5 Software License Models: Understanding the New Digital Economy

April 8, 2021
April 8, 2021
Gary Sangha | Founder & CEO

Not long ago, software license models had a single purpose: protect the source code. However, modern innovation has complicated that single-purpose approach. Today, many companies want users to share—and even modify—their software to enhance and improve the user’s experience. As a result, companies now utilize several different software license models. 

 Technologist reviews code to determine the correct software license model for an application

Software providers currently choose between five primary software license models: GNU Lesser General Public License (LGPL), public domain, permissive, copyleft, and proprietary. The licensing model a company selects will determine how well their intellectual property is protected and may impact user experience. To ensure a strong agreement, companies are beginning to leverage AI contract analysis technologies that streamline the contract selection and review process.

Let’s examine the primary software models and then look closer at the advantages an AI contract review platform provides when you’re deciding on the correct software license model for your needs.

5 Software License Models

Often, software users prefer to customize their user experience to fit their unique business context. One factor that will influence whether the software provides this kind of user-driven flexibility is its license. There are five primary software license model types, four of which allow for some code modification or redistribution. 


Public Domain




The GNU Lesser General Public License acts primarily as a reciprocal license arrangement focused on developers. It allows the sharing and use of code in a code library. It is a relatively permissive license, though it is not as open as a public domain model. 

A public domain license provides little protection for the source code as it allows for nearly open modifications. A good example of this is Linux, a software family of operating systems particularly popular with mobile app developers. This is by far the least restrictive license type for the user. 

The permissive license received its name because of its high degree of flexibility. It allows for both software modification and redistribution with some minor restrictions. A permissive license also permits users to create their own derivative works while still claiming them as proprietary.  

Restrictive licenses will allow users to modify and redistribute code but only under the original license. User-created work cannot be commercialized. These licenses are useful in preserving the original copyright.

The proprietary license is the single license that usually prevents code modification or redistribution, making it the most restrictive option. In many cases, a proprietary license may be used when the code is considered patentable and is closed source. This level of a license gives the owner exclusive rights over most aspects of the software. 


A common clause across all of these licenses is the liability waiver. Since this waiver protects the developers from claims arising out of the use or modification of the software, it should be a clear component of every contract. 

Typically, companies that offer free or open-source software will opt for permissive levels while paid options are restricted to proprietary licenses. Of course, the choice isn't always this simple. The decision will often depend on the intended use.  

Choosing the Right License Model—and the Right Contract

With all of the available software license models, selecting the right one for a specific product can be challenging. If a company's license is too permissive, it could lose copyright protection. Meanwhile, heavy restrictions may deter use or create unnecessary work. Before choosing the license type, it's important to ask a few key questions. 

  1. Who is the target market? For an individual employing a software product for personal use, a less restrictive license may be a fine choice. Developers or businesses will require further consideration when it comes to modifications and redistribution. 

  2. What is the intended use? If the software supports app development, then an extremely restrictive license would not make sense. If the intended use is a game or business management program, however, restrictions would be more suitable.  

  3. Is the code unique? Patentable code that winds up in the public domain is no longer patentable. If the developer has created proprietary code, it should be protected with a restrictive license. 

  4. Will the license be perpetual or subscription-based? Perpetual licenses can be expensive because there will be many updates or changes in the future, and they may be better suited to paid, restrictive models. Subscription programs are more flexible and can work with open-source licenses. 

These questions can help companies and legal departments better understand their risk exposure in software licensing. Of course, once they decide on a software license model, they're going to need to create a contract that will likely be used hundreds or thousands of times.

Leveraging AI Contract Management for Software License Models

The bulk legal document review associated with software licenses can create significant issues for software companies that may not have extensive in-house legal departments. The analysis and audit of thousands of contracts are time-consuming tasks. Fortunately, software is available to support these operations. A leading-edge AI-based contract platform can review thousands of pages of documents, highlight areas of concern, and offer expert attorney-level suggestions to resolve issues. 

Regardless of the chosen software license model, contract management will become a major burden without a way to streamline license governance. The software industry is a step ahead of the field, though. As traditional early adopters of game-changing technology, software companies are poised to take advantage of AI-powered contract review innovations to help guide companies to the right decisions when creating, negotiating, and managing the various components of software licenses.

LexCheck supports all software license models with a platform that helps you streamline and accelerate your contract management process. Contact us at sales@lexcheck.com to learn more, or request a demo to experience the technology.

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