Every business uses software to manage business processes, communicate with employees, customers and suppliers, and for a variety of other purposes. In most cases, activation of licenses or agreement to "terms and conditions" is required to download, install, or access software products.
There are many 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 that they fully understand their responsibilities and comply with legal terms and restrictions.
What is a software license?
A software license is a contract between the organization that created and provided the application, source code, or related product, and its end user. A license is a textual document designed to protect the intellectual property of the software developer and to limit any claims against it that may arise from its use.
The software license also provides legally binding definitions for the distribution and use of the software. End-user rights, such as installation, warranty, and liability, are also often spelled out in the software license, including protection of the developer's intellectual property.
Most software falls into one of two categories, which have distinct differences in how they are treated under copyright law:
Proprietary - also called "closed source."
Free and Open Source Software (FOSS) - called "open source".
FOSS software licenses - gives the customer rights that include modifying and reusing the software code by providing the actual source code along with the software product(s). This type of open source licensing gives the user the right to modify the features of the software and the freedom to consult the software code.
Proprietary software licenses - do not grant such rights to modify or reuse the code and usually provide the software with only the working code, without the source code. A proprietary software license often includes terms prohibiting "reverse engineering" of the object code in order for the licensee to obtain the source code.
In both cases, the software license most often includes limitations on liability from use of the software product, any reciprocal obligations, such as support, and any warranty or disclaimer of warranty.
If the software is not covered by any license, it is usually classified as:
public domain software - freely available for use and not protected by copyright.
Private unlicensed software - for example, business applications that are still subject to copyright protection.
Licensing of open source and proprietary software may also include additional restrictions and conditions:
Transfer of ownership to the purchaser or retention of ownership by the seller
Any permission to copy, sell or distribute the software
Determination of whether the license is a purchase or lease of the software.
How does software licensing work?
New software users typically enter into an end-user licensing agreement (EULA), which is the legal definition of the relationship between the licensor (the vendor) and the licensee (the user or business). An EULA is a contract that establishes the buyer's rights to install and use the software.