Introduction to Software Licensing
Virtually all software comes with a licence. Even freeware or open source software will generally have an accompanying licence setting out how the software may be used and, perhaps more importantly, how it may not be used.
Software is protected by intellectual property law. A range of IP rights may subsist in software, but copyright is arguably chief among them as it protects the underlying source code as well as potentially a range of other elements of the software such as interface graphics, photographs and other images, video elements, sounds, music, and databases. The rights subsisting in software will be owned by one or more organisations and can become complex, but in this context, it is assumed that the software will be owned by one entity such as a developer or publisher and that that owner has the right to grant licences of the software to end users.
What does a Licence Do?
Software is generally licensed rather than assigned. This enables an owner to “sell” the software to multiple customers, granting them non-exclusive licences which may be perpetual or term-limited. Even bespoke software may be licensed rather than assigned and, beyond that, even exclusivity may be a point of negotiation between the developer and client rather than a given.
Why is a licence needed? Copyright law sets out a number of “restricted acts”. Chief among these is copying. Even the act of installing software onto a computer entails copying in the legal sense. A licence makes the installation and use of the software lawful.
Software licences also set out clearly what a user may and may not do with the software. Some are more permissive than others and may, for example, allow for modifications which go beyond the limited rights that users are given by copyright law to decompile and reverse-engineer software.
A licence may also offer additional protections for the software and the owner which fill in some of the gaps left by IP. Intellectual property (with the exception of patents – a controversial IP right where software is concerned) does not protect the underlying idea of something, but rather the expression of that idea. Confidentiality provisions within a software licence can help to fill that gap.
Licences will also protect licensees. Particularly when dealing with a negotiated licence agreement as opposed to buying software “off the shelf”, a licensee should attempt to verify the licensor’s ownership of the software and the IP rights therein. In practice, however, this may be difficult. A licence should include warranties to protect the licensee in this respect. Warranties can also provide further contractual protections for the licensee, holding the licensor accountable for the software’s failure to perform correctly in compliance with an agreed specification, for example. Breach of a contractual warranty gives a licensee a right to claim damages.
Further protection for the licensee where IP is concerned may come in the form of an IP indemnity under which the licensee is protected if their use of the software (which may be in perfect accordance with the terms of the licence) results in a claim being made against them for breach of IP belonging to a third party.
Types of Software Licence
There are many different types of software licence and the appropriate choice will be largely determined by the type of software in question. For standard off-the-shelf (be that shelf physical or virtual) software, shrink-wrap and click-wrap licences are common. Less common in software circles but sometimes useful in an online context is the browse-wrap licence. Licences of this kind are not designed to be negotiated. They are akin to standard terms and conditions which will be accepted by the end user generally as a matter of course.
On the other hand, a licence agreement may be negotiated between the owner of the software and their customer. If the software itself is standard, there may well be similarly standard terms, but certain aspects such as the number of installations or users permitted, preferential pricing, and early access to software updates will be up for negotiation.