What Is the Purpose of a Software License Agreement?

Commercial & Corporate Law

What Is the Purpose of a Software License Agreement

Any software provider must have good software license agreements and understand the basics of software contracts. If you don’t already have a license agreement for your software, and you’re providing or planning on providing your software to customers, it’s time to consider protecting you and your business.

Consider this your software agreement for dummies!

What Is a Software License Agreement?

A software license agreement is designed to establish and set the terms of the agreement between the seller and purchaser of the underlying software. It is a contract between the author and/or licensor of the software and the customer purchasing and using the software.

Typically, the software contract terms explain how the software can be used and where it can be used.

When you create a software license agreement, you are also establishing the rights of all parties involved with the contract in the clearest manner possible.

Software license agreements are distributed and agreed on digitally. They are typically “signed” when a user clicks on an “OK” or “I accept” button after being presented with the agreement until the purchase has been completed and the user begins to use the software.

What Is The Purpose of a Software License Agreement?

Software License Agreement Purpose

A typical software license agreement protects your business operations by doing all of the following:

Prevents Abuse

Your software is your property, and a license agreement ensures that your customers and users cannot replicate or copy the software for any purpose, whether to bypass payments or to modify and/or sell to other users.

It has long been a common trick for users to copy software and continue to use it without making necessary payments or replicating the software so that it can be used on more computers and by more users than they are entitled to.

This is a form of stealing as it denies your business of profits that come from making those additional sales. A license agreement informs customers that they cannot use your software in any other way than is outlined as permissible in the contract and gives you legal rights in the event that users violate those terms.

Limits Liability

Software license agreements can protect you and your business from lawsuits. If a user feels as though your software caused them a significant enough problem that it warrants a lawsuit, even if the case is frivolous, not having a license agreement could cause you to spend enormous sums of money hiring lawyers and defending yourself.

Crafting the right license agreement is important. It gives you an opportunity to pre-empt any possible lawsuits or opportunistic tactics, whether they relate to your software crashing or a user misunderstanding how the software should be used.

It is key, however, to ensure that all liability clauses are fair for both parties. That’s where our expert attorneys at Sequoia Legal come in.

Gives You the Right to Terminate Use

Without a license agreement, revoking licenses could prompt lawsuits. However, by establishing your right to terminate use and revoke licenses at any time, you’ll have the freedom to stop users from using your software for whatever reason.

So whether you’ve found a problem with your software and want to amend it before users continue using the software, or you are unhappy with the way in which your software is being used, a software licensing agreement gives you the right to revoke a license and avoid a dispute with your customers.

Issues Disclaimers

A software licensing agreement allows you to inform users and customers that there may be times when the software does not work as intended and that it may take some time to fix bugs to ensure the software works properly. Insert the appropriate conditions and disclaimers into your license agreement, and you can ensure that customers don’t attempt to take legal action in the event that bugs occur in the software.

This is an essential part of a licensing agreement for a software maker as it gives you some leeway and an opportunity to constantly work on and improve your software – or to leave those bugs in place if you prefer.

Allows Licensing and Not Sale

Finally, under standard software terms and conditions, you will explain how customers are licensing your software when they make a payment to you – or download the software for free - rather than purchasing the software outright.

When you license software, you retain all rights over the product and can dictate how it is used. You will also be able to dictate the terms of distribution, decide what kind of companies and organizations use it, and continue to sell the software to as many customers and clients as you like.

How Does a Software License Agreement Work?

How Does a Software License Agreement Work

A software license agreement is a legally binding contract between the author/distributor of the software and the user or purchaser. These contracts are enforceable as long as the contract is clear and agreed upon by both parties at the time a payment is made or when a user begins using the software.

In order for a software licensing agreement to fulfill its purpose, it must encompass everything listed below.

Software License Agreements Coverage

When drafting a software license agreement, you should consider the four following areas of coverage:

General Information

Start your license agreement with general information about the agreement, including when the agreement comes into effect and how long it will be active.

Explain to your customer or the software user the purpose of the agreement and provide any other relevant information about the agreement, why it’s important, and so on.

This section should also explain why the agreement is necessary and make it clear that users cannot use or license the software without first agreeing to its terms.


