Software License

What Is a Software License?

A software license is a contract between the company that created and provided an application, underlying source code, or related product and the end user. The license is a text document designed to protect the intellectual property of the software developer and to limit any claims against it that might arise from the use of the software.

A software license also contains legally binding definitions for the distribution and use of the software. End-user rights, such as installation, warranties, and liability, are also often set forth in the software license, including protection of the developer’s intellectual property.

Most software falls under one of two categories that have distinct differences in how they are viewed under copyright law:

  • Proprietary — also referred to as “closed source”
  • Free and open-source software (FOSS) — referred to as “open source”

Free and open-source software (FOSS):

give rights to the customer that include modification and reuse of the software code, providing the actual source code with the software product(s). This open-source type of licensing affords the user authority to modify the software functions and freedom to inspect the software code.

Proprietary software licenses:

provide no such authority for code modification or reuse and normally provide software with operational code only, and no source code. A proprietary software license often includes terms that prohibit “reverse engineering” of the object code with the intention of obtaining source code by the licensee.

In both cases, the software license usually specifies limitations of liability for the use of the software product, mutual obligations such as support, and warranties or warranty disclaimers.

Where software is not covered by any license, it is normally categorized as:

  • Public domain software — freely available for use and not copyright protected
  • Private unlicensed software — such as business applications that still falls under copyright protection

Open source and proprietary software licensing may also specify additional restrictions and terms:

  • Transfer of ownership to the buyer or retention of ownership by the seller
  • Any authorization for copying, selling, or distributing the software
  • Definition of whether the license constitutes purchase or leasing of the software

How Does Software Licensing Work?

New users of software typically enter into an End User License Agreement (EULA), which legally defines the relationship between the licensor (vendor) and the licensee (user or company). The EULA is a contract that specifies the rights of the buyer when installing and using the software.

Each EULA contains a clause that specifies when its terms are activated by an end user. This may be the moment the user opens the product packaging or, for example, when the user clicks a button agreeing to accept the terms of the EULA to access the product.

Cloud-based applications such as Software as a Service (SaaS) will often include license details in EULAs including:

  • Monthly or annual charges per user
  • Duration of the agreement
  • Terms of cancellation of the agreement
  • Recovery of any charges if canceled during the agreement

Another option for software licensing is for a software developer or company to grant permission to sell or distribute the software under another party’s trademark. The developer retains ownership, but the rebranding company is allowed to resell the software product. This method of licensing is known as “white labeling”.

What Are the Types of Software Licenses?

There are five main software license categories or types used to cover different kinds of software and various business arrangements. These encompass a wide spectrum of licensing scenarios, from free software (public domain) to paid commercial software (proprietary).

Between these two extremes, there are also three categories (GNU/LGPL, permissive, and copyleft) that apply to various forms of open-source projects. Failure to follow the terms and conditions of an open-source license can lead to revealing trade secrets or even legal action from the project’s developers.

5 Types of Software Licenses

1. Public Domain License

When software is defined as public domain, anyone can use and modify the software without restriction. This is a “permissive” license that allows the code to be adopted into applications or projects and the software to be reused as desired.

For many reasons, companies must exercise caution when adopting public domain software into projects or other critical applications:

Public domain software may not always adhere to best programming practices or meet the standards for secure software that the application requires.
Software that does not fall under certain license terms is not always public domain code. Make sure the software is truly in the public domain before copying, reusing, or redistributing it.

2. GNU/LGPL — GNU Lesser General Public License (LGPL)

Under an LGPL license, developers have the right to reference open source libraries within their own software. The resulting code can be licensed under any other kind of license-even a proprietary one-if projects are compiled or linked to include an LGPL-licensed library.

If any part of the library is copied into code or modified, the terms of the original LGPL license apply to the developed code that uses the library.

3. Permissive

This type of license is one of the most common and popular among open source software licenses. Under a permissive license-also called “Apache” or “BSD-style”-there are few restrictions or requirements on the distribution or modification of the software. Another variant of a permissive software license is the “MIT” license.

Variations of permissive licenses include different requirements for preserving license notices and copyrights for the software, as well as how the software may be used (commercially or privately), trademark requirements, and other provisions.

