Software Licensing

In 1993 worldwide illegal copying of domestic and international software cost $12.5
billion to the software industry, with a loss of $2.2 billion in the United States
alone. Estimates show that over 40 percent of U.S. software company revenues are
generated overseas, yet nearly 85 percent of the software industry’s piracy losses
occurred outside of the United States borders.The Software Publishers Association
indicated that approximately 35 percent of the business software in the United States
was obtained illegally, which 30 percent of the piracy occurs in corporate settings.
In a corporate setting or business, every computer must have its own set of original
software and the appropriate number of manuals.It is illegal for a corporation or
business to purchase a single set of original software and then load that software onto
more than one computer, or lend, copy or distribute software for any reason without the
prior written consent of the software manufacturer.Many software managers are
concerned with the legal compliance, along with asset management and costs at their
organizations. Many firms involve their legal departments and human resources in
regards to software distribution and licensing.
Information can qualify to be property in two ways; patent law and copyright
laws which are creations of federal statutes, pursuant to Constitutional grant of
legislative authority.In order for the government to prosecute the unauthorized
copying of computerized information as theft, it must first rely on other theories of
information-as-property. Trade secret laws are created by state law, and most
jurisdictions have laws that criminalize the violations of a trade-secret holder=s
rights in the secret. The definition of a trade secret varies somewhat from state to
state, but commonly have the same elements. For example, AThe information must be
secret, Anot of public knowledge or of general knowledge in the trade or business, a
court will allow a trade secret to be used by someone who discovered or developed the
trade secret independently or if the holder does not take adequate precautions to
protect the secret.
In 1964 the United States Copyright Office began to register software as a form
of literary expression.The office based its decision on White-Smith Music Co. v.
Apollo , where the Supreme Court determined that a piano roll used in a player piano did
not infringe upon copyrighted music because the roll was part of a mechanical device.
Since a computer program is textual, like a book, yet also mechanical, like the piano
roll in White-Smith, the Copyright Office granted copyright protection under the rule of

In 1974, Congress created the Natural Commission on New Technological Uses
(CONTU) to investigate whether the evolving computer technology field outpaced the
existing copyright laws and also to determine the extent of copyright protection for
computer programs. CONTU concluded that while copyright protection should extend beyond
the literal source code of a computer program, evolving case law should determine the
extent of protection. The commission also felt copyright was the best alternative among
existing intellectual property protective mechanisms, and CONTU rejected trade secret
and patents as viable protective mechanisms.The CONTU report resulted in the 1980
Computer Software Act, and the report acts as informal legislative history to aid the
courts in interpreting the Act.

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In 1980 The Copyright Act was amended to explicitly include computer programs.
Title 17 to the United States Code states that it is illegal to make or to distribute
copies of copyrighted material without authorization, except for the user=s right to
make a single backup copy for archival purposes.Any written material (including
computer programs) fixed in a tangible form (written somewhere i.e. printout) is
considered copyrighted without any additional action on the part of the author.
Therefore, it is not necessary that a copy of the software program be deposited with the
Copyright Office in Washington, D.C. for the program to be protected as copyrighted.
With that in mind then a copyright is a property right only. In order to prevent anyone
from selling your software programs, you must ask a court (federal) to stop that person
by an injunction and to give you damages for the injury they have done to you by selling
the program.

