Any license is a document that grants permission and clarifies in detail the terms and conditions for which the permission is given.

A software license states who can use a software, and for what purpose. The software developer or creator is the one who decides on the terms involved in the license. The terms listed can answer questions, such as “Can I use this software to earn money?” or “Can I give this software to others?”

Other interesting terms…

Read More about “Software Licensing”

There are two major categories of software licenses—Free and Open Source Licenses and Proprietary Licenses.

Open Source License

In an open-source license, the owner of the software component allows its use for commercial applications. Although open, this license also has a list of terms and conditions that govern what the end users can and cannot do with the software and their obligations.

An open-source license can be split into two subsets:

  • Copyleft: Also known as a “free license,” it allows other developers to use the program for any purpose, modify it, and even redistribute it. Importantly, this category demands that any work replicated from an open-source project should also be free for other developers to use, modify, and distribute.
  • Permissive: This open-source also offers other developers the freedom to use, modify, and redistribute the program. However, unlike a copyleft license, a permissive one has minimal restrictions on using codes with an open-source license.

Proprietary License

This is a license that allows other people to use the program but not modify or redistribute it. The original source code stays concealed by the programmers, so others can’t tamper or steal the software.

A Brief Look into the History of Software Licensing

Software licensing was not always as flexible as we know it today. A commonly used licensing method in the early 1980s, for example, is “node-locked” copy protection. This licensing method enables developers to ensure their products would only be used on one computer by identifying any of the computer’s unique hardware fingerprints.

One license could be costly. One Engineering workstation license, for instance, was priced at about US$50,000 at that time. As a result, organizations tended to purchase only one license, and let their employees take turns in using the licensed computer. These days, “node-locked” licensing methods can be tweaked to accommodate more than one device or even a whole network.

Free software licensing was also available in the early days of software development (i.e., before the 1980s), but they were mostly informal notices that the developers had written.

What Happens If You Don’t Obtain the Proper License?

There are legal consequences when a company or person uses a software without the proper license. For example, Company A that has a Microsoft 365 license for 150 employees but has 200 workers using the license could face either of the following:

  • Breach of contract: This happens when companies use the software in a way beyond what is allowed by the license agreement they acquired. Here’s an example: Company A acquired a license, but is using the software far beyond the 150 users permitted. Breach of contract can be informally settled between the two parties (i.e., Company A and the software vendor) before a legal case is filed in court. 
  • Copyright infringement: This occurs when the software developer claims it never permitted an end user to use its product. This legal issue is more stringent than a breach of contract and can result in substantial financial penalties. Microsoft can claim copyright infringement against Company A for the extra 50 users. So, in the U.S., Microsoft can file for damages amounting to US$750–30,000 per unlicensed use of its software against Company A. That amounts to a total of US$37,500–1.5 million in damages.

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Both software developers and end users benefit from having an explicit software licensing agreement. Whether it’s an open-source or proprietary license, it is essential to hold a legal document and adhere to its specifications.