Home : Software Licensing 101 : Lesson 1

What is a Software License?

When placing an order from your favorite software vendor you are not purchasing the software. Instead you are purchasing a license to use the software by the terms stated in the End User License Agreement (EULA). When loading almost any software the EULA will be displayed and you need to select "I Accept" to continue. If you've ever tried reading an EULA though, you might have found there were so many technical terms and legal jargon that you had no clue what was being said (if you read and fully understood it, you can probably skip to the next lesson). In this lesson we are going to describe the four main things you need to know about the EULA, and at the end we will also discuss several special license types you will commonly find that might not follow these rules.

The Top 4 Things You Need To Know in Your Software License

How many and what type of clients are being licensed? The most important part of a software license, and the part that will vary the most. A license allows a specified number of clients to use the software application. There are different types of clients, but the most common are users and computers. A license specifies the number and type of client usually in the first few lines of the license. If it is licensed by the number of computers, then you will have a specified number of users you can load the software on but any number of users can use it on those computers. If it is licensed by the number of users, then it is not a matter of how many computers it is loaded on, but instead how many users will be using it. For example, you might have a computer that is used in an environment with two shifts and two different people using the software on that machine. If the piece of software is licensed by the number of computers, you will only need one copy, but if it is licensed by the number of users, you will need two copies.

Use the software for the purpose it was intended. You can save a lot of time reading license agreements if you know that most of the text in them lists the many things you can't do with the software. If you don't want to read all the details of all your licenses is, the simplest way to go is to know what client type and how many clients it is for, and when you use the software, use it the way it is intended. If you buy a spreadsheet program, use it for spreadsheets. If you buy a word processor use it as a word processor. If you buy an office suite, you probably have one license for all the applications to be used by a single user or to be used on a single computer. Don't try to split it up. Use it the way it was intended, and chances are you can keep yourself out of trouble.

Don't take the product apart. If you are following the second rule then this isn't a problem. If you are technical though, or like to tinker, you should know that you cannot decompile the product. Decompile simply means you are reversing the software back to code. Why would you do that? Well, if you're a programmer you might be trying to learn how something was accomplished. However, it is illegal, so even if someone makes it easy to do, don't do it.

Read the license agreement before selling the software or buying used software. License agreements differ in how they can be transferred or sold. Some software licenses you are not allowed to transfer or sell. You don't want to sell or purchase software that can't be transferred. If you don't want to look for a clause about transfers in your license agreement, don't deal with used software. Most of the time the savings aren't worth the risks involved anyway.

Special Licensing Options

Not every license is created equal, even when purchasing the same software. Here is a list of a few of the more common special types of licenses and information you should know about them.

Upgrades are licenses that allow you to go from an earlier version of a software to a newer version. When purchasing an upgrade you need to already own the previous version. You also need to keep the older license, and sometimes the software. If upgrading, a good practice is to take the new paper copy of the license and staple or paper clip it to the license you are upgrading from. Another limitation to upgrades is they are usually one-to-one. If I have one copy of a spreadsheet application and want to upgrade to the newer version for myself and my secretary, I can purchase one upgrade, but for the second computer I will need a full version.

OEM Licenses are the most misunderstood licenses. OEM software is software that comes with a new piece of hardware. Generally the hardware is a computer, but sometimes devices like a new video card will come with some OEM software of it's own. You cannot legally purchase OEM software on it's own. It must be sold with the hardware it came with.

Volume Licenses can take on many complex forms we are not going to cover here. Volume Licenses will give you more than one license to use the software, and probably be priced based on the quantity purchased. When purchasing volume licensing be sure to consult with your trusted software vendor to make sure the licensing is right for you.

There are many other licenses including development licenses that have special purposes. If you are using special purpose licenses within your small business, you will want to make sure you understand the license agreement and where you can and cannot use it.