The Software Rental Amendments Act Public Law 101-650) was approved by Congress
in 1990, this Act prohibits the commercial rental, leasing or lending of software
without the express written permission of the copyright holder.An amendment to Title
18 to the United States Code was passed by Congress in 1992. This amendment. Known as
Public Law 102-561 made software piracy a federal offense, and instituted criminal
penalties for copyright infringement of software. The penalties can include
imprisonment of up to five years, fines up to $250,000 or both for unauthorized
reproduction or distribution of 10 or more copies of software with a total retail value
exceeding $2,500 or more.
Under United States law duplicating software for profit, making multiple copies
for use by different users within an organization, and giving an unauthorized copy to
someone else – is prohibited. Under this law if anyone is caught with the pirated
software, an individual or the individual=s company can be tried under both civil and
criminal law.A Civil action may be established for injunction, actual damages (which
includes the infringer=s profits) or statutory damages up to $100,000 per infringement.
The criminal penalties for copyright infringement can result in fines up to $250,000
and a jail term up to five years for the first offense and ten years for a second
offense or both. When software is counterfeit or copied, the software developer loses
their revenue and the whole software industry feels the effect of piracy. All software
developers spend a lot of time and money in developing software for public use. A
portion of every dollar spent in purchasing original software is funneled back into
research and development of new software. Software piracy can be found in three forms:
software counterfeiting, which is the illegal duplication and sale of copyrighted
software in a form that is designed to make it appear to be a legitimate program; Hard
disk loading, whereby computer dealers load unauthorized copies of software onto the
hard disks of personal computers, which acts as an incentive for the end user to buy the
hardware from that particular dealer; and downloading of copyrighted software to users
connected by modem to electronic bulletin boards and/or the Internet. When software is
pirated the consumer pays for that cost by new software and/or upgrade version being
very expensive. Federal appellate courts in the U.S. have determined that operating
systems, object code and software cotained in ROMs are protected by copyright, and some
lower federal courts have also determined that microcode (the instructions set on
microprocessor chips), and the look and feel of computer screens is subject to
copyright protection. Which leads to the problems of the widespread development of
multimedia applications that has brought out major problems in clearing copyright for
small elements of text, images, video and sound..

The United States Government has been an active participant in protecting the
rights of the software industry. When the Business Software Alliance (BSA) conducts a
raid, Federal Marshals or local law enforcement officials participate also.An
organization known as the Software Publishers Association (SPA) is the principal trade
association of the PC software industry. SPA works closely with the FBI and has also an
written enforcement manual for the FBI to help them investigate pirate bulletin board
systems and organizations (audits). With the help of the FBI, the result of enforcement
actions resulted in recoveries from anti-piracy actions totaling $16 million since the
program started in 1990.

The Software Publishers Association (SPA) funds a educational program to
inform individuals and corporations about software use and the law. This program
provides all PC users with the tools needed to comply with copyright law and become
software legal. The SPA also publishes brochures free of charge about the legal use of
software for individuals and businesses.Also available to help corporations
understand the copyright law is a 12-minute videotape, which is composed of the most
commonly asked questions and answers to them. The video tape is available in French and
Spanish and all together over 35,000 copies of the tape had been sold.

SPA has also compiled a free Self-Audit Kit with which organizations can examine
their software use practices. Included in the kit, is a software inventory management
program designed to help an organization track their commercial software programs that
are on all hard disks. The program searches PC hard disks for more than 1300 of the
most common programs used in business.

Also available is the SPA Software Management Guide which helps companies audit
their current software policies, educate employees about the legal use of software, and
establish procedures to purchase, register, upgrade and backup computing systems. The
guide in addition also provides an Internal Controls Analysis and Questionnaire. The
guide also contains all of the SPA=s current anti-piracy materials.

The U.S. software industry is facing the challenges of more sophisticated
network environments, greater competition among software companies along with hardware
manufacturers. At this moment more software than ever before is distributed on a high
volume, mass marketed basis. There are many types of software out on the market and
increasing every day. They range from graphical user interfaces for application
programs such as mass-market spreadsheets, to more sophisticated technical software used
to design integrated circuits. The use of software plays a more vital role daily in
our lives such as embedded software, which is critical to equipment in locations as a
doctor=s office or an automotive shop. The instrument and devices found there depend
more and more on software, because software provides the flexibility to meet the many
different needs to the end user. As our lives our shaped and enhanced more by
technology, there is already a greater demand that impacts the software industry.

One of the main concerns of the software industry is how to deal with the issues
of Asoftware emailprotectedMore and more customers want customized software suited for
their business or personal need, and expect the software development firms to
accommodate to their wishes.The other side of this issue is that software development
firms are concerned with unrealized revenue and excess costs in the form of software
piracy, unauthorized use, excess discounts and lengthened sales cycles. For the
customer and the software development firm, both have high administrative costs in
regards to software programs. Software licensing policies were originally a result of
software developers= need to protect their revenue base in the face of potential piracy.

Product delivery for software is made up of a number of different components,
which are referred to as Asoftware emailprotected The following factors are taken into
consideration when determining a cost for a Asoftware emailprotected; physical delivery
pricing, metric discounts, license periods support and maintenance, license management
Tech support, change in use bug fixes and Platform Migration Product enhancements.

