Software Licensing Types, Agreements and Violations

What is Software Licensing?

Any software is legally made available for use to the user by the software development company using licensing. If software is used without licensing, it is called software piracy. Software piracy is the unauthorized use, copying or distribution of copyrighted software. Gaining illegal access to protected software, also known as "cracking". According to Section 63 of the Copyright Act 1957, software piracy is a crime, which can result in a jail term of at least six months, up to a maximum of three years, and a fine of anywhere between fifty thousand and two lakh rupees. The original meaning of piracy is "robbery or illegal violence at sea", but the term has been in use for centuries as a synonym for acts of copyright infringement. Theft, meanwhile, emphasizes the potential commercial harm of infringement to copyright holders.?

A software licensing agreement is a contract that establishes the terms and conditions under which a piece of software is being licensed (i.e., made legally available for use) from the software developer (owner) to the user.?

There are two different software licensing types: free and paid.

Free software licensing includes:

(1) Open source: The software may be used, copied, studied, modified and redistributed as required. Open source is usually accompanied by the program source and a copy of the software license (for example, the GNU General Public License). The copyright holder grants users the rights to use, study, change, and distribute the software and its source code to anyone and for any purpose. The idea of making source code freely available coined in 1983 in an ideological movement informally founded by Richard Stallman, a MIT programmer. Stallman believed that software should be accessible to programmers so they could modify it as they wished, with the goal of understanding it, learning about it, and improving it. Stallman began releasing free code under his own license, called the GNU General Public License. Open source code is usually stored in a public repository and shared publicly. Anyone can access the repository to use the code independently or contribute improvements to the design and functionality of the overall project.

Open source software examples: Mozilla Firefox, FileZilla, Libre Office, VLC Media Player, Linux, Blender, GNU Compiler Collection, Python, PHP

(2) Freeware: The software is free, but the source code cannot be redistributed. Freeware refers to software that requires no paid licenses to use the application, no fees or donations, no restrictions on how many times you can download or open the program, and no expiration date. Freeware is usually a "closed source" with one or more restricted usage rights. You can think of freeware in contrast to commercial software (like Microsoft Office Suite) that’s sold for profit. Instead, freeware products may be distributed for a business or commercial purpose with the aim to expand the market share of a premium product. Though freeware is free software, it maintains its copyright.

Freeware software examples: Adobe PDF, Yahoo Messenger, Google Talk, MSN messenger, Skype, VLC Player, Skype, Microsoft Edge.

(3) Shareware: The software may be free initially; however, this may only be on a trial basis or have limited functionality compared to the full, commercial version (may also be known as trial version, demo ware or an evaluation copy). This is a license to use software for a trial period and then, if you continue to use the software, you must pay a shareware fee or cease using the software. Besides, the user can share the software free of cost during the trial period. Therefore, we can say that these are demo or trial versions of the original software. Hence, the name is also demoware or trial software. The idea of using the software is ‘try before you buy’. These are usually famous for gaming software since the developers provide them to so that users can try any new game.?

Shareware software examples: WinZip, Adobe Acrobat 8 Professional, Fireball, AdBlock Plus.

Paid software licensing includes:

(1) Per CPU (central processing unit) licensing: Depends on the power of the server, specifically the number of the CPUs; could include the number of CPU cores. CPU License means a license to use a software on a single CPU, in support of an unspecified number of users. To operate a software against multiple CPUs within the same computer or different computers, multiple CPU licenses must be purchased. CPU Licenses are limited by processor speed.

(2) Per Seat Licensing: Depends on the number of unique users of the system. Per seat licensing often imposes restrictions on the users. A user may be a person, software or device accessing the software. User licenses may be differentiated by user types, as authorized users, external user, internal user, qualified user, etc.

(3) Concurrent Users Licensing: Depends on the total number of users using the software within a predefined period of time. Concurrent licenses are a type of software license that revolve around the maximum number of users who will use the software at the same time. For instance, if the organization purchases five concurrent licenses, five of their users can access the same software at any given time. With this type of licensing, it is common that more users are registered than actual concurrent licenses available. This model is often found in companies where employees work in different shifts or time zones and access the software at different times.??

(4) Named User Licensing: A named user license is a single license and is individualized. The license, in this case, is made for a specific group of people, and only they can access and use the software. This means if you have a 5 named user license plan, only the 5 registered people selected to use the software will be able to access the software.? ?

(5) Per Workstation Licensing: Depends on the number of individual workstations (NOT users) that connect to the software. Workstation licenses are licenses that permit the installation of an application on a single computer. Before installing it on a different machine the software must be removed from the first machine.

(6) Enterprise Licensing: Usually allows unlimited use of the software throughout an organization without the need to apply any of the rules above, although there may be some restrictions. It is called Enterprise License Agreement (ELA). Enterprises use a large amount of software every day. An average enterprise may have tens if not hundreds of different types of software at work at all times across the organization. While the software is an essential part of what makes an enterprise operate efficiently, software licensing can be difficult and confusing for enterprises. In order to use licenses properly and legally (a major concern for any company), enterprises must first gain an understanding of what licenses are and what their limitations are. A variety of enterprise software licensing models are available today, allowing companies to purchase and deploy licenses in a way that is convenient and economical for the company. Some disaster recovery arrangements may require additional licenses and hosting of additional metering software.

What is a Software License Agreement?

