Most works of authorship-such as books, magazines, records, photographs and artwork-are sold outright, either directly to end users or to middlemen such as bookstores who in turn sell the works to end users.

The transaction works like this: say you want to buy a book; you walk into a bookstore pay your money and you are sold a copy of the book. You now own the copy of the book. You don't have to sign a license agreement and the book doesn't contain any type of "shrink-wrap" license.

Software copyright owners are also free to simply sell copies of their software, that is, sell DVDs or other media containing copies of the software to end users; or to sell digital copies to users over the Internet.

Today, however, virtually all software is licensed to end users rather than sold outright like books are. Instead of owning the copy of the software they pay for, end users merely acquire permission to use it. A written license agreement-- a contract -- carefully defines and restricts the nature and extent of the software use.

Why License Software?

The answer is simple: money. Software owners believe that license agreements help them preserve their market share, obtain the maximum return on each transaction and help safeguard their intellectual property rights. All of this adds up, at least in theory, to greater profits.

Because the end user does not acquire ownership of a copy of the software, he or she has only those rights provided in the license agreement. The license agreement normally includes provisions that effectively take away most of the rights that a purchaser of a copy would have under the copyright law. Such licenses typically include one or more of these restrictions:

• limiting use of the software to a particular computer 
• limiting use of the software to a particular model of computer
• limiting use of the software to computers with a particular processing capacity
• limiting use of the software to computers at a particular physical location
• limiting use of the software to a specified number of concurrent users
• limiting use of the software to a particular application within the licensee's business
• prohibiting use of the software to perform processing for third parties or even for other divisions of the licensee's business
• prohibiting transfer or sublicensing of the license without the licensor's prior written consent
• prohibiting the use of the software on a computer network
• prohibiting copying of the software for all but adaptation and archival purposes
• prohibiting modification of the software, and
• prohibiting the licensee from reverse engineering disassembling or decompiling the software.

It’s easy to see how such license restrictions can help software developers make more money. For example, licenses typically provide that without permission from the copyright owner, the purchaser of a copy of a computer program may not use the program on a network. Persons or companies that want to use software on a network usually must obtain a network/multi-user license from the copyright owner or, in the case of mass-marketed software intended to be used in networks, such licenses are already included in the package.