3 Things You Must Know Before Licensing Your Software
by Tracy S. Work
You’ve built the next ‘killer app’— maybe it’s SaaS, cloud-based, built for the enterprise, or a mobile app for individual users. Or, maybe you’re OG and only data bits on physical media (and a good ole perpetual license) will do.
Good news? Software can be a gold mine.
Bad news? A poorly structured license can turn that gold into fool’s gold, leaving you entangled in legal, financial, or even IP nightmares.
Think you’re ready to slap a license agreement onto your software and call it good? Here are three things you may not have considered—things that are often overlooked, but they can make a pretty big difference when it comes to maximizing your software’s value without putting your important IP at undue risk.
1. Be Strategic
Many businesses see a software license as a legal formality—a necessary evil gating the shipping of their product. But a well-crafted license can actually be a strategic weapon. It dictates not just what customers can and can’t do, but how also you monetize, distribute, and protect your software long-term.
Be sure your license aligns with your business model.
Are you a high-volume, low-cost SaaS provider? Then, focus on ease of onboarding and usage tracking—with clear auto-renewal terms and limitations on account sharing.
Are you licensing enterprise software? Consider embedding “seat limits” or API access restrictions so clients don’t quietly expand their usage without paying.
Takeaway: Draft your license not just for legal coverage, but as a tool to enforce your business model and anticipate revenue leakage.
2. You Had Me at Software License
Getting your software license in place doesn’t mean you’re done with IP. This is where many startups (and even established companies) go wrong.
Ask: Is there other IP in play that is being overlooked? Have all third party or open-source components in the software package been properly accounted for?
Beyond the software itself, have you considered whether to register a trademark for your product’s name? This may discourage knockoff products or prevent ill-will being attributed for your brand. Uncommon in software, but have you considered whether the product provides any novel features that confer a patentable competitive edge?
Takeaway: A licensing agreement is just one piece of the puzzle. Before you start licensing, a full IP audit may be prudent to ensure your software, brand, and innovations are all truly protected.
3. “How” Matters: Distribution and Enforcement Can Be Everything
You’ve got a great license, locked in your IP rights, and started distributing your software … only to discover that customers are exceeding license limits, bypassing security controls, or up to some other shenanigans that aren’t permitted by the software agreement. Now what?
This is where license enforcement mechanisms can matter as much as the terms of the software license itself. Has your development team considered implementing:
Phone-home mechanisms or usage tracking to monitor compliance
Clickwrap agreements that require users to actively accept terms, rather than traditional passive clickwrap agreements (which can be harder to enforce in some jurisdictions)
API metering for SaaS or enterprise solutions – ensuring customers aren’t exceeding fair usage, while providing insightful data as to how software is used
Takeaway: A good software license is worthless if you have no way to track and enforce compliance. Make enforcement part of your licensing strategy from day one.
Final Thoughts
Software licensing isn’t just about legality—it’s about the implementation of your business strategy, protection of your intellectual property, and maintaining the ability to enforce key terms should the time come.
Companies that treat their IP like a revenue engine, rather than an afterthought, succeed.
If you want expert guidance on licensing your software in a way that will maximize protection and revenue while minimizing your legal risk—let’s talk. You can reach me at tracy@tsworklaw.com or call at 530-919-2279.