Understanding Types of Licensing Agreements

icon-contractSoftware Licensing Agreements (SLAs) are necessary to protect the interests of software creators and software users. These contracts explain a customer’s usage rights, including installation location and frequency, as well as software duplication, modification, and redistribution rules. Likewise, software price, licensing fees, usage term duration, and performance guarantees are often detailed in the agreement. 

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Well-written SLAs protect businesses and software clients from claims of intellectual property infringement. Businesses may refer to these signed statements to disclaim a warranty, revoke usage of their product, or limit liability.

Understanding the different types of licensing agreements for software can help an organization: 

  • Maintain compliance. Sixty-eight percent of enterprises receive at least one software audit request from a vendor annually. Businesses found to be overusing proprietary software without paying the proper license fees can expect hefty fines and penalties. 

  • Reduce wasted IT spend. Almost 37 percent of installed software goes unused, amounting to over $37 billion in total wasted IT spend (or about $259 per desktop). Software licensing has grown at an annual rate of 8.6 percent, so the potential waste will only increase if one’s SLA isn’t fully understood.

Five Types of Licensing Agreements

There are many types of software agreements varying by terms, supports, restrictions, and costs—and no “one best” software license; it depends on your unique situation. Enterprise-level software may require more complex licensing agreements, whereas open-source software providers may prefer flexible terms and conditions. Most companies need to manage various software licenses at once. 

The main types of licensing agreements include the following:

Public Domain

Anyone can modify, use, reuse, and distribute the least restrictive Public Domain Software Agreement. Users will still need to verify best coding practices and robust security protocols, but they can edit and add code into applications or projects and freely reuse the software. It is important to note that public domain is not a default; code must be defined as such to be used openly.

Permissive

Permissive licenses are sometimes called “Apache style,” “MIT license,” or “BSD style.” They contain minimal requirements about software modification and redistribution. Software may be characterized as “free” or “open” when a permissive license is used. Variations may preserve copyrights and trademarks for the software, as well as restrict whether the software may be used privately or commercially.

Lesser General Public License (LGPL)

The GNU LGPL allows linking to open source libraries within the software. The resulting code can be licensed under any other type of license once projects are linked or compiled in an LGPL-licensed library. However, if you modify the original library or copy parts of it directly into your code, your application will need to be released under the original LGPL’s terms.

Copyleft

Sometimes called “Reciprocal” or “Restrictive,” copyleft licenses allow the modification of licensed code and distribution of new works based on it, as long as these adaptations are distributed under the same software licensing terms. For instance, if the original license stipulates that it can be used and distributed “for personal use only,” the subsequent derivative must follow suit. 

Proprietary

Proprietary licenses denote the most restrictive type of SLA—which may be called “closed-source” or “commercial” software. All rights are reserved by the software developer, and users may not modify, copy, or distribute the software unless explicitly stated in predefined conditions.

Artificial Intelligence for Software Licensing Agreements

Once an SLA has been written, the terms and conditions are not a foregone conclusion. Parties can negotiate the details until they reach mutually agreeable terms. Increasingly, legal departments are relying upon artificial intelligence platforms like LexCheck for smarter, faster negotiations. These platforms can redline all types of licensing agreements for vague wording, potential sticking points, and areas requiring greater attention based on past contractual negotiations uploaded to the platform. The AI introduces attorney-quality suggestions based on advanced machine-based learning and natural language processing models to accomplish all of this in a matter of minutes, rather than days.

LexCheck can accelerate the review and negotiation of all types of licensing agreements. To discover the benefits of an AI-powered contract negotiation platform, request a demo

gary-sanghaGary Sangha | Founder & CEO

Gary Sangha is the Founder and CEO LexCheck. He's a serial entrepreneur and an academic. Gary previously founded Intelligize, a legal technology company that was acquired by LexisNexis. He's affiliated with the University of Pennsylvania and Stanford University and started his career as an attorney at Shearman & Sterling and White & Case.