This article is written by Mayank Verma, pursuing a Diploma in US Technology Law and Paralegal Studies: Structuring, Contracts, Compliance, Disputes and Policy Advocacy from LawSikho. The article has been edited by Zigishu Singh (Associate, LawSikho).
Table of Contents
Introduction
Allowing an individual or group of persons to use a piece of software is known as ‘software licensing’. There are a number of different software licenses. Some are based on numerical devices that a licensed system can operate while others are based on the number of users who can use the system. Many personal computer software licenses allow you to use the program on only one machine and make copies of the software for storage purposes only. Some licenses also allow you to use the program on different computers as long as you do not use copies at the same time. A software license (or software license for a commonwealth application) is a legal instrument that governs the use or redistribution of copyright-protected software.
Genesis of software licensing agreement
Initially, software development was focused on the development of custom software for mainframe computers and other computers. Contracts for this type of custom software were few, and it involved two different parties whose representatives could discuss the terms of such an agreement between them. This model changed when personal computers and their associated software became best-selling items that were available on the shelf.
Users in this market are increasing in large numbers. The software editor and user were unable to come face-to-face with the terms of the license. The terms of those licenses should therefore be uniform and concise. The software license agreement was required to be presented to the customer in a manner that would allow for mass distribution of the software, but it would draw customer attention in cases where the publisher promised to allow the use of the software to stop and reappear due to the provisions of copyright law and other Acts in the USA.
Types of software licenses
Software licenses can usually fall into the following categories: Proprietary Licenses, Free Software Licenses, and Open-Source Licenses. It is important to distinguish their features in terms of their impact on the end users’ rights.
(a) Proprietary software is computer software that is the legal property of one party. Terms of use of third parties are defined by contracts or licensing agreements. These Terms may include various rights to share, modify, share, and use the software and its code.
(b) A free software license is a software license that gives recipients the right to modify and redistribute software that is not prohibited by copyright law. Free software license grants, for recipients, freedom in the form of permissions to modify or distribute copyrighted work.
(c) Open-source software means any program whose source code has been made available for use by users and made available for free. Open Source allows users to view and edit source code.
Among the three types of licenses, the open-source software license has a major impact and covers a large percentage of the market.
Factors affecting licensing provisions
- What kind of software is licensed?
- Software’s potential future market.
- Various risks involved in distributing the software.
- Level of easiness or difficulty in charging different user’s different prices?
Few examples of software licensing policies by some major vendors
Microsoft
It provides three types of licenses:
- OEM License: For a PC manufacturer that integrates OS and PC.
- Sales license: For products off the shelf.
- Volume license: When the cost is less than Rs 5 lakh per product
However, the most popular is open licensing. In addition, the company introduced a new business policy last year, namely the software assurance program. The program has received mixed reactions from the industry, with some opposing the idea of paying for the software in advance.
Adobe
It has three volume license programs.
- Transactional licensing program: This is for organizations with less than 10 operating stations. The program is open to corporate, government, educational and small business clients, and integrates a wide range of Adobe products.
- Contract licensing system: This is aimed at large organizations that need the latest version of Adobe software. By participating in CLP, they receive the benefit of a large purchase discount, and have the option to distribute license fees as well as costs during the contract period.
- Site licensing system: It facilitates the distribution of Adobe Acrobat 5.0 throughout the organisation as it provides a serial number for a single site license and reduces the risk of compliance.
Typical licensing provision in the licensing agreement
- Software usage on designated computers only.
- Software use in a specific location only.
- Use of software to process licensee data only.
- Prohibition of software use on any computer system that can be accessed by remote terminals.
- Prohibition of software use on computer networks.
- Prohibition of copying of all but familiar and historical purposes.
- Prohibition on reversible engineering code.
- Software modification ban.
Classification of software licensing agreements
Some different types of software licensing agreements that are commonly used are
- Click wrap agreements,
- Shrink wrap agreements,
- Browse wrap agreements,
- Network licensing agreements.
Click wrap agreements
Click-wrap agreements are those in which a party, after going beyond the terms and conditions provided on a website or program, must express its same authorisation, by clicking on the “I agree” icon or rejecting the same by clicking “I do not agree”. These types of contracts are widely used online, whether to grant permission to access the site or to download software, or sell something in the form of a website.
The question of the legitimacy of Click-wrap contracts came up for consideration for the first time in 1998 in the famous case of Hotmail Corporation v. Van $ Money Pie Inc, et al when the northern California regional court indirectly upheld the law. The validity of those licenses stated that “the defendant was bound by the conditions of the license as he clicked on the” I Agree “box indicating that he admits the charges”. This decision was also followed and approved by the court of law in Groff v. America Online, Inc.
Shrink-wrap agreements
Shrinkwrap contracts are derived from the “shrink-wrap” package usually containing CD Rom of Softwares. Terms and conditions of access to certain software are printed on the CD wrinkle cover and the buyer then undergoes the same cover to access the CD Rom. Sometimes, additional conditions are also applied to those licenses, which appear on the screen only when the CD is downloaded. The user has the liberty to return the software for a full refund if the terms and conditions are not suitable for him.
The validity of Shrink-wrap agreements first emerged to be considered in the popular case of ProCd, Inc v. Zeidenburg where it was held “that the very fact that the purchaser when reading the terms of the license that are featured outside the wrap license opens the cover being coupled with the fact that he/she accepts the whole terms of the license that appears on the screen as it is by a keystroke, constitutes an acceptance of the terms by conduct.”
Browse-wrap agreements
There are many agreements posted on online websites that do not require any verification or authorization prior to the licensed use of the software.
