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Making Sense of Software Licensing

The stuff in small print really does matter

Making Sense of Software Licensing 
Ariel Gilbert-Knight - March 09, 2012
Software licensing is a complicated topic, but knowing a little about software licensing can help you make sense of all that fine print.

Editor's Note: This article was adapted from an article authored by Chris Peters in March 2009.

Take the complexity of technology and stir in the jargon of the legal system and what do you get? Software licenses! Software licensing is a complicated topic, but knowing a little about software licensing can help you make sense of all that fine print.

This article is a general introduction to software licensing. To learn about specific Microsoft server and client licensing scenarios, see An Introduction to Microsoft Server and Client Licensing.

What Is a Software License?

A software license is an agreement between you and the owner of a software program that allows you to do certain things that would otherwise be an infringement of copyright law. The software license usually answers questions such as:

  • Where and how and how often can you install the program?
  • Can you copy, modify, or redistribute it?
  • Can you look at the underlying source code?

The price of the software and the licensing fees, if any, is sometimes discussed in the license agreement, but usually it's described elsewhere.

Key Points About Software Licensing

We'll cover these terms in greater detail below, but these are some basic things you should know about software licenses:

  • Know what "free" means. In the context of software licensing, free doesn't refer to price. It means free in the sense of "free speech" and refers to the rights and restrictions imposed on using software.
  • Free or open-source software has fewer restrictions. Glossing over a lot of nuances, if a program is released under a free software license or an open-source license, you generally don't have to ask anyone's permission to use it. You can also copy and redistribute the software to your heart's content.
  • Proprietary software has more restrictions. If the software is proprietary or closed-source, there will usually be significant restrictions in the license that limit the ways you can use the software.
  • Read the End User License Agreement (EULA). It's always a good idea to review these agreements, but it's especially important to do so for one-off or small software purchases from less well-known companies. The EULA spells out what you can and can't do with software. It covers everything from how many copies you can install to what the software company can do with your data and what additional software the company can install on your computer.
  • Pay attention to how long the license lasts. A perpetual license doesn't expire. Once you purchase it, you have rights to use the software for as long as you like. A term license expires after a specified period of time (often one year) and must be periodically renewed.
  • Look into volume licenses or site licenses whenever possible. These arrangements offer lower prices and often make administration tasks easier.
  • You may get secondary or home use rights. You may be able to install copies of the software on more than one computer, with certain restrictions. For example, you may be able to install a copy of the software on a home or portable computer, as long as it is not used at the same time as the software is used on your primary computer. Some Adobe products include home use rights, as do some Microsoft Office products (see Office Suites for Home Use). The specific rights, if any, will be spelled out in the EULA.
  • Keep your documentation. You should document the product name and version number. Keep all installation disks, original manuals, and other documentation. Where applicable, also document the product serial number (or SKU), proof of purchase, and license key.

Installing and Activating Your Software

The process for installing software varies from product to product. You'll need to read the specific instructions you receive in order to properly install and (for some products) activate your software.

A few terms it will be helpful to know:

  • License Key (also known as a software key or product key) — This is usually a long string of letters and numbers that you enter at some point in the software installation process. The key helps ensure that the user is in compliance with software vendors' or creators' copyright restrictions and is authorized to use their software. Not all software requires a license key.
  • Activation — This is the process of entering your license key to turn on the full set of features available in a software package. For example, if you download a free trial version of software, you may need to purchase and enter a license key to start using the full paid version. Not all software requires activation. Activation may be done offline or, more frequently, online.
  • Deactivation or Transfer — If you want to stop using the software on one computer and start using it on a different computer, you may need to deactivate the license on the old computer before you can transfer it to a new computer.

Learn About Volume and Site Licensing

Most major vendors offer some type of bulk purchasing and volume licensing option for software. The terms vary, but if you order enough software to qualify, volume licensing can be cheaper and more convenient for your organization. Nonprofits sometimes qualify for volume licensing with very small initial purchases. Also, volume licensing often provides you with a central place to manage all your licenses for a particular product or group of products. Some volume licensing options can also help make installation easier with a single, organization-wide activation code for a particular product.

Learn more about volume licensing options from:

Site Licensing may be another option. A site license allows an organization to make multiple copies of a software package to use on multiple computers.

What You Can (and Can't) Do with Software

As mentioned earlier, if the software is proprietary or closed-source, the license agreement will usually limit the ways you can use the software, copy it, alter it, and redistribute it. Also, you usually won't have access to the underlying source code.

In everyday conversation, there's not much difference between "free software" and "free and open-source software" (FOSS). However, the official definitions and underlying philosophies do differ. See how the official definition of free software differs from the official definition of open-source software. For a short description of the difference, read Live and Let License.

For a longer discussion from the "free software" perspective, read Why Open Source Misses the Point of Free Software. For the "open-source" perspective, read Why Free Software is Too Ambiguous. Categories of Free and Non-Free Software covers topics like copyleft and public domain software.

Other commonly used terms include:

  • Freeware — Free proprietary software, usually small downloadable utilities. You don't have the right to view the source code, and you may not have the right to copy and redistribute the software.
  • Shareware (also known as trialware or demoware) — Trial software that you can use free of charge for a limited time (usually 30 or 60 days). After that, you're expected to pay to continue using it.
  • Not for Resale (NFR) — Versions of software that are usually distributed for testing, preview, or donation purposes. They may include different features than the regular retail product. NFR versions usually don't include the same technical support options as the retail product.

Image: Software purchase agreement, Shutterstock