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Software Licensing – Basics For Business

A Software License Agreement grants a person (or institution) the right to use a software product in a particular manner or even for a particular period of time. As software is considered intellectual property you are in effect purchasing the right to use the software from the intellectual property owner. Businesses use many different software such as client management software to run their business.The terms of the license agreement and the copyright law itself describe the ways in which the software is allowed to be used. Software License Agreements, despite the industries attempt to put them in a context that can be easily understood by their average customer, can still be quite confusing and are seldom read by the average software user. However these License Agreements are legally enforceable and as such bring with them a high degree of liability should one fail to comply with their stated terms. The software industry has effectively employed a trade group called the Business Software Alliance (BSA) whose duty is to educate and enforce compliance by means of heavy monetary penalties. Several legal problems do exist however for the software developers as their license agreements have been accused of violating U.S. Constitutional Rights such as in the case of a Network Associates License Agreement that prohibited its users from posting negative comments about the product. Other problems include the sale of software to minors who are not of age to enter into a legal contract.

At present commercial software licensing is distributed in the three following methods:

Retail Box / Fully Packaged Product – These products are found on the store shelves of local retailers or authorized outlets and offer the least conditional form of license agreement. The Retail Box always includes a manual or other printed documentation, End User License Agreement (EULA) and media. Traditionally these products represent the highest tier of the pricing structure which often requires installation of specific software, such as contractor estimating software. Retail Box products will permit the transfer of the software to another PC as long as the EULA, media, and documentation accompany the transfer. This however may not be acceptable in case of a BSA audit as they often refuse to accept any proof of purchase other than an original showing a sale between the authorized retailer and the initial end user.

OEM – An Original Equipment Manufacturer is a person or institution that builds and sells computers. An OEM license agreement allows PC builder to pre install a licensed copy of a software package with the system. This type of license is less expensive than a Retail Box License but does come with more restrictions on the use and transfer of the software. When a PC is purchased with a pre-installed OEM software package it will include the media, an abbreviated set of documentation, a Certificate of Authenticity ( usually containing a product key code ) and will contain an electronic EULA that must be agreed to upon initial use of the system. OEM software can not be moved from the PC it was originally installed on even if that PC is no longer operational. Upgrading of PC components is permitted with the exception of the Mother Board which would qualify as a “New PC” and as such would void the OEM license agreement. It should also be noted that unlike Retail Box software OEM software is supported solely by the Equipment Manufacturer and not the software developer.

Open / Volume License – The most common method used by business to acquire software is through the use of an Open or Volume License. A common requirement for Open License programs is that the customer must have at least 2 PC’s and purchase a minimum of 5 licenses. Although the most intangible of all the distribution methods software acquired under an Open License agreement is the most flexible and the license is either valid indefinitely or for a set period of years. Open Licenses are sold at the lowest tier of the pricing structure and represent the greatest savings for customers as discounts can be offered with large purchases. Several software developers offer specialized Open License programs for educational or large business customers. When purchasing an Open License the buyer is supplied only with a proof of purchase and the media is sold separately. Should the user wish to upgrade the software version he must enter into a new Open License Agreement unless some provision was initially made to allow for free or discounted software upgrades such as through the Microsoft Software Assurance program.

To inquire about the best licensing options for your firm feel free to call or e-mail a CSN sales representative.

Andy Wendt
Network and Security Consultant
Helping Businesses Manage Technology
Toll Free: 877-422-1907 x226


  1. Very well put! Perhaps every IT guy should print out a copy of this for company executives???

  2. Thanks for compiling this information!

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