Specht v. Netscape Communications Corporation: Specht sued Netscape for breach of privacy on the grounds that Netscape had allowed Specht software downloads to its websites. On the Netscape website, there was a DOWNLOAD button, whereby clicking the visitor could start downloading. Only if the visitor scrolled down on the next screen would there be a license agreement. The visitor was not required to accept this agreement. The court refused to enforce this browsing license finding that its terms were not authorised.
Network licensing agreements
License agreements and related prices must be consistent with current network conditions. The proliferation of networks is causing licensing processes to change rapidly in order to meet the needs of users and vendors. Current network licenses apply to simultaneous use, site, business, and nodes. Simultaneous operating licenses authorise a certain number of users to access and use the licensed software at any time. Site licenses authorise the use of one site but lose popularity in business licenses covering all sites within the business due to multiple visible computer sites. Node licenses are increasingly appropriate for the client/ server environment, as licensed software can only be used in a specific operating environment where the user must log in to access and run the application.
Measurement software (“license manager”) allows merchants to adapt to the licensing process. This management software monitors and limits the number of users or clients who can access and use the software at any time. This is important as the user only pays for the required use and the seller can monitor such usage to protect intellectual property.
Some new, use-related methods have also been adopted by users, such as currency-based licenses. Currency-based licensing grants the user a specific amount of software licenses, that is software licenses for different business plans, provided that the total amount used for a given period is below the set limit.
Breach of software licensing agreements
The breach of software licensing agreements can be done in two ways:
a) Exceeding the scope of the licensed right
As a license is the granting of rights to a licensee to engage in conduct that may infringe on the intellectual property rights of the licensee, any conduct by the licensee in excess of the granted rights. under license will be both a breach of the license agreement and a breach of one or more intellectual property rights.
(b) Use of a disable code in software
There may be instances where a software vendor has encoded a software that may cause the software to cease operating under certain circumstances – usually the licensee’s failure to pay. Use of this program is not permitted by a court.
Solutions available for breach of software license agreements are the same as for breaches of any contract.
Legal framework of software licensing agreements in India
Copyright law
India’s copyright law is modern and adequate. In addition, the copyright law is based on the changes required by TRIPS.
1. The execution of any action necessary to obtain information necessary for the cooperation of a computer program created independently by other programs by the legal owner of the computer system unless such information is not readily available;
2. Monitor, research or evaluate the performance of a computer program to obtain ideas and principles that underpin any aspects of the system while performing those actions required for the functions the computer system is provided;
3. Copying or modifying a computer program with a copy that is legally available for commercial use; they are not considered copyright infringement.
Contract law
A breach of contract under Section 75 may very well protect infringement under software license agreements. Violations of license conditions however are subject to reasonable interpretation. The licensee may protect the license by expressly providing the terms and conditions under the agreement relating to the rights and liabilities of the licensee and the licensor himself. The only problem that arises in the active market is the standard terms of the license which the licensee often ignores while accepting the license before downloading the software. Indian courts have a broken view on these STANDARD TERMS. Some favor retailers and some favor the licensee.
Trade secret law
There is no properly drafted trade secret law in India but the breach of confidentiality can be dealt with by the Indian Contract Act.
Income tax
Income that arises from allowing the ‘right to use’ to Indian software buyers is the sale of copyrighted articles which doesn’t include the transfer of copyright and the receipt is not royalty under Section 9(1)(vi).
Legal framework of software licensing agreements in US
In the United States, Section 117 of the Copyright Act entitles the holder of a limited copy of the Software to use the software and the computer, even if they use of computer software requires copying or temporary modification (actions that may be copyright infringement). Therefore, the owner of a computer copy of the software is legally entitled to use that copy of the software. Therefore, if the end-user of the software possesses a suitable copy, the end-user may lawfully use the software without a license from the software publisher.
Ideally, proprietary software licenses try to give software publishers more control over how their software is used by maintaining the ownership of each copy of the software in the software publisher. In doing so, Section 117 does not apply to the end-user and the software publisher may compel the end-user to accept all terms of the license agreement, many of which may be restricted by copyright law only.
Considering the context of mass-produced software for sale in stores, there are serious problems with the type of software licenses. In the United States, the Uniform Commercial Code (UCC) regulates many commercial activities, including the sale of goods. United States courts have repeatedly viewed the sale of property as a normal sale of goods within the UCC definition. Ideally, as with the sale of all types of goods, the ownership of a copy of the software extends to the buyer through the sale. Therefore, the end user of the software possesses the copy, and, in agreement with Section 117 of the Copyright Act; the license is not officially compulsory for the end-user to use the software and computer.
Conclusion
Before installing any software, make sure to follow the following steps:
- Start installer,
- Choose to install automatically or manually,
- Reviewing the license agreement,
- Specify directory,
- Enter the installation key of the file,
- Select the products to be installed,
- Specify the location of the symbolic links,
- Specify the location of the license file,
- Start installation.
References
- http://www.webopedia.com/TERM/S/software_licensing.html
- http://www.gnu.org/gnu/thegnuproject.html
- http://wgbis.ces.iisc.ernet.in/foss/index2.php?option=com_content do_pdf=1&id=20
- http://www.expresscomputeronline.com/20021216/indtrend1.shtml
- http://www.legalserviceindia.com/articles/econtracts.htm
- http://www.indiaitlaw.com/eleccont.htm
- http://www.networkmagazineindia.com/200504/analystviewpoint01.html
Students of Lawsikho courses regularly produce writing assignments and work on practical exercises as a part of their coursework and develop themselves in real-life practical skills.
LawSikho has created a telegram group for exchanging legal knowledge, referrals, and various opportunities. You can click on this link and join:https://t.me/joinchat/L9vr7LmS9pJjYTQ9
Follow us on Instagram and subscribe to our YouTube channel for more amazing legal content.
