Every business uses software to manage business processes, communicate with employees, customers and suppliers and for many purposes. In most cases, activation of a license or acceptance of “terms and conditions” is required to download, install or access the software product.There are several types of software licenses, with different terms and conditions, support agreements, restrictions and costs. Users need to understand the basics of software licenses to ensure they fully understand their responsibilities and comply with legal terms and restrictions.
To learn more about software licenses, types, advantages and disadvantages, keep reading our article.
What Is a Software License?
Broadly speaking, a license refers to a document entitling you to undertake certain actions under prescribed conditions. As for a software license, its purpose is usually to acquire the right to use the software. The terms and restrictions of such use are set by the developer.
Most often, there are two main categories of software licenses:
- Proprietary licenses: They are designed to limit the user’s ability to interact with the software. As such, these licenses are sometimes called closed-source software licenses. They allow the software developer to establish the proper terms of its use. These include the ability of the user to modify, reuse, or share the software code. Most software licenses fall into this category;
- FOSS licenses: They are also known as open-source licenses. In contrast to closed-source licenses, they provide the user with the ability to modify the software code and reuse or share it. Nonetheless, open-source licenses also have a small list of conditions for permissible use.
There are 2 types of FOSS licenses:
- Permissive: Other developers may use the software, alter, and distribute it, following the minimum requirements;
- Copyleft: The “free license” permits you to freely use the software, make any changes to it, and distribute it. However, the resulting product has to be distributed under the “free license” as well.
Why Is Software Licensing Important?
Software licenses exist to protect the software since it involves considerable effort from the developers to create it. This is an intellectual property issue, so it can only be used by other people if it is licensed. Among the other benefits of software licenses are the following:
- Thanks to the license, being a developer, you can set boundaries on the appropriate use of the software. It will protect your product from misuse by users, which will ultimately boost your profits. Otherwise, the user may try to copy and distribute your software for their own benefit;
- The license enables you to sell the software to customers and retain exclusive rights to it. It gives the creator full control, and you can define how the user may interact with the software;
- The developer is free to revoke or suspend the license at any time, as long as this condition is specified in the text of the license agreement;
- Licensing makes it possible to provide for a warranty disclaimer from the developer of the program. This means that the product is provided to the customer as it is, without any statements, warranties, or representations on the part of the company. The developer is not responsible for the fact that the software may not meet the customer’s needs.
When you plan to use software, it makes sense to have a basic understanding of software licenses. First, it will allow you to avoid overpaying by purchasing the license, which fits best for your firm. On the other hand, you can escape a possible lawsuit for copyright infringement and huge financial expenses.
How Do Software Licenses Work?
To start using the software, you have to enter into a license agreement. It describes the mutual rights and obligations of the provider and the user and sets out the responsibilities of the parties. These end-user license agreements are usually referred to as EULAs for short.
In most cases, you cannot purchase one copy of the software and install it on multiple devices. This violates the terms of proper use. However, vendors do not need to issue thousands of copies of licenses to provide software for every computer. Instead, you can simply choose the type of license you want. They can be as follows:
- Single-user license: Only one person is allowed to use the software. In addition, these licenses may have a limit on the number of devices;
- Multi-user license: By acquiring it, you will be able to install the software on several computers;
- Site license: The number of devices to install the program is unlimited, but they should be located where the license specifies. This category of licenses is usually purchased by businesses.
The content of the EULA may vary depending on factors such as the intended use of the software or the type of it. Generally, there are, however, some universal clauses. Primarily, it is the point at which the license agreement becomes legally enforceable. Typically, this is determined by the end-user’s actions such as clicking a button or using the software itself.
What Is Included In a Software Licensing Agreement?
Generally, a license agreement is a written document between the developer or the owner of the software and the user. Its scope and content depend on various aspects, ranging from the goals of the developer to the nuances of the intended use of the software. Nevertheless, there are a few basic sections found in most licensing agreements.
This section includes such basic information as the type of license agreement, its expiration date, and the effective date.
It contains details about the individuals or legal entities entering into the license agreement.
It is the main section containing such key clauses as:
- The price of the license;
- Access to the coding;
- The type of the license and how many computers it is for;
- Availability of support, maintenance or refunds, etc.
This block should list the proper terms and conditions for using the software, as well as important information not covered in the previous sections. Furthermore, additional clauses may provide a date, a signature, and a note stating that notarization is required.
Basic Types of Software Licenses
To date, there are seven main types of software licenses, on the basis of which you enter into license agreements.
- Proprietary license
This class of licenses allows the developer to retain the maximum amount of rights to the software after it is released. At the same time, the end-user’s rights are limited. They have no access to the program code and cannot distribute it.
A characteristic feature of the proprietary license is that the user has to accept its terms to use the software.
- Permissive license
Such licenses are sometimes also called Apache-style or the Berkeley Software Distribution (BDS)-style licenses. In contrast to proprietary licenses, the terms of permissive licenses are more flexible. The user can use and distribute the software, as well as modify it. However, all these are only possible if the conditions set by the developer are met.
The permissive license is often chosen by those who are interested in developing open-source software but want to retain their copyrights.
- Public domain license
The software with such a license can be used, shared, and modified without any restrictions from the developer. In addition, end-users have the right to use the source code of the software to create new projects.
- Copyleft license
Under such a license, the developer provides the user with the right to use the program, as well as to modify its code to make other applications. Distribution of the new product is possible for any purpose, but only under a copyleft license. In this case, the person, who has developed the derivative software, is obliged to publish the source code of their program, allowing one to make changes to it.
- Lesser general public license (LPGL)
This type of general public license created by the Free Software Foundation (FSF) allows software developers to use a licensed program. They can freely include its components in their own software and license it without any restrictions. The release of the source code used to develop the new program is not required. To comply with the law, however, end-users should have access to the source code so that they can modify the software.
- Trade secret license
Trade secrets include non-distributable, proprietary software, which is not subject to licensing. For example, forensic software and other business-related applications. Such data is often sensitive and protected by intellectual property law.
Besides, trade secret licenses may include cases of unlicensed software leakage, which is protected by copyright.
- White labels
The essence of this licensing method is to rebrand the software to distribute it later. While retaining ownership, the developer transfers a copy of their product to a third-party agency, which sells it under a different brand name. And the developer makes a profit on sales. Nonetheless, agreements of this kind are usually not made public to avoid jeopardizing the company’s income.