What Is Software Licensing?

When a software company releases a new software application, that software

is protected by copyright under United States intellectual property laws.

As owners of that copyright, software companies have the exclusive right to

control the usage and distribution of the applications they create.

A software license is a legally binding agreement between a software vendor

and a business or IT organization that wishes to use their software products. It
establishes rules, requirements, and guidelines for both parties, especially
pertaining to how the licensee may use the software, how usage costs will be
determined, and the extent to which the licensee may copy, modify, or
distribute the software.

Why software licenses are important

A software license establishes the rights of all parties involved with the
software: the author, the provider and the end users. It defines the relationship
between the software company and users and explains how they are
protected.

How license agreements protect developers

 They protect developers' intellectual property and trade secrets based

on copyright laws.
 They limit what other parties can do with the covered software code.
 They limit the liability of the vendor.

How license agreements protect users

 They define what users can do with software code they did not write.
 They establish how users stay in compliance with software licenses,
protect themselves from infringement claims and limit their legal
liability.
 They help users maintain a positive relationship with software
developers and vendors.
  They prevent overspending on licenses by establishing clear parameters
of how many licenses an organization needs.

What Are the Different Software License Types?

Getting familiar with software license types can help you make smarter
decisions when negotiating software licensing agreements and keep your
organization in compliance with software contracts.

To help you get started, we’ve put together this list of the most common
software license types that IT asset managers need to know. We’ve divided our
list into two categories: open source software license types, which are free, and
proprietary software license types, which are paid licenses.

Open Source Software Licenses

The key distinction between open source and proprietary software is how they
treat access to the source code. The term “source code” refers to the actual
text documents containing the code for the application, written in the
programmer’s chosen language.

With access to the source code, a business or IT organization can easily inspect
the application’s functions and make changes based on their business needs.

Open source licenses are ones that allow software programs to be used,
distributed, and modified by the end-user. A true open source application
should comply with the Open Source Definition, a set of 10 general
requirements open source software.

There are many different open source software license types.

Public Domain License

A programmer or company that creates copyrighted software can choose to

forego that copyright by donating the software to the public domain.
Software in the public domain can be freely shared, modified, distributed,
commercialized, and relicensed by the end user with essentially zero
restrictions.

Literary works like the plays of William Shakespeare and famous novels like A
Christmas Carol (Charles Dickins) or The Time Machine (H.G. Wells) are also
part of the public domain. That means anyone is free to reprint, reproduce,
recreate, or reinterpret these works, sell them, and make a profit.

The intellectual property associated with these works, as with open source
software, belongs to the public.

Permissive License

A permissive license is like a public domain license, but it may contain limited
restrictions on how the end user may modify or distribute the software.

The benefit of permissive licensing for software creators is that it allows them
to retain their intellectual property and maintain some control over how their
software is used while continuing to support open-source development and
even licensing their product for free.

There are several sub-types of permissive software licenses, each with their
own specific terms and conditions for how the licensed software may be
modified or redistributed.

The Apache License 2.0 was developed by the Apache Software Foundation in
2004. The document grants individuals and organizations permission to use,
reproduce, or modify Apache Software products. It also establishes additional
requirements for the redistribution of the software and prohibits users from
suing each other for patent infringement.

The MIT License, created at the Massachusetts Institute of Technology, is

another example of a permissive license that places minimal restrictions on the
end user.

Restrictive Licenses
Restrictive licenses may be referred to by several other names, including
reciprocal licenses and copy left licenses (a play on the term copyright). The
most common restrictive software license type in use today is
the GNU General Public License (GPL) v3.0, created by the Free Software
Foundation.

With a GPL v3.0 license, the end user is granted permission to copy, distribute,
or modify the licensed software program, but with one caveat: any adaptations
of the source code can only be distributed under the same GPL v3.0 software
license.

The result here is that even purchasers of a derivative software product

licensed under GPL v.3.0 will have the right to receive the source code, make
changes, and copy or distribute the program as desired.

LGPL

The GNU Lesser General Public License (LGPL) was also created by the Free
Software Foundation.

This type of software license permits the end user to modify the program and
incorporate the derivative version into a proprietary software product that can
be licensed on their own terms and at their own discretion.

This stands in contrast to the terms of the GPL software license types, which
typically require creators of derivative works to give away the source code for
free.

Proprietary Software License Types

Most IT organizations will primarily deal with proprietary software licenses

from major vendors like Microsoft, Oracle, Adobe, and IBM.

Navigating these software license agreements is a complex process, frequently

requiring collaboration between IT professionals and legal advisors
specializing in technology and contract law.
Below are some of the proprietary software license types that IT professionals
should be aware of.

Subscription vs Perpetual Licensing

A perpetual software license is one that grants users permission to use a

software indefinitely, usually for a single one-time cost. Perpetual licenses
seem like they may reduce lifetime ownership cost—but beware, as your IT
organization may end up paying more for extras like software upgrades,
vendor support, and ongoing maintenance.

In contrast, subscription-based software licenses are purchased on a monthly

or annual basis and grant the user rights to operate the software only during
the specified subscription period.

Most software companies are shifting towards subscription-based business

models to provide better service for their customers. Software subscription
packages typically include things like customer service, software maintenance,
and annual upgrades. For software-as-a-service (SaaS) licenses, the vendor
may even provide the IT infrastructure needed to support the application.

