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A Complete Guide on Software License Agreements

By Lawfarm Team August 12, 2021

By Nevin Clinton

What is a software license agreement?

A software license agreement is a legal contract that is entered into between the owner or creator of a software and a purchaser (licensee). Since softwares act as services, one cannot ‘sell’ them as such. They will be provided or licensed and the software license agreement makes clear how the said software must be used in such a way that the rights of the owner as well as the purchaser are protected.

What are the types of software license agreement?

There are three types of software license agreements depending on how much modification of the software by the purchaser is allowed. They are as follows

  • Proprietary software licence: This is a restrictive agreement that prevents the purchaser from making any modification to the software. He/she can only be able to use it.
  • Free software license: This agreement has lesser restrictions and modification can be done to an extent, as agreed upon. However, accessing the source code of the software and the like will be prohibited.
  • Open-source software license: This is an agreement where there are minimal restrictions. The purchaser will have all rights to completely modify the software including accessing the source code. 

What details must a software license agreement contain?

A software license agreement must contain the following

  • General information on the agreement, time period, and so on.
  • Complete details on the parties involved i.e. the owner and the purchaser.
  • Terms such as
  1. Fee to be paid
  2. Conditions of usage
  3. Information on maintenance
  4. Refund policy
  5. How the software would be provided
  6. Sharing of the software
  • Signatures of parties

What other clauses must the agreement contain?

Apart from the aforementioned terms of use and other such details, there are several important law-related clauses that a software license agreement should contain. These are as follows

  • Non-Exclusivity Clause: This clause allows the licensing of the software to multiple purchasers.
  • Non-Transferability Clause: This clause ensures that the rights of ownership of the software are not transferred, but merely the rights of its usage.
  • Liability Limitation: A software license agreement must limit the owner’s liability by making it clear that he/she will not be held liable for misuse of the software by the purchasers.
  • Rights: The agreement must clearly mention the rights that the purchaser would have.
  • Breach: Similarly, what would happen in case of a breach of the terms must be made clear in the agreement. 
  • Termination: There must be a clear statement that the owner would be able to terminate the agreement without repercussions. 
  • Modification: The agreement can restrict (or allow) the purchaser from modifying the software. 
  • Governing Laws: The agreement must have details on the laws that govern the agreement and the jurisdiction of courts in case of any dispute that might arise out of it. 

What are the advantages of a software license agreement?

A software license agreement is of huge importance when a software is provided to a user. This is because of how both parties’ interests are protected by it. It does so in the following ways

  • Preventing misuse of software: This is because the terms of usage of the software, dispute resolution mechanisms, and rights of the parties are provided.
  • Retention of ownership: A software license agreement merely allows a purchaser to use the software and there is no transfer of ownership.
  • Easy termination: By providing for terms regarding the same, termination of the agreement can be done easily.
  • Multiple purchasers: The same or similar agreements can be entered into with various purchasers.
  • Limited liability: A software license agreement will protect the owner from liability arising out of misuse of the software by a purchaser.


A software license agreement ensures that the owner or creator of a software’s hard work doesn’t go to waste by protecting his/her rights and ensuring that there is no misuse. For that reason, it is of paramount importance that every creator of a software must sign such an agreement at all costs when licensing or allowing another party to use it. It is also crucial that care is taken while drafting by making certain that all the clauses and terms necessary are included. 

Tags: Software License Agreement , Types of Software License Agreement , Essentials of a Software License Agreement

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