Software License: Definition, Terms, How it Works
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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 an individual user or an organization, outlining how they can use and distribute the product. In addition to setting general terms on how software can be used or distributed, a software license also prevents and protects 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 proprietary 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.
Image via Unsplash by @zanilic
How Software Licensing Works
You retain complete ownership of the product and control its use as a software license holder. Additionally, you dictate the terms of distribution, select the types of businesses and organizations that use the software, and continue to sell it to as many customers and clients as you wish. A software license agreement is a legally binding contract between the software’s developer and end-users. These contracts are enforceable as long as they are clear and mutually agreed upon at the time of payment or when the user begins using the software.
What are Different Types of Software Licenses?
Most businesses keep software licenses in a text document and contractually restrict a user’s claims against a developer. Additionally, software licenses may contain restrictions on various end-user rights, such as installation, warranties , and liability. You can find most software licenses on the developer’s site or within the interface, although some developers may provide the license in other ways.
The majority of software and their agreements fall under two broad categories of licenses:
- Type 1. Proprietary software licenses: Proprietary software licenses limit a users’ legal ability to change software code. A significant segment of software licenses falls under this category, as most commercial software licenses restrict an end-user’s access and define acceptable use terms. They also provide the most protection for developers.
- Type 2. Free and open-source software (FOSS) licenses: FOSS licenses are contracts that permit end-users to share, modify, use, and reuse a software product’s source code. FOSS licenses may place some limits on modifications and distribution, but they generally vest users with considerable authority over their use.
Developers can also donate their software’s rights to the public domain. In these cases, the software remains unrestricted and unprotected against copyright infringement while becoming freely available to the public.
Private software not covered by a license is still subject to copyright restrictions. It’s essential to understand the distinctions between ownership and licensing since both types confer rights on users but not ownership. Carefully consider your legal options when determining what is suitable for you.
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:
General Information
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.
Involved Parties
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.
- Address.
Terms
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.
Additional Details
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.
What Are Software Licenses Used For?
Companies use software licenses to protect their legal rights and meet requirements and provisions of local laws. They ensure that there are no misunderstandings between the licensor and licensee. The license terms specify the extent to which an application vendor can access the user’s personally identifiable information.
These agreements safeguard and prevent the misuse of personal information such as credit card information, geolocation data, or healthcare information. You can also use software licenses when allowing other companies to relabel or remarket a component of your software products under their name.
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Darryl S.
Darryl S.
I offer flat/fixed fees rather than hourly work to help lower your legal costs and align our interests. I specialize in contract law and focus on making sure your contract is clear, protects your interests and meets your needs. You can expect fast, straightforward communication from me, making sure you understand every step. With my experience, you'll get a detailed review of your contract at a fair, fixed price, without any surprises. I have over 30 years of business and legal experience that I bring to your project. I graduated from The University of Texas School of Law with High Honors in 1993 and practiced at Texas' largest law firm. I have founded companies and so understand how to be helpful as both a lawyer and business owner.
"Excellent attorney! D was thorough, communicative, very helpful, and knowledgable about the relevant SaaS topics. Really appreciate his ethical and practical approach to the law--specifically lets you know if certain elements are unnecessary extras charges. I look forward to working with him and his team again in the future!"
Terence B.
Terry Brennan is an experienced corporate, intellectual property and emerging company transactions attorney who has been a partner at two national Wall Street law firms and a trusted corporate counsel. He focuses on providing practical, cost-efficient and creative legal advice to entrepreneurs, established enterprises and investors for business, corporate finance, intellectual property and technology transactions. As a partner at prominent law firms, Terry's work centered around financing, mergers and acquisitions, joint ventures, securities transactions, outsourcing and structuring of business entities to protect, license, finance and commercialize technology, manufacturing, digital media, intellectual property, entertainment and financial assets. As the General Counsel of IBAX Healthcare Systems, Terry was responsible for all legal and related business matters including health information systems licensing agreements, merger and acquisitions, product development and regulatory issues, contract administr
"Terry was responsive and helped get the document to the first phase of negotiations. Document had a few typos but otherwise good."
Briana C.
Legal services cost too much, and are often of low quality. I have devoted my law practice to providing the best work at the most affordable price—in everything from defending small businesses against patent trolls to advising multinational corporations on regulatory compliance to steering couples through a divorce.
"Briana was responsive and quick to put the draft together. It has been a pleasure working with her!"
Nicholas M.
Nicholas Matlach is a cybersecurity expert (CISSP) and an attorney who is dedicated to helping small businesses succeed. He is a client-focused professional who has a deep understanding of the challenges that small businesses face in the digital age. He also provides legal counsel to small businesses on a variety of issues, including formation, intellectual property, contracts, and employment law.
"Great work, response and informative consultation made for a smooth and simple process."