4. Copyleft

The terms of this license are restrictive — known as reciprocal licenses. Under the terms of a copyleft license, the licensed code may be modified or redistributed as part of a software project if the new code is redistributed under the same software license.

This means that if the code included in the software product was intended as “for personal use only”, the new product being redistributed must carry the same designation/restriction.

Since the original software included in the new project allows modification and redistribution, this may not be the best license for software developers, since the resulting code must also carry the copyleft license type — including source code availability.

5. Proprietary

These software licenses make the software ineligible for copying, modifying, or distribution. This is the most restrictive type of software license, protecting the developer or owner from unauthorized use of the software.

Software copyright

Software copyright is the application of copyright law to machine-readable software. While many of the legal principles and policy debates surrounding software copyright have close parallels to other areas of copyright law, there are a number of unique issues that arise with software. This article focuses primarily on issues that apply specifically to software.

Software copyright is used by software developers and proprietary software companies to prevent unauthorized copying of their software. Free and open source licenses also rely on copyright law to enforce their terms. For example, copyleft licenses require licensees to share their changes to the work with the user or owner of the copy under certain circumstances. Such an obligation would not apply if the software in question were in the public domain.

The Difference Between Buying and Licensing Software

When you buy software, you get a copy of the software and a license to use it. You don’t actually own the software — the ownership rights are held by the software company, and you’re still restricted by the terms of the license.
A software license gives you the right to use a software product. It also governs the use of the software along with copyright laws that prevent unauthorized distribution or copying of the software. A license may specify, among other terms, whether you may install the software on more than one computer and whether you may make backup copies of the software.

Even free software, also called freeware, may have a license that dictates its use. This is generally to prevent a user from modifying the software to resell it.

Before installing an application, you should always read the license. Most vendors aren’t willing to negotiate or change a software license. If the license contains unfair or unreasonable terms, your only option is to return the software to the vendor.

What Is a Software License Agreement?

A software license agreement is a legal document that specifies several important terms between a software company or developer and a user to allow the use of the software.

These terms are intended to protect the developer’s rights to its intellectual property and limit claims against it for potential damages resulting from the use of its software. In some cases, pricing and payment terms may also be included, although this is often covered in a separate document. The primary purpose of the agreement, however, is to provide detailed ground rules for use of the software:

  • Where the software may be installed and how many instances may be installed.
  • How the software can be used.
  • Whether the software may be copied, modified, or redistributed.
  • Any copyrights that apply to the software.
  • Ownership of the software — most often specifying that the provider retains all rights of ownership.
  • Duration of the terms of the agreement.
  • What constitutes correct usage of the software.

What Are Software Licenses Used for?

Developers release software for a number of reasons, whether it is to demonstrate a new idea, to provide value to as many people as possible, or for financial and economic gain. To ensure that all parties involved in the process can benefit from the software, the conditions for its use must be clearly defined.

These terms and conditions are expressed as a licensing agreement. Software licenses are critical for software providers and users alike for many reasons:

  • Written authority for use of software — protects business users and individuals from liability and copyright infringement claims
  • Clarification of the number of eligible users of the software
  • Definition of what is included — maintenance, upgrades, support
  • Warranty agreements and problem mediation process
  • Distribution permission and limitations
  • Use rights, such as copying or modifications
  • Copyright definition, including software and any documentation
  • Dates — for installation, training, support assistance, and license duration
  • Termination terms, penalties, financial liabilities
  • Any performance guarantees and remedies

Software licenses define the complete agreement between the licensor and the licensee. The goal is to clarify the relationship, both legally and technically, so that there are no surprises or guesswork about responsibilities during the term of the agreement.

In the case of mobile software, the licensing terms specify what sensitive personal information of the user stored on the device the application provider is allowed to access. These agreements are designed to protect personal information such as financial IDs, location or health data and prevent its misuse.

How Much Does a Software License Cost?

Software licensing prices vary widely depending on the type of software, how it is deployed, and the vendor’s cost to develop the software. SaaS vendors typically offer a subscription model where the fee is based on the number of users. This provides businesses with a high degree of cost control and flexibility.

Software licensing prices vary widely between software providers that offer complete on-premise enterprise solutions and those that provide open source objects for building internal applications and web functions. While these costs may seem unnecessary, much like an insurance policy, they provide protection when you actually need it.




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