Software License Agreement - Definition and Content

Software is protected under copyright law in the same way as books or music, for example. The resulting licenses, can be partly individual complex contracts for companies or also be passed on as simple formats for individuals. In the following article, the different types and contents of software contracts are explained in detail. 


  1. What is a license
  2. What are the types of software licenses
  3. License models
  4. Structure of a software license agreement
  5. Proof of license 

1. what is a license?

Simply put, the software license is a legal instrument that allows the user to use a software. In this context, the license contains legally binding guidelines for the use and distribution of software. Licenses are necessary because every software is protected by copyright as a result of creative work. 

In order not to infringe this copyright as a customer, there are license agreements. 

Definition license agreement

A license agreement is first and foremost an agreement between a user and a licensor of property rights, such as software. Protective rights can be patents, trademarks and also copyright. Even during development, the software is subject to copyright. Other examples of license agreements are: 

The agreement specifies the terms of use, or more precisely, what rights are granted to the user and what restrictions are imposed on him. In addition, it specifies, among other things, warranty provisions, payment terms, and, in some agreements, non-disclosure agreements

The most important points at a glance: 

  • In Germany, the license agreement is not protected by the German Civil Code and can rather be compared with general terms and conditions. Often the license is released by a license key. 
  • Software can also be made available as open source. The best-known examples are Open Office or the image editing program GIMP. Even with these, users must agree to the license texts.
  • Most software vendors offer multiple options of licenses so that they can flexibly respond to customer needs. 
  • Software license agreements can be purchase agreements, rental agreements, or contracts for work and services

2. what are the types of software licenses?

SaaS contracts 

SaaS, short for Software as a Service, are cloud and web applications. This means the licensee gets access to the servers provided by the provider. No copy is loaded on the own servers or devices. 

As a rule, SaaS contracts are leases in which the user pays monthly or annual license fees in the form of a subscription. 

Exception: The software developer creates an individual software for his customer, in these cases it is a contract for work. 

PaaS Contracts

Similar to SaaS contracts, PaaS (Platform as a Service) software is offered exclusively in the cloud. The main difference, however, is that access is not to web-based software but, as the name suggests, a platform. 

Platform as a Service usually serves end users as a basis for further developments of their own software programs or as a platform for integrations of different applications. 

IaaS contracts

In the case of Infrastructure-as-a-Service contracts, the licensee is given access to an IT infrastructure on which it can then host its own or externally licensed software. 

EULA - Granting of rights of use

The End-User License Agreement, or EULA for short, is the most familiar standard license agreement for the end user. Examples are the rights of use for Microsoft Office, Adobe Reader or Apple's programs. The software is developed for a large number of users. The licensee usually just clicks on "Accept License Terms". 

In these license agreements, developers are free to define their parameters, for example, purpose (commercial and non-commercial use) or the number of installations. 

Software Distribution License Agreements

Under these agreements, the licensee not only has a right of use, but also the right to redistribute the software orgrant sublicenses to third partiesfor use. 

3. license models 

In principle, a distinction is made in license agreements between different license models or rights of use, which determine the extent to which the software can be used. A distinction is generally made between the simple and the exclusive right of use. 

3.1 Simple right of use 

With the simple right of use, the licenses are granted to several users. Which rights the users receive is subject to the guidelines of the contract. For example, the licenses can be restricted in terms of content or time, or they can only be intended for a single computer, the so-called single license.

The above-mentioned end-user license agreements (EULAs) are probably the best-known types of contract with a simple right of use, along with software-as-a-service (SaaS) contracts. 

Open Source Software

Open source software, which, as the name suggests, can be used by anyone, also falls into the category of simple usage rights. Modifications and distribution are also possible here, usually on condition that the original developer is named. 

3.2 Exclusive right of use 

The exclusive right of use , on the other hand, refers to the exclusive use of a single licensee. In this case, the customer often commissions the software exclusively for himself. As a rule, this takes the form of a contract for work and services. The buyer receives the full rights of use, so that in some cases even the licensor may no longer use the software after sale. 

Even in the case of the exclusive right of use, restrictions of a spatial or temporal nature can be specified if necessary. In addition, sublicenses can be agreed. 

Caution: It is important for licensees to define clear rights of use when concluding the contract. If these are not agreed, the purpose transfer theory from copyright law applies, which tends to favor the licensor. 

4. content and structure of a software license agreement 

As already mentioned, there are no legally prescribed rules on license agreements. 

Depending on whether the software is to be leased or sold, the contract governs either use during the lease term or use after the sale. 

In any case, a software license agreement should include the following points: 

  • Subject of the license 

License agreements are usually copyright agreements. In the case of a software agreement, the subject of the license is either the acquisition of the software or the use of the software during the existence of the lease. 

  • Royalties 

In return for the use of the software, the licensee is obliged to pay license fees. A basic distinction is made between two models: Flat-rate license and the variable remuneration models. 

With the flat-rate license , the fees are set per user, or specified as a package for a certain number of employees, for example. 

Variable fee models are billed according to intensity of use, and other variables may also be taken into account, such as the speed of the servers. Variable fee models are only suitable for software rental agreements. 

  • License model

This point clarifies whether it is asimple or exclusive right of use and what restrictions apply. 

  • Liability and warranty

The licensor is liable for ensuring that the software or the subject of the license actually exists on the one hand and is also usable accordingly on the other. Should this not be the case, the licensee may stop payment of the fees until the defects have been remedied. 

The licensor is not liable for the license being economically profitable for the licensee. This risk is borne solely by the licensee. 

The warranty can be agreed individually depending on the contract. In addition, the provisions of general civil contract law apply. 

Caution: The licensor is not liable for the future existence of the property rights. The licensee must therefore pay the fees until the cancellation of the property right or the determination of the invalidity of the contract. 

  • Service Level Agreements (SLA)

Service Level Agreements are agreements between the service provider and the customer that define the quality of the service, the software must be provided. 

The SLA defines, for example, the scope of services, availability or response times of the provider. 

In addition, the following supplements should be agreed in any software license agreement: 

  • Warranty conditions
  • Scope of support and training  
  • Software maintenance contract 
  • Change Management

5. proof of license

Companies need to be able to provide evidence of all valid licenses in their software inventory. Currently, there is no standard for what constitutes valid proof of license. However, it must show that an authorization to use has been granted by the licensor. These can be: 

  • Invoices and receipts 
  • License certificates
  • Copies of online contracts 
  • License keys 
  • Original media, if applicable 
  • uvm. 

In addition, it is generally recommended to keep and file any communication with the software provider

The consequences for insufficient proof of license can be expensive for companies: Expensive licenses may have to be purchased, penalties may have to be paid, or the costs of the verification may have to be paid. 

To keep track of everything, contract management software can help, managing all contracts, proof of licenses, and also other important documents, such as email communications, etc. 


The contents of this article are for information purposes only. It is not legal advice and no liability is accepted for the contents.

Sebastian Wengryn

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