The most commonly found type of software license found in business is known as
a , emailprotected license. There are four types of categories that are classified as a
network license.

Concurrent use licenses authorized a specified number of users to access and execute
licensed software at any time. Site licenses authorize use at a single site, but are
slowly being phased out and replaced by enterprise licenses. Enterprise licenses cover
all sites within a corporation because of more virtual computing environments. Node
licenses are also slowly being phased out because they are mainly used in a
client/server environment , since the licensed software may be used only on a specified
workstation in which a user must log on to in order to access and execute the software
application.Currently the trend in a network system is to use measurement software,
which allows vendors to be more flexible in licensing arrangements. This management
software monitors and restricts the number of users or clients who may access and
execute the application software at any one time. This is significant because a user
pays only for needed use and a vendor can monitor such use to protect intellectual
property. A new type of license that is emerging is known as a, emailprotected
license. This type of license work on the basis that it provides to the end user a
specified dollar amount of software licenses. For example, licenses for different
business application software, so long as the total value in use at a given time is
less than dollars.Another type of license emerging is known as a
emailprotected licensing, which one license permits software to be used on a
variety of different computer systems within a business, instead of buying a different
license for each version of the same software used by different systems.The most
common type of licensing is known as emailprotected, the concept behind this that the
licenses terms are deemed accepted once the end user breaks a shrink-wrap seal or opens
a sealed envelope containing the software.

A reason for these new types of licensing emerging is that when software
licensing was first introduced, the software development firms assumed that most
businesses would use the software for a 8 to 10 hour period. Yet, did not take into
consideration that with the advancement of technology, more businesses would want a
emailprotected license across the world for 24 hours – thus it was not cost effective for
the software development firm. A floating license is a license that is made available
to anyone on a network.The licenses are not emailprotected to particular workstations,
instead they emailprotected to modes on the network.

Shareware, freeware and public domain are different type of software available
to the end user, and are distinguished by different rules about how programs may be
distributed, copied, used and modified. The term emailprotected refers to software that
is distributed at a low cost, but which requires usually a payment after a certain time
period and registration for full use. Copies of this software are offered on a trial
basis, the end user is free to try a scaled down version of the program. If the end
user wants the shareware program, included in the program is information specifying how
to register the program and what fee is required. Once registered the end user will
typically receive a printed manual, an updated copy of the software (often with
additional features), and the legal right to use the program in their home or business.
The advantage that shareware has is that it lets the end user thoroughly test a program
to see if it=s useful before making a purchase. The authors of shareware programs
retain their copyright on the contents, and as other copyrighted software should not be

Freeware is also distributed at a very low cost and like shareware is found
mainly on the Internet. The authors of the freeware program do not expect payment for
their software. Typically, freeware programs are small utilities or incomplete programs
that are released by authors for the potential benefit to others, but the drawback to
this is that there is no technical support. Public domain software is generally found
on the Internet and is released without any condition upon its use. It may be copied,
modified and distributed as the end user wishes to do.
A license manager is a system utility-like application that controls or monitors
the use of another end-user application.It is generally implemented to protect
intellectual property (meaning to stop illegal copying) and/or to become more
competitive by offering new ways in which to evaluate, purchase and pay for software.
Since the license manager controls the number of application users, there is not a need
to control the number of application copies. This process lets the end user run one or
more applications between machines, without violating the terms of the license
SPA has created a program that companies can use to help discover and correct
problems before they result in legal actions, fines and also negative publicity. The
eight point program is as follows:
1.Appoint a software manager to implement and monitor all aspects of company
software policy.

2.Implement a software codes of ethics for everyone to adhere to. The ethics
should state that copyrighted software, except for backup and archival purposes,
is a violation of the law.

3.Establish a procedure for acquiring and registering software. Determine your
companies software needs, evaluate software packages, and also have supervisors
approve the plans.Keep the lines of communication open.

4.Establish and maintain a software log. The log should state the date of when
the software was acquired, the registration of it, serial number, network
version, location of where the softwareis in use, where the original is,
licensing agreement and the location of the original disks.
5.Conduct periodic audits or on a as needed basis comparing the software log
and/or otherpurchase records.

6.Establish a program to educate and train your employees about every aspect of
software andits uses.

7.Maintain a library of software licenses and provide users with copies of the

8.Having done the above seven points, the company can benefit by having obtained
software legally, receive full documentation, technical support when needed and
also upgrade notices.