Rhea d.
Rhea de Aenlle is a business-savvy attorney with extensive experience in Privacy & Data Security (CIPP/US, CIPP/E), GDPR, CCPA, HIPAA, FERPA, Intellectual Property, and Commercial Contracts. She has over 25 years of legal experience as an in-house counsel, AM Law 100 firm associate, and a solo practice attorney. Rhea works with start-up and midsize technology companies.
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Sara S.
With over eleven years of intellectual property experience, I’m happy to work on your contract problem. I am very diligent and enjoy meeting tight deadlines. Drafting memoranda, business transactional documents, termination notices, demand letters, licenses and letter agreements are all in my wheelhouse! Working in a variety of fields, from construction to pharmaceutical, I enjoy resolving any disputes that come across my desk. I will prioritize your project, big or small. Please be ready and prepared with all relevant documentation so we can get started as soon as you click HIRE! Hourly rate projects will be billed hourly in accordance with the timesheet. Flat rate projects will be billed in segments. Choosing an hourly or flat rate is up to you. Absolutely no refunds.
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July 16, 2023
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After graduating law school in 2015, I practiced for a few years in LA, then becoming a contractor for large litigation projects. Now working from home in Kansas, I can offer LA service at Midwest prices.
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Browse Lawyers NowLawyer Reviews for Software License Projects
Software Administrative Contract
"project was delivered on a timely basis"
Review JrSOCtriage License
"Muhammad did great work very quickly and was responsive to my time needs at his own expense. I am grateful."
Review Software TOS and Privacy policy
"Allen was an excellent communicator who completed the work quickly and professionally. I greatly appreciated his expertise and would recommend him without hesitation."
Reply From Allen L.
Thank you for the kind review — I'm glad I could turn this around quickly and get you what you needed. I appreciate the recommendation, and I'm here if any future software agreements come up. -Allen
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Software License
Tennessee
What is a breach of contract? I have signed an EMR software license.
I am a nurse practitioner and I have signed a contact with a company to use their software (EMR) for my Upcoming clinic. Even though the clinic still awaiting credentialing, i have been paying monthly fees. During recent implementation process, i had a conflict with the salesman and he informed me that i have signed a 5 year contract and i am subject to deal with collection agency. I have stoped the process and not trusting to work with this company. The company states that i have a obligation to pay for 5 years if i cancel the contact or to continue to work with them. What should i do?
Forest H.
Your options in a long term services contract will depend heavily on the contract you signed. Rarely are there no options to end a contract early but it would require reviewing the contract and potentially negotiating with the company.
Business Contracts
Software License
California
What invalidates a perpetual software license?
What would invalidate a perpetual S/W license under a user agreement that was purchased over 20 years by the customer under a services contract for a unique legacy test system still in use? Would the customer be required to purchase an annual subscription S/W license under a new contract when they are not receiving any additional enhancements, features or benefits for legacy S/W maintenance, training or upgrades since it in stalled on legacy Linux operating system computer workstations? This legacy S/W still operates under it intended use and functions correctly as advertised. Replacing the legacy S/W with new subscription S/W license would also force the customer to purchase new computer H/W at an additional cost and impact other legacy H/W and S/W that interfaces the legacy perpetual S/W. This would create additional S/W develop to test and modify existing code to validate the change would still meet it original intent and test capability. I am curious if this proposal would violate any federal acquisition or ethics rules in attempting to force the customer to pay for a S/W license that are not required to perform its current function providing no additional value because the company has changed their business rules to follow the current trend to charge customers for subscription based S/W license? Their justification is they are charging another customer an annual subscription S/W license so we should also be required to go along with their new business rules.
Octavia P.
A perpetual license generally authorizes use of a specific version of a software program indefinitely with the payment of a single upfront fee. However, software companies usually limit supplemental support and updates to a specific time (i.e., three years) and when that period ends, gives the customer the option to use the current version with or without paid support. Consequently, if there is a perpetual license in place your company should be free to continue to use your particular version of the software indefinitely without the requirement to move to a subscription-based plan unless your company requires tech support or any type of update/upgrade to continue to use the software which does not seem to be the case here. Nevertheless, the original user agreement and any ancillary agreements should be reviewed to determine factors such as the actual type of license and the powers/rights of the software vendor and your company to terminate or invalidate the license. If you would like a legal review of the user agreement/services contract you can post a contract review project on this platform, based on your question, to receive and compare multiple proposals from licensed attorneys who are registered and verified. Once you receive a response from an attorney you will be able to correspond through the platform to help with your decision to hire that attorney for the project.
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VectorViewer Product License Agreement
Location: New Jersey
Turnaround: Less than a week
Service: Drafting
Doc Type: Software Agreement
Number of Bids: 7
Bid Range: $500 - $1,500
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