Once upon a time not too long ago, I was scrolling through X.com (fka Twitter) reading about the frustration non-technical founders feel from being unable to contribute to discussions about technical issues such us software licensing in the company they co-found and so I thought to myself:
- What better way to transition into contributing to technical discussions as a non-technical founder than learning about and contributing to discussions relating to software licensing?
- Also, wouldn’t it be great to have a resource to detail how software licensing generally works?
This is the premise of this guide. In it, I will try to discuss what non-technical founders should know about software licensing that should give you the ability to contribute to similar discussions if you’re one, as well as try to be as elementary with my explanation of concepts as best as I can.
Without further delay, let’s begin by discussing the significance of software licensing.
Why we license software
“Software is like entropy. It is difficult to grasp, weighs nothing, and obeys the second law of thermodynamics; i.e., it always increases.” – Norman R. Augustine
As we ease into this section, I would like you to consider the quote above. Take a thorough look at it; do you see the correlation?
In simple terms, we license software, and you might want to do the same, to retain control over how you use such software.
This control can include imposing restrictions on how users copy, modify, distribute, etc., ensuring that it aligns with our intentions.
This is one of several reasons. Other reasons include licensing for revenue generation purposes by selling such licenses to recoup the costs of development, testing, marketing, and ongoing support.
Software licenses are binding
Copyright laws in most countries protect the texts that represent the source code on which software is built.These laws safeguard the code from theft and unauthorized use, making software licenses essential legal agreements that outline usage and distribution guidelines.
Typically, software licenses grant the licensee, which is usually an end-user, permission to use one or more copies of the software in ways where such a use would otherwise have amounted to a copyright infringement of an exclusive right under the copyright law of a country.
How software licensing works
Now that we know why we license software at all, let us move on to explore how licensing works.
Eric S. Raymond in one of his many musings noted how “Copyright is an important legal tool to protect the creative rights of software developers, but licensing is what defines how the software can be used by others.”
Furthermore, licensing is complex, and the specifics of how licensing works can vary widely depending on factors such as the type of software, your choice of licensing model, and the locality in which you intend to enforce the agreement.
Nevertheless, an example of things a licensing agreement might want to define parameters around may include:
- How many times users can download your software
- What it will cost
- How frequently the software will receive bug fixes and other technical support over time
Software license agreement
In most use cases, companies present this agreement as a document during installation or as part of the software’s terms of use that users must agree to when acquiring the software.
Because of this, It’s essential for both developers and users to thoroughly understand the content of a license before using or distributing software.
Another important thing to note about how licensing works is that software licenses can be classified as capital expenditures or operating expenditures depending on factors that include the nature of the license, the intended use of the software, and so on.
That said, let’s move on to examining what to include when drafting one of these documents in the next section.
How to draft a software license agreement
Software license agreements can be complex, you already know that.
However, what you may not know is that drafting one often requires you to consult with an experienced legal professional to ensure compliance with applicable laws and regulations since the agreement typically requires careful consideration of legal, technical, and business details.
Nevertheless for an idea of how complex they are, here’s an outline of what a draft of a software license agreement may include:
- Introduction and Definitions: When drafting a custom software license agreement, you start with an introduction that identifies the parties involved (licensor and licensee) and the purpose of the agreement. This section may also include definitions for key terms used throughout the agreement.
- Grant of License: This section clearly outlines the rights granted to the licensee. It specifies the scope of use (e.g., personal, commercial), the number of devices allowed, and any geographical restrictions. When applicable, it details whether the license is exclusive or non-exclusive.
- Usage Restrictions: List any restrictions on how the software can be used. This may include limitations on copying, modifying, sublicensing, reverse-engineering, or using the software for certain purposes.
- Intellectual Property Rights: Here, you detail how intellectual property rights (copyright, trademarks, etc.) are retained. You also specify whether the licensee gains any rights beyond the scope of the license.
- Payment and Pricing: If the software is not provided for free, this section details the payment terms, pricing structure, and any applicable fees. It can also mention the consequences of non-payment.
- Term and Renewal: This section specifies the duration of the license (e.g., perpetual, annual) and whether it needs renewal. It details the renewal process, including terms, pricing, and any changes that may apply.
- Updates and Support: If updates and support are provided, this section explains the terms and conditions. It outlines what types of updates are covered, the level of support offered, response times, and any additional charges for extended support.
- Ownership of Data: Several licenses have a dedicated section to clarify whether the licensee retains ownership of data created or processed using the software, or if you retain any rights to such data.
- Termination and Consequences: A termination and consequences section often appears in license agreements. It outlines the circumstances that can lead to license termination, such as a breach of terms, and specifies the consequences of termination, including discontinuing access to the software.
- Disclaimers and Limitations of Liability: This section is often necessary to protect the licensor from certain claims or damages. It includes disclaimers of warranties and limitations of liability.
- Confidentiality: If either party will have access to confidential information through the software, a section outlines obligations related to confidentiality and data protection.
- Indemnification: Sometimes included to define the responsibilities of each party in case of legal claims or disputes related to the software’s use.
- Severability: This clause may be included to explain that if any part of the agreement is found unenforceable, the rest of the agreement remains in effect.
- Signature and Effective Date: Almost all license agreements have a space for the signatures of authorized representatives from both parties and the effective date of the agreement.
As you can see, drafting a comprehensive software license agreement involves consideration and the inclusion of several clauses that only legal professionals who specialize in software licensing or contract law can ensure are all included in the agreement.
Which software license type should you use?
“The software industry is unique in the sense that, unlike other intellectual property, most software is not protected by patent, trademark, or trade secret law.” – Lawrence Lessig
Now that you comprehend the potential contents of a software license agreement draft, it’s worth noting that in extensive scenarios and for many use cases within the tech industry, readily accessible ‘permissive’ software license agreements like the Apache Open Source, BSD or Berkeley Source Distribution, and MIT licenses are commonly employed and favored because of the prevalent practice of offering most software for free use.
These three licenses, along with others not mentioned here, are suitable for open-source or partially free-to-use software. They are good options to consider if your company is developing:
- A free to use software
- A software that would be available for free but will come with certain limitations on usage or features.
- A software that would grant users a trial for a limited time period for them to decide whether to purchase a full license or not.
They save you time and resources as opposed to drafting a custom license since there are several of these software licenses for non-commercial use available to cater to all of the above use cases.
To favor any other use case, you should prefer a proprietary, custom license. They allow for finer-grained control over your code since you can draft the license in a way that retains all your rights and controls over the software.
Further updates
With that said, I hope this guide gives you some clarification as to what a software license is and how licensing works. I will be updating this article in the coming months to expand on some of the popular non-commercial licenses mentioned here in so, kindly watch out for that update.
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