Software License Compliance Guide

The use of software has become ubiquitous in today’s world, and every organization, regardless of its size or operations, uses software for its operations. Such wide usage throws up many unique challenges, starting from integrations to security.

In this article, we will focus on the licensing aspects and challenges associated with using software.

What is a Software License Agreement?

A software license, or an End User License Agreement (EULA), is a legal document that lays down the terms and conditions for using a software license. Typically, these licenses include information about how an organization must use software, installations, users per license, legal disclaimers, and anything that revolves around integrations and software use.

These terms and conditions are often common sense and are fair for both the buyer and the seller. It also clearly puts down the responsibilities of every party involved to ensure that the software is not used for banned or illegal activities. It also provides the rules around the protection of intellectual property rights, reuse of the software, modifications that can be made to the code, distribution of software, and more.

All this information is included as a part of the software and you must agree to these terms before you can use the tool. Most times, you have to agree to these terms to even download a tool or activate it using a software key.

That said, all software licenses are not created the same.

Types of Software Licenses

Software licenses come in many forms, depending on where and how the license is going to be used and what’s the intent of the individual, group, or organization in creating this software. Based on these aspects, software licenses fall into the following categories.

Proprietary Software Licenses

Proprietary software licenses are issued by the person or company developing the tool. Often, these developers intend to make money by selling this software to different users, and hence, restrict you from modifying or copying it. Moreover, the software is an intellectual property right of the creator and is subject to stringent protection laws.

Key Features

  • You can’t modify or even view the source code.
  • Usage is limited by the number of devices, users, or the period of service, depending on the commonly agreed terms and conditions.
  • Proprietary software is paid.

Some examples of this license include Microsoft Office, Adobe Photoshop, and proprietary operating systems like Windows.

Open Source Licenses

Open-source licenses, on the other hand, encourage everyone to modify, share, view, and reuse the source code. The idea here is to encourage innovation, add features, and create more use cases for the tool.

Key Features

  • Free, and available to everyone.
  • The range of permissions can vary from permissive to copyleft.
  • Some open-source tools may have paid versions that can have extra features or customer support.

Some examples include the GNU General Public License (GPL) which mandates that any product derived from the source is available under GPL. The MIT and Apache licenses are permissive, provided credit is given to the original company.


Freeware, as the name suggests, is available free and anyone can use it. However, there’s no access to the source code, and all the rights for modification and distribution lie with the original creator.

Key Features

  • No charge.
  • Modification or distribution is not allowed.
  • No access to source code.

Examples of freeware are Skype and Adobe Acrobat Reader.


Shareware is similar to freeware, except that it is free for a limited time only.  After the trial period ends, the user has to pay for the tool. Sometimes, users can have access to the basic features or for a limited number of users or devices but will have to pay for extra features and usage.

Key Features

  • Free for a limited time.
  • Payment is required to unlock all features or to continue after the trial period.
  • Can be distributed.

Some examples are WinRAR and enterprise monitoring and asset management tools.

Commercial Software License

These are licenses created specifically for business environments. They are stringent, and non-compliance to the agreed terms and conditions can lead to heavy fines and even lawsuits. No part of this software can be modified, reused, or distributed, and the usage has to strictly follow the terms.

Key Features

  • Paid, and can include separate licenses for each user or device.
  • The cost can include priority support and free upgrades.
  • Heavy restrictions on usage.

Some well-known examples are Microsoft 365, Google Workspace, SAP, Salesforce, etc.

Academic License

As the name suggests, academic licenses are used for educational purposes and are often available for students and academic institutions who want to use them for teaching purposes only.

Key Features

  • Free or heavily discounted.
  • Users must add their student ID.
  • No commercial use is allowed.

Some examples of academic licenses are OpenEye Scientific, Zygote, etc.

Public Domain License

A public domain license applies to software that is released to the general public. No copyright or any other restrictions apply, and any user from any country can use it for any purpose.

Key Features

  • No copyright or any other restriction.
  • Complete freedom to do anything with the software.

Some examples of tools with public domain licenses include OpenOffice, Firefox, Thunderbird, and more.

