Licensing software: know what you want and know all your rights

All software products require a license that exactly defines how a particular piece of software is allowed to be used. Vendor use different models to license their software with explicit terms and conditions governing the specifics. The license level for example determines whether the software can be used in production, standby, acceptance, test or development, or maybe only in conjunction with a certain application. The license metric describes whether a license is required for each machine (server, clients), for certain parts (e.g. processor, socket, core) or for each user (e.g. named user, application user, authorized user, concurrent user etc.).

Here, we provide an overview of the most common licensing models, applied by major software vendors, including Oracle, IBM, Microsoft, VMware, and SAP. They can be categorized as device-based on the one hand – covering the use of the software on a device independent of the actual number of users – and user-based on the other, i.e. the use of the software by authorized individuals – sometimes in relation to the number of devices on which the software is deployed.

“Understanding current and future business requirements is the first step in determining your license agreements needs.”

Choosing the appropriate licensing model is crucial for a company, no matter what size. Obtaining the right license may distinguish success from failure. Any licensing model should be in sync with current and future business needs: the current software usage and how this relates to future products and services a company aspires to provide. Each licensing model has a number of characteristics that make certain forms of licensing more suitable than others.

What exactly is a software license?

Software licenses are legally binding agreements which govern the use or (re)distribution of software products. Under multiple copyright laws, anyone who reproduces, distributes, publically displays, rents or imports software without having the appropriate software licenses in place, is violating the rights of the copyright owner (the software vendor). All software programs are protected, either through copyright or so-called “copyleft,” which is meant to be the opposite (see below).

The installation and usage of software is regulated via a document called End User License Agreement, or EULA. Although this can be a paper agreement, the license is typically embedded in the download procedure of the software or in the software itself. For medium to large companies more complex and tailor-made license agreements will be in place that require serious legal expertise: to understand the terms and conditions, to manage these terms and conditions, and to fruitfully negotiate the licensing model.

The licensee doesn’t actually own the software, but has acquired the right to use it. A specific licensing agreement will define the terms and conditions that a company has accepted to pay for, before it can start installing and using the software. The agreement protects the intellectual property rights (IPR) of the software vendor by placing restrictions on how the software can be used. Some examples are: installation on more than one computer, duplication of software for disaster recovery purposes, or changing the source code of the software program. A useful assessment of license restrictions and how they may impact the price of enterprise software you can find here.

Software licenses generally belong to the following categories:

Proprietary Software Licenses (commercial)

Open Source Software Licenses (many of them free)

Proprietary software licenses

The main characteristic of proprietary software licenses, known also as “commercial software” or “closed source”, is that the software publisher permits the use of one or more copies of the software governed by the license agreement, while the ownership remains with the software publisher – hence the term “proprietary,” derived from “property.” In general, a software user can use the software, but is not allowed to modify the software or (re)distribute it to others. It is very common for license agreements to include terms and conditions that govern further use of the software, such as terms of (re)distribution, or the number of installations permitted.

To give some examples:

both Windows and Apple (iOS) operating systems are proprietary platforms, and also most of the typical software applications used have that status, such as Microsoft Office, Adobe Acrobat Reader, Adobe Photoshop, but also more complex business software, e.g. SAP, Oracle database, Microsoft BizTalk, etc. Software companies have invested many years of research and software development in order to create their product ranges, so by keeping the software proprietary they protect their investment and are able to commercialize the products.

The most common licensing models used for proprietary software programs are either per user, or per device. In order to determine which licensing model is required, three simple imperatives need to be taken into account:

Identify all usage needs.

Decide whether user or device based licensing would be the better option.

Define the number of licenses required.

A “device” license is associated to a device (e.g. client or server) and a “user” license to an individual. Per “user” licensing typically will provide more flexibility. For example, if a user logs on to more than one client computer, only one “user” license will be needed. The basic rule is: If you have more devices than users, then choose the per “user” licensing model. If you have more users than devices, then choose the per “device” model.

Free and open source software licenses

Open source software is open for anyone to use, changed and/or distributed, typically free of charge however not always. There are two main types of open source software licenses:

Permissive Licenses:
These licenses pose minimal restrictive requirements to (re)distribution of the software. Some examples of permissive free software are the MIT license and the BSD license, both offering unlimited permission for using and modifying the software, and including minimal requirements regarding (re)distribution.

Copyleft Licenses:
Such licenses aim to preserve the freedom given to users of the software by ensuring that all subsequent persons obtain the continuous right to use all open-source functionalities, now and in the future. An example of a copyleft free software license is the GNU General Public License (GPL). It offers all software users unlimited freedom to use and modify the software, and if a software user adheres to the terms and conditions, that individual is granted to (re)distribute the software and/or any modifications to it.

The Free Software Foundation (FSF), the organization that maintains the Free Software Definition, keeps an up-to-date list of free software licenses. This list also contains licenses which the FSF considers “non-free” for various reasons, and which may well be mistaken as being free or found to be “out of compliance,” including: Aladdin Free Public License, AT&T Public License, Code Project Open License, Old Plan 9 License, and many more (see the illustration above).


For software vendors it is critical to license their software very carefully in order to protect their IPR and to be able to generate revenues from selling licenses. It is also critical that they protect themselves from the various legal issues that might appear from legal agreements between licenser and licensee. Bottom line, software users need to be sure about what specific licensing model they need and what licensing model would suit the business, enterprise or company best. At the same time, software users should be extremely careful not to violate the terms and conditions of any license agreement, otherwise they may well be accused of software piracy or other violations, possibly associated with severe penalties.

In future articles we will address in more detail the risks and implications of many different licensing models, in order to enable software using organizations to understand fully all considerations that should be taken into account in selecting the most appropriate and suitable licensing model.

Do you need support to understand which licensing model will work best in your specific situation? Don’t hesitate and contact B-lay’s team of software license management experts. They are there to help you!

This article was published on 30-06-2015