Why There Is a Need for a Software License Agreement

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Commercial & Corporate Law

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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What Is the Purpose of a Software License Agreement

If you are a developer, it is essential for you to contract the services of an experienced software licensing attorney. A software licensing attorney can safeguard your creations by drafting a licensing agreement that reflects and protects your interests and desires.

Without this agreement, any party can exploit your efforts and profit from your hard work. You may also face unexpected business liabilities without an airtight software license agreement.

What Is a Software License Agreement?

Software license agreement definition: An agreement that protects software developers.

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 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.

Types of Software License Agreements

How Does a Software License Agreement Work

Generally speaking, two principal types of software license agreements exist:

  • Free and Open-Source Software (FOSS Licenses): Free and open-source software licenses make the software and the software's source code available to the customer, which allows them to change the code at will.
  • Proprietary Software Licenses: Often referred to as closed-source licenses, proprietary licenses allow customers to receive the software's operational code but do not give customers the ability to alter the code.

Proprietary software licenses also typically restrict customers from reverse engineering the operational code to acquire the source code.

But these are only the two main categories of agreements. There are an additional five types of software license agreements.

Public Domain Licenses

Public domain software license agreements allow users unfettered access to a software's source code and permit users to adapt or change the software as they see fit.

Users who alter code should always be cautious of the potential security and operational risks caused by alterations.

GNU Lesser General Public Licenses

This type of license gives developers the right to use elements of open source and free code in the development of both free software and software that is proprietary. With a GNU lesser general public license, developers can study, distribute, run, and improve the software.

Permissive Licenses

Permissive licenses are among the most widely used types of open-source licenses. They come with light restrictions regarding software distribution and modification and typically vary from license to license with respect to trademark, copyright, and other important licensing agreement terms.

Copyleft Licenses

Under the terms of a copyleft license, software may be run, modified, and distributed as long as the resulting or derivative software products created by the modifications may also be run, distributed, or modified as well. No restrictions may be placed on post-modified software programs.

Proprietary Licenses

Proprietary licenses are the most restrictive of all the licenses. They do not allow users or developers the right to modify, copy, or distribute their software. Hence, proprietary licenses offer software developers the highest form of intellectual property and copyright protection.

How Does Software Licensing Work?

what is a software license agreement

Software licenses typically define the rights and obligations of the developer and the end user. They usually contain important clauses that detail the payment and use of the software, including:

  • When and how often the software may be downloaded or accessed.
  • Cost and payment terms for the software license agreement.
  • Accessibility of the software's source code.

Generally, a software license agreement will most often take the form of an end-user license agreement. The terms reflected in the agreement will detail the relationship between the user and the developer or software company.

Software license agreements also usually involve the use of a product or license key, which identifies and verifies a user's version of the software.

The user needs this key to unlock the software and to take full advantage of the software's features.

What’s Included in a Software License Agreement?

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

types of software license agreement

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 if 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 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.

Creating a Software License Agreement

software license agreement definition

The creation of a software license agreement must be done with care. Once in force, the agreement terms will dictate the rights and relationships of each party. Changes to the agreement are difficult but possible. Getting it right the first time is always preferred.

Although templates exist, it is much safer and more effective for all parties entering the agreement to enlist the services of an experienced software license agreement lawyer, especially for the software developer who has intellectual property rights on the line.

When dealing with license creation, you will typically work with negotiated and non-negotiated licenses. Non-negotiated licenses do not allow you to negotiate the terms and require a simple acceptance or a denial.

Negotiated licenses, on the other hand, allow the parties involved to haggle over terms they feel should be included.

Why Software Licenses Are Important for Your Business

Software licenses are important because they protect developers, providers, and users. These licenses protect developers by:

  • Creating contract terms in accordance with established intellectual property and copyright laws.
  • Detailing of the limitations regarding the use of the source code.
  • Outlining the vendor's limitations.

Each of these benefits is essential to the smooth operation of your business.

Licenses provide users with:

  • Explicit terms detailing how users can remain compliant to license terms.
  • Specific outlining of a user's boundaries relating to the use of the software's code.
  • Assistance in maintaining positive relationships with software development companies.
  • Explicit and clear terms that detail how many licenses a user needs.

The clear terms a license provides can prevent overspending on unnecessary license purchases and acquisitions.

Consequences of Not Creating a Software License Agreement

Failure to have a software license agreement in place can lead to significant negative business consequences, including:

  • Liability stemming from illegal use of software
  • Exposure to malware attacks, hacks, and data thefts
  • Substantially reduced operational efficiency
  • Lost resources or capital due to paying for licenses that are not being used

Having a software license in place is absolutely essential for your protection and growth.

Let Our Legal Team Craft Your Software License Agreement

As a developer or software business owner, you deserve to have a professional handle your legal agreement affairs. From preserving license notices to creating and managing software licenses, qualified legal counsel can do much to protect your software business.

Sequoia Legal knows how important financial and economic gains are to your future and can provide you with the protection you need to safely conduct business in the software realm. Contact us today to discuss your future.


How much does a software license cost?

The cost of a software license depends on the circumstances. Some license agreements involve the payment of a one-time fee, whereas others may involve an initial fee, plus one or more subscription payments.

Can a software license agreement be modified?

Yes. A software license agreement can be modified. However, it can only be done if all parties involved in the software license agreement agree to modify the terms of the agreement.

Is a software license agreement the same as a software maintenance agreement?

No. A software maintenance agreement deals with the general support and maintenance of a piece of software. The software license agreement, on the other hand, covers the terms of the software's use.

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Schedule your consultation today and get expert legal guidance for your business in Denver.

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Power Your Growth with Confidence: Business Law at Sequoia Legal

Schedule your consultation today and get expert legal guidance for your business in Denver.

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