Are you an IT decision maker in a small or medium-sized business? If so, you may be asked by your boss: “What do I need to know about software license?” You need to be fully aware of what types of software licenses are available to you, why they’re important, and what can happen if you don’t spend the required money on software licensing fees.
Compliance is key with software licenses, and you can quickly get into hot water if you don’t follow the rules.
One of the most common issues companies run into is sharing a single license on multiple computers and for multiple users illegally. Steep fines can be the result, so here’s what you need to know about software licenses in today’s business climate.
Software Companies are Cracking Down
It’s becoming riskier to be sloppy about how you use software as a business. Software companies are making it more difficult to use software that has been illegally purchased, or to use software in a way that fails to comply with the EULA (End User Licensing Agreement).
So let’s dive in and talk about some basics and cover what you need to know about software licenses. In this article I’ll go over the Business Software Alliance (commonly referred to as the “software police”), and a few of the different software models you’ll encounter (and pitfalls to avoid with each).
It’s also important to know about the Service Provider Licensing Agreement (SPLA), so I’ll cover that too.
The Different Kinds of Licensing Agreement
Let’s start by taking a look at the different kinds of licensing agreements you are most likely to come across:
- Perpetual License Agreement: A perpetual license agreement is a license that lets you use the software you purchase for as long as you want and need to. If you have another kind of agreement beforehand and then want to upgrade to a perpetual license, you may be charged for that upgrade.
- Renewable Licensing Agreement: Your software may have a term licensing agreement that you will be required to renew periodically, usually once a year. How often you need to renew depends on the software and its vendor.
When you need to decide what kind of licensing agreement to get for your business, you need to find out all the relevant information so that you make an educated choice. You should also be aware that one of the most common reasons companies end up making mistakes is because of changes in the software rules.
The rules can change even after you purchase the software. It’s up to you to keep track of rule changes and comply with them.
To begin with, you must understand your business’s software assets if you want to avoid trouble with software licensing. Be aware of how you’re using your assets and correctly manage them to make sure you don’t go awry.
Ensure that you’re appropriately licensed for the people who will have to use the assets.
What I Do, and What I Recommend
Personally, I keep a spreadsheet with all of my software licenses, their cost and dates of renewal, and any special rules or requirements I need to abide by to stay in compliance.
I own my own business and I’m responsible for this so I manage it myself, but if you’re part of a larger company, it’s a good idea to assign the monitoring and management of this to a trusted, long-term employee that won’t be leaving the company anytime soon, and to ask for an annual report that looks at software usage so you can look for areas of redundancy and cut software that your organization no longer uses.
Many companies keep paying the software licensing fees for years, even if the software is not in use or has become redundant due to another subscription. Auditing this annually is a great way to trim the budget.
Some of the Most Common Software Mistakes
Among the most important things to remember is that you are always responsible for proving you own the software licenses for your business’s systems. This is why you must:
- Keep Track of Business Software Purchases
- Track Renewal Dates & Costs
- Stay on Top of Rule Changes
Let’s take a closer look at each of these common software licensing beartraps.
Keep Track of Business Software
Be extremely careful about ad hoc purchases and don’t allow your employees to make such purchases.
If employees purchase software and load it themselves, you are much more likely to lose track of purchase documentation. This documentation is something you will need if you find yourself in the situation of having to defend yourself when accused of non-compliance.
It’s best never to let employees manage their own software. Not only will you likely end up overspending on licensing, but it will also likely cause issues with system compatibility. If you know what software licenses your employees and business are using, you’re less likely to run into issues.
Track Renewal Dates
Make sure you track renewal dates for your software. If you fail to renew when you need to, it will mean that your licensing expires. If this happens, you may need to purchase all new licensing when you need to upgrade.
This is a large expense that is completely unnecessary. Also, you’re bound to have lots of headaches and hassle if you’re audited. If you don’t have the licensing for your software easily accessible.
Keep Up-to-Date With Rule Changes
Never assume that your software licensing rules won’t change. The fact is that these rules do often change.
It’s quite common for software companies to modify their agreements as they discontinue older versions or expand the offerings within their software platform. These changes can also be made if the company adjusts their market approach. Or if they change the software packaging.
Remember, You Don’t Own the Software
Did you know that you don’t actually own the software you purchase a license to? Well, not in most cases anyway.
When purchasing software, you’re usually just purchasing the license to use the software. To maintain the license in good standing, you must use it in compliance with the software’s End User Licensing Agreement.
Be aware that there may be restrictions in terms of where you can install the licensing. One example of this kind of situation would be not being able to use a software’s educational version if you run a for-profit company.
Another example of this would be a prohibition against loading an Original Equipment Manufacturer (OEM) copy of whatever software you have bought to a cloud environment.
Some Software Prohibitions
Remember that modifying, copying, or redistributing software is prohibited.
It’s true that software manufacturers do sometimes permit one copy of software to be made for use in disaster recovery. However, it’s still prohibited to copy software to use on a different computer.
You may never decompile the software to make the source code viewable or try to change the source code. This is because of the software manufacturer’s intellectual property rights. Protection of intellectual property is necessary for the company’s success.
Decompiling software and stealing a company’s intellectual property is a crime. Punishments include fines or even time in prison. The EULA usually prohibits it with no exceptions.
Understanding Software Licensing Agreements
All too many people click “Accept” at the bottom of their software licensing agreements without reading it. This is because the document is so legally complex and time-consuming to read.
But it’s your responsibility to read and understand what you’re signing up for.
This is tempting when you’re busy and overwhelmed with obligations (I think we’ve all done it). But it’s something you’ll regret as a business owner. You need to know the details of your software licenses thoroughly. Software licensing agreements are legal agreements, and it’s your responsibility to know what they entail.
If you don’t have time to review and understand these agreements personally, delegate that task. Ask the person you assign it to for a summary of what you’re signing up for and any pitfalls you’ll want to avoid.