Under the “parties” section of the agreement, you will lay out exactly who is entering into the agreement. You’ll explain your role as the licenser of the software and who is purchasing the license.

The agreement will need to include the full name and address, general contact details, those purchasing the agreement, and specify whether they are individual users or companies. You will also need to provide this information about yourself and your company.


Next, you will explain in clear detail the terms of the agreement. If the software is not free to use, you should define your software’s pricing structure and how much a user needs to pay. Specify whether it is a flat, one-time fee or if it is a recurring fee. You should also specify the cost of the software for multiple users.

Other Specifics

As every business operates differently, you should also include any other fine details and specifics that are relevant to the transactions but not covered in the sections outlined above.

Main Clauses of Software License Agreements

Within those four general areas, there are several main clauses that you should always include in your software license agreement. Every agreement is different because every piece of software is different, but the following clauses should always be used.


A non-exclusivity clause allows you to continue licensing out your software to as many people and companies as you like. Without a non-exclusivity clause, you may not be fully legally protected in the event that you want to license out the software to multiple commercial enterprises.


Furthermore, a non-transferability clause ensures that your users or customers know that they cannot transfer the software they purchase to another party.

If one customer transferred the software to another party, you’d lose out on a sale, making this an essential clause for any software license agreement. This clause is an enforceable agreement that stops your customers from transferring the license to other parties.


If you do not want your customers or users to modify your software, then this clause details that limitation. You’ll need to explain precisely what you mean by “modification” so your users know what they can and cannot do.

A clause like this stops users from modifying and distributing your software to other users. This is important for many reasons, but perhaps most importantly, it helps protect your software brand and reputation. If users modify and re-distribute your software without informing other users, it could result in users you have never interacted with being infected by malware and wrongly believing that malware came from you, the original publisher.


In the rights clause, you’ll need to explain how you, the publisher, retain the rights to the software even after it is licensed out. You’ll need to explain that you retain the rights to the software itself, the copyright, intellectual property rights, and distribution rights.

This is one of the most important clauses for protecting your ownership of the software.

Breach of Contract

The breach of contract clause outlines what happens if a user violates the terms of this agreement – specifically, your ability to revoke the license at any time. You may also wish to reference any other legal action that you would be willing to take in the event that the contract is breached.

Limitation of Liability

This is the clause that explains to a user that they accept the software as is and that they will not be able to sue you, the publisher, for certain damages if the software does not work as intended.

This is perhaps the most important clause for protecting you from lawsuits.

Device Usage

Here, you can describe whether the software license allows a user to access the software on one or multiple devices. Some software publishers allow their software to be used on only one device, or on multiple devices as long as the devices are owned by the same user.


Here, you should outline the terms of terminating the agreement between you and the user – namely, that you can terminate it at any time and that the user must uninstall the software from their device or remove it from their site.

Governing Law

Finally, this clause will detail the governing law for the settlement of disputes that may arise. Ensure that you use your state and legal jurisdiction so you can avoid settling disputes in courts out of state.

Creation of a Software License Agreement

Creating an effective software license agreement that fully protects you requires a good understanding of software licensing laws. You may use templates, or you may simply choose to write it yourself…but neither of those options is as safe and effective as hiring a legal expert to do it for you.

At Sequoia Legal, our team of attorneys boasts years of experience in contract formation. We specialize in creating software license agreements that fully protect you, your business, and your software.

We hope that this post has helped answer the question: “what does a software product license give you?” Without support from seasoned professionals, your license agreement may not protect you in all the ways we have described.

Let Legal Experts Craft Your Bulletproof Software License Agreement

A software license agreement only gives you the protection you need if every clause is meticulously crafted to suit your software, your business, and your precise needs.

At Sequoia Legal, we know that all software is different, which is why we work with you to develop a software licensing agreement that reflects the nature of your product. We know how software licensing works, and we don’t stop until the contract is absolutely right for you.

For more information, or to get the ball rolling on your new software license agreement, call our expert legal team today!

Andrew Lopez

Andrew is the founder and managing member of Sequoia Legal, LLC headquartered in Denver. He advises domestic and foreign companies and organizations, entrepreneurs and individuals on a variety of corporate and international regulatory and transactional matters

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