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What Is a Software License?
A software license is a legally binding agreement made between the owner or developer of a software program and the user, outlining how they can use and distribute the product. In this document, the responsibilities of each party are clearly defined, preventing and protecting the developer from infringement of copyright law. Typically, the software license addresses things like:
- If the user can view the underlying source code
- If the user can copy, alter, or redistribute the program
- Where the program can be installed and how frequently
Why Software Licensing Is Important
Before any software can be installed, it has to be legally licensed. Otherwise, it would be considered a breach of copyright law to use the software. For businesses acting as users, being aware of software licensing is particularly important because you don't want to unnecessarily pay for licenses that you aren't using. While acquiring too many can be a waste of a company's resources, having too few can leave the company vulnerable to a costly potential lawsuit. Additionally, software license agreements can make managing the company's software way easier, so it's important that you find the right one.
As a software developer, software license agreements protect the investment of time, energy, and resources, ensuring that you will be able to make a profit from your hard work. Some of the other motivations for obtaining a software license agreement are because it:
- Prevents customers from abusing your software. Without getting a signed licensing agreement, there's nothing stopping your customer from attempting to copy your software for their own benefit. Usually, customers that try to copy software do it so that they can install it on multiple computers, saving them money, but they could also try to sell it for a profit. Either way, this could cost you potential income.
- Allows you to license the software without selling it. You can let customers pay for a license of your software while maintaining all rights to it, allowing you to license it out with restrictions placed on its use. This essentially gives you more control over how your software is both used and distributed and gives you the chance to make more money over time.
- Gives you the chance to disclaim warranties. Customers have certain expectations any time they purchase a product, and your software is no different. By incorporating a disclaimer of warranties in your license agreement, you can require the user to accept the software as available or as-is, putting the risk on them.
- Limits your liability. Limiting your liability is extremely important because it helps protect your company against potential lawsuits.
- Allows you to freely revoke licenses. Including this section of the agreement gives you the freedom to revoke or suspend licenses at any time, and for any reason, helping you keep complete control over the software.
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What Is Included in a Software Licensing Agreement?
Software license agreements can look different depending on the developer and the use, but most of these documents contain at least these four sections:
This section provides information regarding the type of agreement being established, when the agreement goes into effect, and how long it will be active for.
In this section, you provide details about the people or businesses that are entering into the agreement. Aside from clarifying whether each party is an individual or a company, you will need to provide key details, such as each party's:
- Full name.
- Contact information.
The terms of the agreement should be set out in this section, including important information regarding:
- The price of the license and whether it is a one-time flat fee or requires annual fees.
- Access to the coding.
- Whether the license is a site license, meaning it can be used on multiple computers as long as they are at one location.
- Support, maintenance, and refunds that are or aren't offered.
Any terms that are specific to your software or situation and aren't found in other sections of the agreement should be listed here. This section is also where you can place signatures, dates, and a note about any notarization requirements.
Additional Clauses Often Found in Software License Agreements
Aside from the four main sections, there are some clauses that provide important protection for your business, such as:
- Governing law: This is where you establish which state or city will have jurisdiction over any potential legal disputes.
- Termination: Setting guidelines for the event of an agreement termination allows you to establish that you are legally within your rights to revoke the license for any reason and at any time. You can also detail the steps that will need to be taken, such as uninstalling or destroying the software.
- Limits of liability: Including this clause protects you from potential lawsuits from the customer by clearly stating that they are accepting the software as-is and disclaiming any implied warranties regarding the software and its usage.
- Device usage: The need for this section really depends on how you license the software. You could use this opportunity to outline whether the customer is restricted to installing the software on one computer, or whether this is a site license that applies to multiple computers at one location.
- Breach of contract: When entering into a contract, it's always wise to have a clause that states that not adhering to the terms will result in a breach of contract . This gives you the opportunity to set up clear consequences so that you can protect and regain control of your software if the need arises.
- Modification: Unless you are allowing users to freely alter your software, which is inadvisable, you should include a clause that states what defines modification for this specific agreement and any guidelines that you have about how your software can be modified. Most customers understand and expect the need for this clause because you, as the developer, should have control over any changes made to the software and be able to profit from them.
- Rights: To prevent someone from purchasing a license and then stealing key components of your software for their own product, you need to clarify that the rights to the software are your property even after the agreement has been executed, including the name, software copyright, intellectual property rights, and distribution rights.
- Non-transferability: This clause is essential if you want to restrict the license from being transferred to another business or person. Non-transferability clauses are common because transferred licenses prevent you from making money from new customers, but also because you won't have an enforceable agreement with the new party once it is transferred. In most cases, software licenses are only transferrable when the original computer is no longer in use.
- Non-exclusivity: If you're hoping to license your software to other businesses so that you can increase your profits, you should include a clause that clearly states that your software isn't exclusive to that customer.
Legally binding agreements, such as a software license agreement, are essential regardless of what kind of business you're in or the kind of transaction taking place. To keep your product and your profits protected, it's imperative that you clearly lay out your rights and expectations before you allow users to install and use your software.
Meet some of our Software License Lawyers
Matan is an experienced M&A, corporate, tax and real estate attorney advising closely held businesses, technology start ups, service businesses, and manufacturers in purchases, sales, and other exit strategies. Matan works with founders and first-and-second generation owners to strategically transition businesses.
I am a business law attorney with over 10 years’ experience and a strong background in information technology. I am a graduate of the University of California Berkeley, a member of the Illinois bar and a licensed lawyer (Solicitor) of England and Wales. I actively partner directly with my clients or indirectly, as Of Counsel, to boutique law firms to streamline business practices and manage legal risks by focusing on essentials such as - business contracts, corporate structure, employment/independent contractor agreements, website terms and policies, IP, technology, and commercial related agreements as well as business risk and compliance guidance.
Engaging Transactions Attorney with extensive experience in commercial real estate / project finance that possesses a winning blend of subject matter expertise, skill in client relationship management, and practical experience. Leverages a unique mix of legal, strategic, and analytical expertise, consistently meeting and surpassing client expectations. Specialties: Commercial Real Estate Law, Contract Negotiation, Procurement, Lease/Buy/Sell Transactions, Business Consultations, Team Leadership, and Economic Development
Miami-based duly licensed attorney and customs broker with significant experience in various types of supply chain business agreements, as well as experience in entertainment law.
I am a New Jersey licensed attorney and I have been in practice for over seventeen years. My practice mainly consists of representing public entities (municipalities, school boards, etc) and businesses, both small and large. In that capacity, much of work consists of drafting, reviewing and revising contracts.
Jennifer is an experienced business law attorney who has worked with many startups as well as established corporations. With a strong background in contract creation and review, she will be able to ensure you and your business interests are always protected.
I am a corporate lawyer with expertise working with small businesses, venture capital and healthcare. Previously, I worked at large law firms, as well as head attorney for companies. I graduated from Harvard College and University of Pennsylvania Law School. I speak 5 languages (Spanish, French, Italian and Russian, plus English), visited over 60 countries, and used to compete in salsa dancing!