What You Should Know About Software Licensing

by Jennifer Tessanne

Have you ever read a software license agreement? You know, that page of incredibly small print that comes with just about every piece of software you buy.

Software licensing has always been the most amazing concept for me. It seems, at times, as if you are buying air. Like the stuff that fills your kid’s basketball, it can seem at first to be nothing, nothing at all. This is especially true in a business environment where you purchase multiple licenses for software. Often, when ordering these, you have to request a copy of the software, which is what you wanted in the first place.

Upon closer scrutiny of the subject of software and licensing, I found that I was very uninformed. Let me share with you what I learned about software and licensing.

Most software vendors spend years developing their product. They are compensated for their efforts by making their product available for public use. We, the public, buy the software. Or, do we?

When you purchase software, you are not buying the software. You are buying a license for the software. The software license gives you the right to use the software, provided it is used within the terms and conditions of the license agreement. You own the CD or media that the software is recorded on. The software vendor retains all the rights of the software that is recorded on it.

The software license agreement spells out how you can use the software and each software agreement is different. In general, you are not allowed to distribute, reproduce, rent, etc. the software without the prior consent of the publisher. You are allowed to make a single backup copy for archival or backup purposes for yourself.

Sound similar to our copyright laws regarding books and other publications? It is. Software is protected under Title 17 of the United States Code, which deals with copyrights. Since 1964 software is considered a form of literary expression and is protected as such. In 1980 the Copyright Act was amended to explicitly include software programs. In 1992 the penalties were stiffened to punish those who violate these laws.

It is illegal to copy licensed software without the specific authorization of the copyright owner.

This means if you illegally copy or distribute software for your own use or for use by your organization, you are committing a federal crime. This illegal distribution of software is called software piracy, and is the cause of billions of dollars of lost revenue for vendors each year.

If caught with pirated software, you and your company may be tried under both civil and criminal law.

Civil action suits may be instituted for injunction, actual damages (including infringer’s profits), or statutory damages up to $100,000 per work for copy–right infringement and $1 million per mark for trademark infringement. Criminal penalties include fines up to $250,000 and jail terms up to five years, or both, for unauthorized distribution of 10 or more copies of software with a total retail value exceeding $2500.

Tips to Maintaining Software License Compliance

How do you know whether your firm is in software compliance? And how do you maintain software compliance once you’ve verified that you are?

  1. Inventory what you’ve got. Compare the number of software licenses you have to the number of copies of software you have. They should be the same. It’s okay to have extra licenses that are not currently in use. Many firms buy packs of licenses when planning for the future.
  2. If you have more software in use than you have licenses, either purchase more licenses or remove the software.
  3. Appoint a Software Manager to develop and maintain software acquisition and licensing procedures, conduct periodic audits, and educate users on company licensing policies.

    Funneling all software purchases through the software manager will enable your firm to maintain appropriate licensing documentation records.

A Word of Caution

Don’t confuse licensing and registering. They are not the same. Vendors use product registration to keep in touch with their customers, to keep them informed, and to promote future sales. Just because you’ve registered your product does not mean you have a license for that product.

Beware of “too good to be true” pricing of licensed software. It probably is. It’s probably pirated software, which is not a deal at all.

A Final Thought

Software can be a significant investment for many firms. Having appropriate software licenses protects this asset. With it comes software documentation, technical support for the product, product upgrade offerings, a legal copy of the software, and … peace of mind.

Looking back, I guess software licensing really is a lot like the air in basketballs. You can’t afford to be without it.