Understanding software licences (part 1)

If you are working with or developing any form of software, you should have a robust licensing agreement in place. But what is a software licence, what does a software licence look like and what types of different licences are there?

Software is a valuable asset for almost every business or organisation. To those developing the software, it is a tool to help execute tasks and a potential generator of revenue. For users it could streamline operations or safely store regulated data.

However, given software is such a powerful tool, with it comes risk and liability.

Within a fast moving and data-driven society it is critical to consider how software can be licensed to leverage it as an asset and extract maximum benefit. To do so, you will need a good understanding of the terms contained within any software licence in place and work with an expert in the field.


A software licence is most commonly an agreement between a software developer or publisher with a user which grants permission to use and/or distribute specific software.

It governs the rights, restrictions and obligations of the parties and protects their interests in the software.

For example, the licence will define the scope of the permitted application of the software and establish the parameters of use. This will help the user reduce costs (e.g. through unnecessary numbers of users) whilst also setting out how they can stay compliant to protect against potential liability for breach of the licence itself.

In turn, the definitions of permitted application and permitted use gives the developer control over the use of the software they have written. By extension, it sets limitations on how any copyright in the code can be used.

The terms may also contain information in relation to fees and payment for being granted permission to use the software. The nature of the fees and payment is largely influenced by how the user implements or uses the software (e.g. is it installed on their servers, or on a cloud-based system with logins for users?), as well as any maintenance or add-ons required.

For example, a subscription-based licence with user accounts may involve a user being charged monthly fees which, upon payment, provide continued access to use the software and can be cancelled upon notice (e.g. one month).

This balances revenue generation for the software developer with flexibility for the user. An alternative arrangement might be payment of a one-time fee to gain all rights required to use the software indefinitely, often referred to as a “perpetual license”. However, this will often exclude any updates, maintenance or other “add-ons” unless there is a separate agreement for those services.

In the next part of this series, we will look at the different types of software licences that are available. In the meantime, if this blog has raised any questions, Potter Clarkson’s team of specialist solicitors and attorneys are on hand should you like to discuss any aspect of leveraging and protecting software as an asset.