Creative Commons License

This license mostly applies to creative works like images, videos, etc., and is not common for software products. This license is highly flexible and allows creators to decide which aspects are licensed and which are free. Organizations using these products have to comply accordingly.

Key Features

  • It supports a wide range of permissions for the same product.
  • The restrictions are easy to understand for everyone.
  • It largely applies to creative works.

Some examples are royalty-free images available on the Internet.

Copyleft License

A copyleft license mandates that any software created by modifying another freely available source code must also be free to use. Also, the new software’s license must be similar to the source code license.

Key Features

  • The license terms and conditions must be identical to those of the source code license.
  • Encourages collaboration and freedom to build innovative software.

GNU GPL is a good example of a copyleft license.

Permissive License

This is one of the most lenient license kinds for software usage. It provides extensive permissions to modify, reuse, distribute, share, and more. Often, the only required aspect is attribution to the original creator.

Key Features

  • Minimal restrictions on usage.
  • Supports wide use of the software.

MIT License is a good example of a permissive license.

Dual Licensing

This is a relatively rare form of licensing. Under this type, the software creator offers two types of licenses for the same software – one is open-source while the other is proprietary. This difference is to help meet the demands of different user groups.

Key Features

  • Highly flexible, as users can choose a license based on how they want to use the software.
  • Creates revenue as well as innovation.

MySQL is a good example of dual licensing.

SaaS Licenses

SaaS licenses are a little different, as they only provide permission to access a cloud-based service through the Internet. No source code viewing, installation, or distribution is permitted.

Key Features

  • It is subscription-based.
  • The software can be accessed from any device. All that is required is an Internet connection.
  • Updates and maintenance are automatically handled by the provider.

Google Workspace is a good example of a SaaS license.

As an organization, knowing the different types of licenses and their features is the first step toward ensuring that your operations meet the software’s terms and conditions.

Selecting the Right License for Your Needs

Choosing the right license type is key to using the software optimally and getting the maximum value for your money. Also, the license type has a profound impact on the development efforts and processes in your organization.

Here are the steps involved in choosing the right license type.

Step 1: Start With Your Objectives

As a first step, understand what you need. Put down your objectives of using software in clear terms. Some examples are customizing existing software for your specific needs, using off-the-shelf software to automate processes, and more.

Step 2: Assess the License Types

Based on your objective, assess which is the best license type that will help you achieve your objective. Understand the license types and their terms and conditions before making this assessment.

Step 3: Know your End Users

If you’re building a product, who are your end users and what do you want them to do? Knowing your target audience is critical to determining the right license type. For example, if your end users are enterprises seeking customer support and version stability, opt for a commercial license. On the other hand, if your audience is vibrant developers who want to create new products, a permissive license like the MIT license is enough.

Step 4: Create a Plan for Compliance

An often overlooked aspect while evaluating license types is compliance. Make sure you have a plan in place to meet the legal and regulatory hurdles that come with software compliance. Take expert help when needed and use the appropriate platforms and tools to ensure software compliance.

Step 5: Plan Ahead

The software and regulatory landscapes are evolving, so make sure you have a plan to future-proof your software usage and the associated compliance with its terms and conditions. Consider using versioning and Governance, Risk, and Compliance (GRC) tools for planning and implementation.

With these steps, you can select the right license for your organization.

While selecting, it’s also important to create a plan for continuous compliance with the agreed license terms and conditions.

What is Software License Compliance?

Software license compliance is the practice of ensuring that your organization’s usage of a particular software meets the terms and conditions of that software. This compliance requires strict monitoring of how a tool is used, by whom, and whether it is modified or distributed against the laid down terms.

Achieving this software license compliance is critical to avoid legal issues, fines, penalties, and reputational damage.

Moreover, this compliance can streamline your costs as you can identify underutilization and trim your licensing accordingly. Furthermore, complying with the software license helps with meeting the requirements of other standards like SOC 2, GDPR, etc.

Due to the above benefits and the stringent fines that come with non-compliance, many organizations have a clear software license compliance process. However, if your organization is large and widespread, it’s not practical to manually stay on top of all these monitoring tasks, and this is where specialized compliance platforms come in handy.

Along with using these platforms, consider implementing some industry-standard practices to boost compliance with software license agreements.

