Understanding Software License

July 7, 2010, by | Start Discussion

Licenses are far more prevalent in the “intangible” world as compared to the “real” world. Suppose you buy a car. Once you pay the price of the car to the dealer, you can do almost anything with the car. You can sell it, rent it, make modifications to it and even destroy it!

The situation is not the same when you “buy” software. In fact you hardly ever “buy” software. You buy a “license” to the software. This license sets the terms and conditions subject to which you can use (and sometimes distribute and modify) the software.

A software license usually consists of

  1. Permissions granted by the creator to the user
  2. Rights granted by the creator to the user, and
  3. Restrictions placed by the creator,
  4. limitations on the creator’s liability,
  5. Warranties and warranty disclaimers, and
  6. Indemnity,
  7. Term / duration of the license.


Violating the terms of the license infringes the legal rights of the creator of the software and can lead to legal action.

When software is mass produced and sold, the license is usually of a “take-it-or-leave-it” type. The software vendor does not give the purchaser an opportunity to negotiate the terms of the license. The purchaser can either accept the license in total and purchase it or reject the license and not purchase it. In customized software that is usually specially developed for a particular customer, the terms of the license are negotiated between the creator and the user.

Software licenses can be of various types such as:

1.Time-based licenses where the license expires after a particular time period (e.g. 1 year). The license has to be renewed after that (usually on payment of additional fees).
Illustration 1
AVG is popular anti-virus software. Licenses can be purchased for 2 years at a time. During these two years all updates will be available to the user. On expiry of the 2 year period, the license expires and the user must uninstall the software. If the user wants to continue using the software, he must again pay fees and buy a license for a further 2 years.

Illustration 2
Winhex is popular cyber forensics software. It can be purchased with a 1 year upgrade license. Suppose Sameer purchases this license on 1st January 2008. Till 31st December 2008, he will be eligible to get all upgrades and new versions of Winhex for free. After 1 year this upgrade license will expire. Although Sameer can continue using Winhex, he will not get any further updates for free.

2.User-based licenses where the license fee depends upon the number of computers on which the software will be installed (e.g. in case of application software like a word processor). It could also depend upon the number of users who will connect simultaneously to a computer on which the software is installed (e.g. in case of database software or server operating systems).

3.Feature-based licenses where the license fee depends upon the features that are required by the user.


Winhex is a popular cyber forensics software. Depending on the features that are required, users can purchase the personal license, professional license, specialist license, or forensic license.

Most software licenses also contain clauses relating to disclaimer of warranties, limitation of liability, privacy policy etc. In this book we will focus on software licenses from an intellectual property rights perspective only.

Windows License

Considering the huge number of users worldwide who use the Microsoft Windows operating system, the Windows End-User License Agreement ("EULA") is discussed here.
This section discusses some of the terms of the EULA for Microsoft Windows XP Professional Edition. It may be noted that the EULA for most Microsoft products is similar.

Basic information

The End-User License Agreement ("EULA") is a legal agreement between Microsoft Corporation and the end user. It extends to the Microsoft software accompanying the EULA as well as associated media, printed materials, "online" or electronic documentation, and Internet-based services (collectively known as "Software").
A user is bound by the terms of the EULA by installing, copying or otherwise using the Software. If a user does not agree to be bound by the EULA, he must not install copy or use the software.
The EULA applies to updates, supplements, add-on components, product support services, or Internet-based services components, of the Software obtained from Microsoft after the date of obtaining the initial copy of the Software.
To use Software identified as an upgrade, the user must first be licensed for the software identified by Microsoft as eligible for the upgrade. After upgrading, the user may no longer use the software that formed the basis for the upgrade eligibility.

Grant of license

Rights granted by the EULA are

1.Installation and use
The user can install, use, access, display and run one copy of the Software on a single computer, such as a workstation, terminal or other device ("Workstation Computer"). The Software cannot be used by more than two (2) processors at any one time on any single Workstation Computer.

2.Mandatory Activation
The license rights granted under this EULA are limited to the first thirty (30) days after first installation of the Software unless the user activates the licensed copy through the Internet or telephone. Reactivation is needed if the computer hardware is altered.

3.Device Connections
The EULA permits a maximum of 10 computers or other electronic devices (each a "Device") to connect to the Workstation Computer to utilize one or more of the following services of the Software: File Services, Print Services, Internet Information Services, Internet Connection Sharing and telephony services.

4.Remote Desktop / Remote Assistance / NetMeeting
Remote Desktop access requires a separate Software license. As an exception, the single primary user of the Workstation Computer may access a Workstation Computer Session from any Device without acquiring an additional Software license for that Device.

5.Storage / Network Use
The EULA permits storage or installation of a copy of the Software on a storage device, such as a network server, used only to install or run the Software on other Workstation Computers over an internal network. An additional license is required for each separate Workstation Computer on or from which the Software is installed, used, accessed, displayed or run. A license for the Software may not be shared or used concurrently on different Workstation Computers

Reservations of rights and ownership

Microsoft reserves all rights not expressly granted in the EULA. The EULA stresses that the Software is protected by copyright and other intellectual property laws and treaties and that Microsoft or its suppliers own the title, copyright, and other intellectual property rights in the Software. The EULA also expressly states that the Software is licensed, not sold.

Reverse Engineering

The EULA prohibits reverse engineering, decompilation and disassembly of the software unless such activities are permitted by the law.


Section 52(ab) of the Copyright Act permits this for specific purposes.

Rental / commercial hosting

The EULA prohibits renting, leasing, lending or providing commercial hosting services with the Software.

End user proof of license

A genuine Microsoft "Proof of License" label with a genuine copy of the software identifies a licensed copy of the Software. To be valid, the label must appear on Microsoft software packaging. If the label is received separately, it is invalid. The packaging should be kept as it has the label on it to prove that the user is licensed to use the Software.

Software Transfer

The Software can be transferred to a different Workstation Computer. After the transfer, the Software must be completely removed from the former Workstation Computer.
The initial user of the Software may make a one-time permanent transfer of this EULA and Software to another end user, provided the initial user retains no copies of the Software.
This transfer must include the Software and the Proof of License label. The transfer may not be an indirect transfer, such as a consignment. Prior to the transfer, the end user receiving the Software must agree to all the EULA terms.


Microsoft can terminate the EULA if the user fails to comply with the terms and conditions of the EULA. In such event, the user must destroy all copies of the Software and all of its component parts.

Applicable Law

If the Software has been acquired in USA, the EULA is governed by the laws of the State of Washington.
If the Software has been acquired in Canada, the EULA is governed by the laws of the Province of Ontario, Canada.
If the Software has been acquired in the European Union, Iceland, Norway, or Switzerland, then local law applies.
If the Software has been acquired in any other country, then local law may apply.

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