owner’s rights
• Allocating each party’s liability (responsibility) for any problems that may come up during the trial, and
  
• Defining important legal details such as which country’s law is governing.

Are there different types of evaluation licenses?

Yes, just as with nondisclosure agreements (more info here), it’s helpful to be aware of the typical flavours available. For example, it’s common for apps to offer a free trial period with a cancelation right before the subscription fee kicks in. If the fee gets paid, then a long-term arrangement is activated. In this case, the evaluation agreement is really going to be the main business terms that license the product.

In contrast, the downloadable evaluation license available on our website is a short-term contract and not a long-term product offer. Why? Because for technology or products that are still in beta, the trial process is often part of product development so the owner may or not be ready to commercialise the product. Best to make a short arrangement so that maximum freedom is available as the product progresses.

Key takeaways

To state the obvious, new products and innovative technology are valuable! If you’re an inventor or start-up, don’t put your hard-earned, cherished output at risk of misappropriation or misuse. Just as important, if you’re a customer looking to buy new and unproven technology, testing it out under defined parameters is common sense. It is really in both sides’ interest to sign a balanced, concise evaluation and trial agreement.