Best Practices for Software License Compliance

The best practices can vary depending on your regulatory requirements, the most common license type for the software used in your organization, your end-users the way they use the software, and more. Nevertheless, here are some broad practices that can fit most scenarios.

Establish a Comprehensive Policy

Creating a comprehensive policy and planning its implementation are critical to kickstart the compliance process. This policy should have guidelines for buying or acquiring software and a process for categorizing them based on their license type. Also, the policy must state the deployment, use, and distribution for each license category. Such a comprehensive document will lay the foundation for automated and easy software license compliance.

Maintain an Inventory

As your business grows, your software usage also increases. Staying on top of all the software you use is necessary for security and compliance. You must create processes for maintaining an inventory of the software and hardware used in your organization. This will provide a glimpse into how and where software is deployed.

Conduct Audits

Audits identify the gaps that exist between the software license and how it is used. Using this information, you can plug the gaps in compliance and avoid the fines and penalties that come with non-compliance. Moreover, these audits can pinpoint underutilized and unutilized software, so you can adjust the licensing options accordingly.

Educate and Train Stakeholders

An essential part of compliance is education and training, where every stakeholder is taught the importance of complying with license agreements. Help them understand the different license types, what they mean, and how they can comply with the regulations. Also, make this training continuous for employees who are likely to use the software every day. Such a proactive approach can improve compliance levels.

Identify Shadow IT

Shadow IT is one of the problem areas for companies today. It refers to the use of software that’s not authorized by the IT department or using it against the terms and conditions. Both scenarios are a problem because they can open up security vulnerabilities and non-compliance respectively.

Stay on Top of Industry Trends

Knowing the industry trends and understanding the emerging patterns can help you plan for the future. Since the software space is evolving with the emergence of new AI and ML tools and strict regulations surrounding them, make sure your key team members are aware of the changes and what they mean for your organization.

Manage Your Vendors

Build a strong relationship with your vendors and be open about your requirements. Frequent communication can help both you and the vendor agree on common terms and conditions that are mutually beneficial. You can even benefit from the additional support that comes with better relationships.

Develop a Response Plan

Despite the best-laid efforts, organizations may occasionally face non-compliance issues. For such scenarios, ensure you have a well-structured response plan that can mitigate the impact of this non-compliance. Your plan must list down a list of steps to handle non-compliance and map clear responsibilities for achieving each plan of action. It’s also good to have a tracking system for monitoring the progress achieved against each action.

Automate Reporting

Ideally, have a tool to gather insights and generate reports periodically, with little manual intervention. These reports will provide a snapshot of your organization’s current compliance levels and can also help with auditing. Also, you can gain complete control and visibility with such a regular reporting practice.

Prioritize License Management in Software Development

If you are into software development, include license management in every aspect of your development, starting from the initial stages. By prioritizing license management, you can select software components that align with your overall developmental goals.

Leverage License Management Solution

Many software solutions are available today to streamline license management. Investing in these tools can go a long way in helping you manage and streamline your license compliance process. It also reduces the manual effort involved while saving time and effort.

Moreover, they come with advanced features like real-time monitoring and alerting, report generation, and more.

Thus, these are some best practices that you can incorporate into your compliance strategy.

Final Words

To conclude, as software usage increases within your organization, it’s important to have a clear and streamlined process for managing their license terms and conditions. In this article, we looked at the different types of licenses available today, and being familiar with these types is the first step toward compliance. Next, create a plan for managing them, and consider incorporating the above-discussed best practices into your operations. Such a planned approach can ensure you get the benefits of compliance like optimal software utilization, reduced fines and penalties, and better relationships with all your stakeholders.

Lavanya Rathnam

Lavanya Rathnam is an experienced technology, finance, and compliance writer. She combines her keen understanding of regulatory frameworks and industry best practices with exemplary writing skills to communicate complex concepts of Governance, Risk, and Compliance (GRC) in clear and accessible language. Lavanya specializes in creating informative and engaging content that educates and empowers readers to make informed decisions. She also works with different companies in the Web 3.0, blockchain, fintech, and EV industries to assess their products’ compliance with evolving regulations and standards.

Posted in Articles

Leave a Reply

Your email address will not be published. Required fields are marked *