Patents do not cover specific systems, instead they cover particular techniques
that can be used to build systems or particular features that systems can offer. Patent
grants the inventor a 17 year monopoly on its use. Once a technique or feature is
patented, it may not be used in a system without the permission of the patent-holder –
even if it is implemented in a different way. Since a computer program usually uses
several techniques and provides many features, it can infringe many patents at once. A
computer program is built out of ideal mathematical objects whose behavior is defined,
not modeled approximately, by abstract rules. An example of this is Borland
International, Inc. complained in the 1st Federal District Court gave Lotus Development
Corp. the benefit of patent protection to Lotus 1-2-3 menu commands and their order, but
failed to require Lotus to meet the requirements of patent law, including novelty,
examination and contribution to the prior art.The Supreme Court sided with the 1st
Circuit decision that one entity cannot own the user interface to programs. Meaning
such as file formats, menu structures and programming languages.

Software license agreements emerged as the most popular means of protection of
proprietary rights in computer software. They coexist with other forms of intellectual
property rights as patent and copyright. Software license agreements serve several
functions in transactions involving the transfer of computer technology. One of the
most important legal functions is the protection of the proprietary rights of the
licenser in the transferred software. Other functions include controlling the revenue
generated by licensed software and determining the rights and responsibilities of the
parties regarding the performance of the licensed technology. Issue related to these
functions include the applicability of Article 2 of the Uniform Commercial Code,
including offer and disclaimer of warranties, determining the appropriate types of
licenses to utilize, such as single users/CPU licenses, Site/enterprise licenses and
network/concurrent licenses
Trade secret, copyright and patent law are emailprotected forms of protection in the
sense that they may exist independently of any underlying business transactions and do
not necessarily require any transfer of intellectual property from one party to another.
Whereas, the need for a license agreement usually arises as one of the contractual
forms of protection when the underlying business transaction involves the transfer of
intellectual property, such as computer software. Transactions involving the transfer
of computer software are subject to both federal and state laws. Generally, state law
governs contractual and trade secrets aspects of the transaction, while federal law
governs aspects related to patent, copyright and antitrust issues.

Each state has its own version of a doctrine of a trade secret, the common
thread through these state-specific laws is that if you show that you are seriously
treated information as confidential and that the confidential information helped your
competitive position, you can stop others from using it if the information was
improperly acquired by them, and even collect damages from the wrongdoers.

A computer is useless without software. The two types of software typically
found on a computer are operating systems software and application software. Operating
system software emailprotected emailprotected that makes it easier to develop programs for the
system by reducing the amount of code that must be written. The operating system acts
as an interface between the computer hardware, application programs and the end user.
Application software consists of one or more computer program that fulfill a specific
function for the user like word processing, bookkeeping or financial analysis.

Two legal cases recently within the last few years has brought to light the
controversy regarding the copyright protection of software elements. Until 1992, most
of the federal courts followed the decision in Whenlan v Jaslow Dental Laboratory as a
precedent of similar cases. Whenlan, a small software company wrote a accounting
program for Jaslow Dental Laboratory company. Jaslow rewrote the software to run on
personal computers and proceeded to sell the product. The software was identical to
Whenlans in the data structures, logic, and the program structure, except for the
source code. Jaslow argued that the duplicated elements were part by the of the idea –
not the expression.The court in response felt that the data structures, logic, and
the program structure comprised to make a single function of a computer program,
therefore copyright protection should be given to those elements also.
In 1992, this protection was weakened by Computer Associates v. Altai, Inc. ,
when Altai a software developer was accused of copying various modules of a software
package developed by Computer Associates which controlled the running of applications on
IBM mainframes. The court rejected Whelan=s premise that a computer program embodies
one function because programs are made up of sub-routines that contain their own idea.
The court recognized this would narrow the scope of software copyright protection and
found this in accordance with Congressional intent of computer programs with copyright.
This resulted in why currently software copyright is not as broad as it once was.

Brandel, William, “Licensing stymies users,”
URL:””, Viman Software, Inc.,
Business Software Alliance, “Software Piracy and the Law,”
URL:””, Business Software Alliance,
Software Publishers Association, “SPA Anti-Piracy Backgrounder,”
URL:””, Software Publishers Association,

Category: Technology