A perpetual license agreement, much as the word, “perpetual” implies, provides the licensee rights to the product, for life, provided that they do not violate the terms of the agreement. Perpetual License Agreements are often used in software purchases; the photo editing program you recently purchased may have a perpetual license agreement, so long as you don’t use the software outside the scope of the agreement (allowing a third party to use it, using it for commercial purposes, making copies of it, etc.). A perpetual license agreement often means that the licensee has to pay additional fees to install any software updates provided by the manufacturer.

Many people love perpetual license agreements, as they just have to pay once for the software, then as needed, pay for technical support and any software updates. However, with this structure, you run the risk of your software becoming obsolete as technology changes. That computer game that you purchased with a perpetual license agreement 10 years ago may not be compatible on that brand new computer you just bought. So, every few years, you may find yourself in the position of having to purchase new software to ensure that you remaining up-to-date, compatible with new hardware and with other people’s operating systems.

In fact, there was a time in which perpetual license agreements were the only ones that existed regarding software. That has since changed, and now many software companies provide subscription services or annual licenses.

Subscription-Based Licensing

The subscription-based license model requires the licensee to pay either a monthly or annual fee, generally at the beginning of the licensing period. Maintaining the subscription often then allows the licensee to not have to pay extra for technical support or software updates, as they are included in the cost of the subscription. Should you choose to discontinue your subscription, you will generally continue to have access for the software and it’s updates that went into effect while you were a subscriber, but you will not be eligible for additional updates or tech support unless you choose to re-subscribe. We are seeing this more and more with cloud computing systems such as Apple iCloud.

A benefit to subscription-based licensing is that updates and hotfixes are ongoing and done in real time (how many of us had to sit in front of our computers, waiting for our operating systems to update, upon turning them on or off?), and therefore you are not running the risk of your software becoming outdated, which is a concern with perpetual licenses.

While the subscription-based licensing model can offer value to those customers who require a lot of technical support or (in the case of cloud computing) a great deal of storage space, it can result in other customers over-paying for services. For example, if you are only saving a few photos or documents a month to your cloud, then even the minimum amount of storage space for which you are subscribing, may be well beyond what you actually need or use.

An additional difference between a perpetual license agreement and a subscription-based license is that with the latter, you do not own the software, but rather you are leasing it. This isn’t much of a concern for most people, except for those who prefer to pay a flat rate, upfront, rather than monthly or annual charges.

Which One is Right for You?

Ultimately, it comes down to personal preference. However, there are things to consider beyond what has already been described:

  • Is your company growing rapidly? With a perpetual license, any time you add a new user, you have to purchase an additional license. (Whereas, with a subscription-based license, you will usually get a certain number of users per license, and can then add or subtract, a la carte, as needed.) Is your company going to be downsizing? If you have a perpetual license, you are going to be saddled with all of those licenses your purchased for your former employees.
  • Are you not the most tech savvy individual who may require a fair amount of technical support? Often times technical support is included in the monthly or annual fee you are paying for a subscription-based license, while you may need to pony up an additional fee if you have a perpetual license.
  • How is your cash flow? Does it make better financial sense for you to pay for your license(s) upfront, or in monthly installments? If your company is quite large, the cost of purchasing all of your licenses upfront could be extreme. However, a smaller company may not want to deal with monthly charges, and not wish to include that in their monthly budgeting.

If you need help with Perpetual License Agreements, you can post your legal need on UpCounsel’s marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Stripe, and Twilio