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What Is A Software License (All You Need To Know)

A software license is a legally binding agreement where the software owner allows another party to use or distribute the software.

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Let me explain to you what software license is all about and why it’s important!

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What Is A Software License

A software license is essentially a legally binding agreement between a software owner (licensor) and another party (licensee) providing the parameters for the use and distribution of software.

In other words, a software license grants a party the right to use a software product based on the limitations established in the license agreement.

Generally, software license agreements grant the licensee the right to use the software product, potentially make copies of the software product based on certain conditions, and determine the scope of the license.

A software license can be a simple document for smaller software products or be highly complex for enterprise-grade software products.

Quite often, the software product comes with a license key or product key used to activate the software.

This ensures that the software product is not being illegally copied on other machines in violation of the software license agreement.

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Why Are Software Licenses Important

Software licenses are important legal documents as they specifically outline the rights and obligations of the contracting parties (licensor and licensee).

The licensor will require a software license to be entered into before allowing another party use the software product to ensure that it protects its software, intellectual property rights, or trade secrets.

In addition, the software owner will outline the restrictions and limitations in the use of the software product.

For instance, the licensor may not want the licensee to transfer the license to another entity even to a subsidiary or affiliated entity.

Another limitation will be the number of machines or devices on which the licensee will have the right to download and use the software product.

Another key protection for software vendors is to limit their liability vis-à-vis the licensee.

Software licenses will have various protective provisions such as liability caps, disclaimers, and exclusion clauses.

The software license agreement is also important for the licensee as it provides the scope within which the software can be used, how the vendor will support the licensee in case of software defects or issues, and be protected from infringement claims.

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Types of Software Licenses

There are different types of software licenses that can form the basis of the legal protections afforded to licensors and licensees.

Here are the six main types of software licenses:

  • Public domain licenses
  • Permissive licenses
  • Copyleft licenses
  • Non-commercial licenses
  • Proprietary licenses 
  • Trade secrets 

A public domain license allows anyone to freely use the software, modify the code, incorporate the code in another software, and do pretty much anything with it (for example: PD, and CC0 licenses).

Permissive licenses grant users usage rights, the right to relicense, and to proprietize the software (for example: MIT, Apache, MPL licenses).

Copyleft licenses grant users usage rights but prohibit the proprietization of the software (for example: GPL, AGPL licenses).

Non-commercial licenses are software products that are not meant to be used for commercial purposes and may be combined with copyleft licenses (for example: JRL and AFPL licenses).

Proprietary licenses are those that are copyright protected and the software vendor defines the software licensing parameters (these are software products that you are required to purchase and use according to the software license terms and conditions).

Trade secrets are software products that are created by companies internally and strictly for their internal use.

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Software License vs Software-as-a-Service 

What is the difference between software license and software-as-a-service (SaaS)?

Although both software licenses and SaaS relate to the use of a software product, they are very different in nature.

Typically, the term software license is referred to the licensing of software products that are implemented on the client’s hard drive or internal networks.

In essence, the software product is physically shipped to the client (either on a disk or digitally) and the client downloads the application on its private system.

The client will typically pay a one-time fee for the software product and then pay an amount for maintenance and support in case there are issues with the software over time.

On the other hand, SaaS is when a software developer hosts the software product and grants its clients the right to use the application.

The client pays the software developer a certain amount of money giving it the right to use the software for a certain period of time.

In this case, the client will not receive physical delivery of software but will access the application on the vendor’s network.

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Commercial Software License

A commercial software license is a type of software that allows its creators or its users to use the software to make money.

In other words, the commercial software license describes the purpose of the software.

A commercial software license is not the same thing as proprietary software (even though many wrongly assume).

Proprietary software is a software product where the creators do not allow others to see or obtain the source code.

In essence, proprietary software is protected and kept confidential.

Of course, many companies will use their proprietary software for commercial purposes to make money from it.

In this case, the software is both proprietary and for commercial use.

There is also a non-commercial license which is a software product that is not intended to be used to make money.

This type of software product can be obtained for free or at a charge but will not be able to be used commercially.

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So there you have it folks!

What is a software license?

In a nutshell, a software license is a contract between a software owner and a software user where the parties’ rights and obligations are defined.

The objective is to protect the licensor’s intellectual property, define how the software can be used by end-users, and outline the end-users’ rights and obligations.

Generally, the term “software license” is used to refer to instances where the end-user receives a physical copy of the software product.

This is in contrast with a software-as-a-service model where the user obtains the right to use and access the software as opposed to downloading a copy of the application on its systems.

There are different types of software licenses, such as public domain licenses, lesser general public licenses, permissive licenses, copyleft licenses, proprietary licenses, and trade secrets.

If you’re negotiating a software license or need one to be drafted for you, it’s important that you work with lawyers that are qualified in this area to be able to protect your rights.

Good luck!


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