Understanding software licences (part 2)

In the first part of this blog, we explained what a software licence is. In this part we will look at the different types of software licences and share some practical tips to help you get started in terms of producing the software licences you need.

Software licences can be broadly categorised into two types:

  1. Open-source licences
  2. Proprietary licences

The key differentiator lies in the Software owner’s ability to control onward distribution, amendment or commercial use of the software code.

Whilst open-source licences will typically not generate any revenue and also mandate that the user must be able to freely use the source code of the software for any purpose (including sharing with others), a proprietary licence is often referred to as “closed source”.

This means it will provide the user with an operational code but can contain any restrictions which the software owner wishes to include, including preventing any alterations, redistribution, sub-licensing or reverse engineering to discover the source code.

For more information on open source licensing, please download a free copy of our white paper: Open source, software patents or a combination?.

There are of course licences which fall between the extremes of “open” and “closed”. Care should be taken to consider the specific requirements of the user and developer when drafting or negotiating any licence arrangement for software.

For instance, are there any subsequent fixes or enhancements required to the software on an ongoing basis to retain usability or security? If so, a perpetual licence (without any provision for maintenance or updates in the same or separate agreement) may not be suitable as the software remains “as-is”. This could leave it vulnerable to cyber-attacks or quickly become outdated in terms of usability.

A further example is copyleft licences which are more frequently being used due to their flexibility in enabling modification of the proprietary code which supports open developmental work, whilst allowing the original developer to continue to control and own their software protected by copyright.

The licence mandates that any derivative work on that software must be distributed under the same or equivalent terms of the original licence meaning that the copyright in the original work is preserved.

For example, the “GNU General Public Licence” permits all end users to share, run and freely modify the software in relation to a series of operating systems commonly known as “Linux”.


It is prudent to fully understand the terms of your licence or potential licence.

We have outlined below some considerations that should be made when reading, entering into or drafting a software licence:

  • Consider the restrictions on use of the software. Are they viable for your current and future plans? For example, is the licence for a specific server or location?
  • Establish whether the licence extends to all other companies in a group or encompasses any permission for assignment.

Alternatively, can sub-licencing to external parties be used for outsourcing purposes (e.g. passing the right to use software to an external company who accesses some of your functions to provide services to you)?

  • Consider whether rights to amend and update the software are required - if so, who will do this? The software owner, the user or a third party?
  • Check for maintenance obligations in place for fixing any defaults and consider whether a service level agreement is appropriate. Who will maintain the software, and to what standards?
  • Check who is controlling any personal data. Will there be any processing of personal data or data protection issues in relation to the licence?
  • Consider any protection against claims arising from any software that may infringe third party rights.

Potter Clarkson has a team of specialist solicitors and attorneys with experience in leveraging and protecting software as an asset. Please get in touch if you would like to find out more.