Key Takeaways

  • Software licenses define how software can be used, modified, distributed, and shared, protecting both creators and users.
  • Beyond basic categories like perpetual or subscription, software license types include proprietary, open-source, copyleft, permissive, public domain, and hybrid models.
  • Open-source licenses allow free use and modification, while proprietary licenses restrict use and often require payment.
  • Copyleft licenses require derivative works to remain open-source, while permissive licenses allow more flexibility.
  • Understanding license obligations is critical for compliance, risk management, and intellectual property protection.

Knowing the different software license types is crucial for any business owner. If you intend to create and distribute software, or if you plan to utilize software in your business, being aware of the different forms of licensing uses can be a critical part of your business structure.

What is Software Licensing?

According to Wisegeek, software licensing is a form of contract between a person in a company that creates a type of software and the person who downloads or buys the software to use for his or her own purposes.

Software licensing exists to protect a copyright of software and can restrict the way that the user can use it. In general, the restrictions consist of copying the software or having it installed on more than one device.

Making any changes to the software or altering the code is also a violation of a software license. Any software that has a copyright and is covered by a license is done through different methods, meaning there are different types of licensing that can be used.

Software License Types

There are different individual software licenses you can choose:

  • Perpetual: This lets the customer install and utilize the software for an indefinite amount of time. There is limited technical support, typically 90 days.
  • Subscription: This license lets the user utilize the software for a certain amount of time. It will include technical support and allows the user to access upgrades or patches that are offered during the subscription period. At the end of the subscription, the user has some different options, such as:

1. Renew the subscription

2. Buy a perpetual license at a discount

3. Remove the software from the device

  • Freeware: This license is provided by the creator that lets the user use the software for free without paying any fees.
  • Shareware: This allows for a trial period of software use. If the user likes it, they can then pay a shareware fee or discontinue use of the software.

There are also Special Channel Licenses:

  • Original Equipment Manufacturer (OEM): A license that covers software for notebooks and stand-alone personal computers that have to remain bundled alongside the computer system and may not be sold as a stand-alone product.
  • Educational Software: This is any software that is labeled for distribution to students and educational institutions at a reduced cost. It is labeled for such use.
  • Not for Resale: This license specifies that it is made available by vendors of the software to the distributor and are marked NFR. It is not licensed for commercial distribution.
  • Concurrent Use: This license will require you to buy a license for all of the people who will be using the software at the same time.

In addition, there is also special licensing for individuals and multi-users:

  • Volume License: This allows you to install software on a specific number of computers. You will be required to make a minimum purchase to get a reduced price. When you buy the licenses, there is one copy of the software and instructions on what to do when you want to buy more.
  • Site: It provides you access to the software at a certain location.

The following are network and multi-user licenses:

  • Server License: Provides for a license per each server. It requires you to have one copy remaining on your file server. A certain number of CALs are offered per server. There is a set number of devices that can access the software per server.
  • Per Seat: Provides for a license per each machine. You will need to buy a license for every computer or device using the software.
  • Per Processor: You will buy a license for every processor on the server that is running the software. It will include access for an unlimited number of users. You will not need to buy anything additional.
  • Per Mailbox: This is for education customers. If you are using an exchange server, you can also deploy a license through mailbox mode.

In addition to all of these licenses, there are some extra add-ons that you can purchase. An upgrade can be purchased if you want to move to a newer version of the software you already use. You can also purchase a student-use add-on for students to utilize at educational institutions.

Hybrid and Dual Licensing Models

Some software projects combine elements of multiple licensing models to balance flexibility, control, and commercialization potential. These hybrid licensing structures are increasingly popular in enterprise environments and cloud-based software distribution:

  • Dual Licensing: Software is available under both an open-source and a commercial license. Companies can choose a free open-source version or pay for additional features, support, or proprietary add-ons.
    • Example: MySQL offers a free GPL version and a paid enterprise version.
  • Freemium Licenses: A limited free version is offered, with advanced features accessible under a paid license. This is common in SaaS products and developer tools.
    • Example: GitHub provides free accounts with optional paid plans for advanced features.
  • Source-Available Licenses: The source code is visible but not truly open-source. Users can review and sometimes modify the code, but redistribution or commercial use may be restricted.
    • Example: Many AI and cloud platforms use this model to allow transparency while retaining IP control.

Understanding Major Categories of Software Licenses

Software licensing goes far beyond perpetual, subscription, and OEM agreements. At its core, every license determines how software can be used, modified, shared, and redistributed — making it essential for businesses, developers, and users to understand the different software license types and their legal implications.

Here are the most common categories you should know:

  1. Proprietary Licenses
    These are the most restrictive software license types. Under a proprietary license, the software publisher retains all ownership rights, and users are granted limited rights to install and use the software under specific conditions.
    • Examples: Microsoft Windows, Adobe Creative Cloud
    • Key features: No source code access, strict usage limits, usually require payment or subscription.
    • Legal considerations: Breaching license terms — such as reverse-engineering or redistributing — can lead to serious legal consequences.
  2. Open-Source Licenses
    Open-source licenses grant users access to the source code, allowing them to use, modify, and distribute the software, often for free. However, the degree of freedom varies depending on the specific license.
    • Examples: Linux, Apache HTTP Server
    • Key features: Transparent source code, collaborative development, and broad reuse rights.
    • Use cases: Ideal for developers seeking flexibility and innovation without vendor lock-in.
  3. Copyleft Licenses
    A subset of open-source licensing, copyleft licenses require that any derivative works or redistributions remain under the same license. This ensures that software stays free and open even when modified.
    • Examples: GNU General Public License (GPL)
    • Implication: Any product built using copyleft software must also share its source code under the same terms.
  4. Permissive Licenses
    These licenses offer more flexibility than copyleft. They allow developers to modify, distribute, and even commercialize software without strict requirements on derivative works.
    • Examples: MIT License, Apache License 2.0, BSD License
    • Benefit: Popular among startups and commercial developers because they support closed-source projects built on open-source foundations.
  5. Public Domain Licenses
    Software released into the public domain is free for anyone to use, modify, and distribute without restriction. Some developers use “public domain dedications” or “zero-licensing” to waive their rights.
    • Example: Unlicense
    • Caution: Because public domain software often lacks warranties or guarantees, businesses should review its security and compliance risks before use.

Frequently Asked Questions

  1. What is the difference between proprietary and open-source software licenses?
    Proprietary licenses restrict use, modification, and redistribution, while open-source licenses allow users to view, change, and share source code, often freely.
  2. What does “copyleft” mean in a software license?
    Copyleft requires derivative works to be licensed under the same terms as the original software, ensuring continued open access and sharing.
  3. Can open-source software be used for commercial purposes?
    Yes, many open-source licenses permit commercial use. However, some require you to share your modifications or adhere to certain conditions.
  4. What is dual licensing, and why is it used?
    Dual licensing offers software under both open-source and commercial licenses, giving users a choice between free use with obligations and paid use with fewer restrictions.
  5. Are public domain software licenses risk-free?
    Not necessarily. While they remove most legal restrictions, public domain software often lacks warranties, updates, or security guarantees, which may increase business risks.

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