If you are owner of the software, then software license agreement is an agreement between your company and your customers for use of the software you have the rights to. It allows your customers to use your software and details exactly how they can use it. Within the software license agreement, it will detail where customers can install it as well as how and how often it can be installed. Additionally, it should answer questions your customers may have about their ability to copy it, modify it, or redistribute it. The software's price and licensing fees may also be detailed in this agreement. A software license agreement is something you want to have in place to prevent or protect you from infringement of copyright law.

A Software License Agreement is essential for several reasons:

(1) Legal Protection: A software license agreement outlines the rights and responsibilities of both the software vendor and the user. It helps protect both parties in case of disputes or disagreements regarding software usage, distribution, or modifications.

(2) Ownership and Usage Rights: The agreement clarifies the ownership of the software and specifies the rights granted to the user, such as how the software can be used, the number of users allowed, and any restrictions on usage.

(3) Limitation of Liability: A software license agreement typically includes clauses that limit the software vendor's liability for damages arising from the use of the software. This helps protect both parties from potential legal claims.

(4) Intellectual Property Protection: The agreement reinforces the intellectual property rights of the software vendor and outlines how the software can and cannot be used, reducing the risk of copyright infringement or misuse.

(5) Warranty and Support: Software license agreements often include warranty provisions, outlining the vendor's responsibilities for software performance and any support services offered. This ensures clarity on the level of service users can expect.

(6) Compliance and Enforcement: The agreement helps ensure that users comply with the terms and conditions set by the software vendor. It provides a framework for monitoring and enforcing compliance with licensing terms.

(7) Dispute Resolution: In the event of a dispute, having a software license agreement in place provides a legal foundation for resolving conflicts or disagreements between the software vendor and the user.

Overall, a software license agreement is crucial for establishing a clear understanding of the rights, obligations, and limitations associated with the use of software, protecting both parties involved and promoting a fair and lawful software usage environment.

Key Clauses of Software License Agreements:

Software License Agreements typically include several important clauses to govern the use, distribution, and protection of software. Some key clauses include:

(1) Grant of License: This clause specifies the rights granted to the user, such as the right to use the software for personal or commercial purposes, the number of users allowed, and any restrictions on usage.

(2) Restrictions: This clause outlines limitations on how the software can be used, such as prohibitions on reverse-engineering, modifying, renting or leasing the software, or using it for illegal activities.

(3) Ownership: This clause clarifies that the software vendor retains ownership of the software and that the user is only granted a license to use it.

(4) Warranties: This clause covers any warranties provided by the software vendor, such as guarantees of functionality or performance.

(5) Limitation of Liability: This clause limits the software vendor's liability for any damages that may arise from the use of the software, such as lost data or business interruptions.

(6) Termination: This clause outlines the conditions under which the agreement can be terminated, such as breaches of the agreement by either party or the discontinuation of the software.

(7) Governing Law: This clause specifies the jurisdiction whose laws will govern the agreement in case of any disputes.

How an IS auditor can detect the software licensing violations?

Auditors can detect software licensing violations through various methods and practices. Some common ways include:

(1) License Compliance Reviews: Auditors may conduct license compliance reviews to compare the number of software installations or users against the number of licenses purchased. Discrepancies could indicate violations.

(2) Software Asset Management (SAM) Tools: Auditors may use SAM tools to track software installations, usage, and licenses. Discrepancies in data from these tools can help detect violations.

(3) Audit Trail Analysis: Auditors can analyze audit trails or logs provided by software vendors to verify software usage and detect unauthorized installations or usage.

(4) Vendor Reporting: Software vendors may provide reports or audits to verify compliance with licensing terms. Auditors can cross-check these reports with internal data to detect violations.

(5) Employee Interviews: Auditors may conduct interviews with employees to ensure they are aware of software licensing policies and to identify any unauthorized software usage.

(6) Review of Contracts and Agreements: Auditors can review software license agreements, contracts, and purchase documents to ensure compliance with licensing terms and conditions.

(7) Comparing Installed Software with License Agreements: Auditors can compare the list of installed software applications with the licenses purchased to detect any unauthorized software usage.

By employing these methods and practices, auditors can effectively detect software licensing violations and ensure organizations maintain compliance with software licensing agreements.

To prevent software licensing infringement, an IS auditor can suggest implementing a variety of controls, including:

(1) Understand License Terms: Ensure that the terms and conditions of software license agreements are thoroughly reviewed and understood.

(2) Centralized License Inventory: Maintain a centralized inventory of all software licenses to track and manage them effectively.

(3) License Management Tools: Implement tools for managing software licenses that can automate tracking and compliance checks.

(4) Regular Audits: Conduct regular audits to ensure that software use complies with licensing agreements.

(5) Proof of Purchase Documentation: Keep documentation of proof of purchase for all software licenses to verify ownership.

(6) Track License Usage and Assignments: Monitor software usage and ensure that licenses are assigned correctly to users or devices.

(7) Enforce License Restrictions: Apply restrictions as per the license agreement to prevent unauthorized use or distribution.

(8) Educate Employees: Train employees on the importance of compliance with software licensing and the risks associated with infringement.

These controls help in creating a structured approach to managing software licenses and reducing the risk of infringement. It's also important to have clear policies and procedures in place that outline the steps to be taken in case of non-compliance. Regular communication and training for staff can reinforce the importance of adhering to software licensing laws and the potential legal and financial consequences of infringement.