User Licensing: Named Users vs Concurrent Users

User licensing allows software vendors to set their licensing fees based on the
number of people who will use the software at your IT organization. The most
common user licensing types are named user licensing and concurrent user
licensing.

For named user licensing, each software license is assigned to one person,
along with a login and password they can use to securely access the software
from any device. Named user licenses cannot be shared between staff
members, but it may be possible to transfer them between employees on a
permanent, one-to-one basis.

Concurrent user licensing allows users at a business or IT organization to share

user licenses, provided that the total number of individuals using the software
at a given time does not exceed the total number of licenses available.
Device Licensing

Some software vendors choose to license their application on a per-device

basis.

This software license type grants the user permissions to install and operate
the software on a specific laptop, computer, or data center device—whichever
is most appropriate for the application.

Device licensing is frequently a more cost-effective option in scenarios where

several employees use the same computer to perform their job roles.

An IT call center with 100 desktop computers might support 300 employees
working in three separate shifts. In a case like this, it would usually be cheaper
to purchase 100 device licenses (one for each machine) than to purchase 300
user licenses (one for each worker).

Network Licensing

Network licenses are a popular software license type in enterprise

organizations with 1000+ employees.

Network licensing grants software access to all users and devices connected to
a specific network. A network license may support an unlimited number of
users, or it may be used to support a concurrent licensing model that restricts
the total number of sessions on the network for that specific application.

Metered/Consumption-based Licensing

A metered or consumption-based software license is one where the software

vendor charges licensing fees based on how frequently users access specific
application features, data, or other resources.

Software vendors can measure factors such as total use time, number of
database queries, number of CPU cycles consumed, or quantity of stored
data—then charge their customers accordingly based on how they used the
software.
Some metered software licenses require customers to pre-pay for usage, then
draw down the prepaid amount by using the software. In other cases, the
customer uses the software according to their needs and receives a monthly
or quarterly invoice based on their total use of metered software features.

Some IT organizations dislike metered licensing because the cost of the

software increases as the business becomes more reliant on it. Others may like
metered licensing because it offers flexibility for users and devices while
tethering the total cost of ownership to actual usage and reducing waste.

Free and open source software (FOSS) licenses are often referred to as open
source. FOSS source code is available to the customer along with the software
product. The customer is usually allowed to use the source code to change the
software.

Proprietary licenses are often referred to as closed source. They provide

customers with operational code. Users cannot freely alter this software. These
licenses also usually restrict reverse engineering the software's code to obtain
the source code.

Benefits of Software Asset Management

Software asset management (SAM) is a system for maintaining oversight and

centralizing control of software licenses within your organization. There are
three key benefits that are associated with software asset management.

1. Enhance Oversight and Minimize Waste

A software asset management program empowers the IT organization with

complete oversight of IT assets within an organization. IT and purchasing
managers can identify where licenses are going unused and reduce waste by
choosing not to renew excess licenses.
2. Optimize IT Spending and Find Savings

IT organizations can optimize their software spending and find opportunities

to save money with software license management.

Enhanced oversight of licenses means that IT managers can purchase the right
types of software license types in the appropriate quantities to support
business needs. They can also identify opportunities to secure volume
discounts by renewing licenses in bulk.

3. Reduce Financial & Litigation Risks with License Compliance

Software license compliance is the driving force behind the adoption of IT

asset management software tools. Organizations who violate their license
agreements with software vendors can find themselves facing lengthy audits,
costly true-up payments, financial penalties, and even litigation.

What Are the Risks of Poor Software License Management?

Poor software license management leads to all kinds of negative

consequences, including inefficient IT spending and wasted budgets on excess
software licenses—but the biggest by far are the financial and legal risks of
non-compliance with software licensing agreements.

IT organizations should be aware that software audits are big business. Various
reports have suggested that major vendors like Adobe and Oracle earn as
much as 20 percent of their revenue through software audits. There’s even an
organization called the Business Software Alliance that offers large monetary
rewards to employees who report non-compliant software usage within their
own companies.

Here’s what you should know about software audits:

 A typical software audit takes 3-6 months to complete.

 There is no guarantee that the software audit process will not disrupt
your business.
  At the end of the audit, the software vendor and its hired accountancy
firm will determine whether your firm is compliant with your software
license agreement.

 If you are using more software than you have licensed, you may receive
a 30-day demand for “true-up” payments. Software vendors will
demand that you purchase new licenses at the list price for any non-
compliant installations or usage of their software products.

 You may be asked to pay backdated costs for software support and
maintenance related to your unlicensed use.

 You may be assessed fines or penalties for copyright infringement.

 If you disagree with the findings of the software audit, you could be
facing a lengthy and costly litigation process with your vendor.

What does a software license agreement include?

End-user license agreements typically include basic information about the
parties entering the agreement, such as full names of the parties involved,
contact information and address of the parties. It also likely includes
information on the following:

 when the conditions of the agreement go into effect (i.e., the moment the
user accepts the terms and conditions);

 charges owed per user;

 the duration of the agreement;

 terms of cancellation and terms for recovery of charges if cancelled during

the period covered by the original agreement;

 distribution permissions and limitations;

 user rights for copying the software and making modifications;

 software performance guarantees;

 the number of eligible users;

 maintenance, upgrades and support that is included;

 how many devices will be allowed to use the software;

 disclaimer of warranties;

 transferability of the license to another business or person;

 exclusivity or non-exclusivity of the software to any one customer; and

 governing law and which entity will have jurisdiction over legal disputes
about the license.