The Difference Between Sale And License Of Software

A reader posted an interesting comment on my earlier post titled “Important Facts In The Autodesk vs Vernor Case“. He wrote:

“Since we dont buy this software how about we return it when we are finished with it noting it is in the same condition as when we got it and ask for our money to be refunded in full for the surplus license.”

Here’s what I think. Say you rent out an apartment and live in it for a year. When you vacate it do you ask the landlord to pay you back the rent that you paid him for the year since the apartment is in the same condition as when you started staying in it? I know its not exactly the same thing. But here in India, a rent agreement is called “Leave and License Agreement”, the keyword here being “license”.

At the risk of complicating things, I’d like to draw an analogy or sorts between software license agreements and leave and license agreements. The main difference between the two is that you are allowed to use the apartment for finite amount of time, whereas you can use the software indefinitely. or till such time that it is technically possible to do so.

Taking this analogy a bit further, in India we also have something called a long lease in which entities (usually the government) rent out property for 99 years. The point here is to maintain ownership of the land but give the tenant the freedom to whatever he wants on it, like build a house, set up a business, etc. I happen to have one such property on a long lease for which I paid a one time paltry sum. To give you an idea, I spent a whole lot more just to erect a fence around the property. According to my agreement I cannot sell that property because I don’t own it. I can pass it down to my children and they can renew the 99 year lease when the time comes. But under no circumstances that property can go out of my family.

On the other hand, my house is built on a property that I bought. And I had to almost sell myself to come up with kind of money that the seller was asking. I can sell that property to whoever I want because I own it. There is nothing stopping me from building houses and living on both properties. But I can sell only the property that I own, not the one I have rented.

So coming back to software, you can consider the source code as the intellectual property that is owned by the developer and object code (executables, DLLs, etc.) as the intellectual property that is encrypted and which is rented/licensed. You own a software, or rather its intellectual property, only if you own its source code. Since end users cannot come up with the kind of money needed to buy source code (which would be useless to them anyways) software developers license the object code to them. So users do not own the intellectual property in the object code, but merely pay for the right to use it.

This is quite similar to how at SYCODE we develop custom software solutions apart from offering products that you can buy off the shelf. The price of these solutions differs vastly depending upon whether the customer wants source code or is happy with object code. If he pays for source code (which happens to be a lot of money), the intellectual property becomes his. He now owns the software and is free to do whatever he wants with it. But if he opts for object code only he pays a lot lesser and is severely limited by what he can do with it. He does not own the intellectual property of that custom solution. He merely pays for the right to use it, that’s all.

If as a user, you think this is unfair in some way then you may be heartened to know that software developers face the same music themselves. For example, I have licensed object code from Spatial. They have given me DLL’s which I ship along with my products. Although I distribute those DLL’s I do not own the intellectual property stored in them. I cannot sell or sub-license them to any other developer. Just the same way like you cannot rent out an apartment to someone when you yourself have rented it from your landlord. If I want ownership of the intellectual property in Spatial’s DLL’s then I will need to pay them probably a million times more than what I am paying now.

That’s the thing about intellectual property that a lot people don’t get. It’s abstract. A bunch of bytes in a DLL stored on a hard drive or a medium like a CD is not intellectual property. That’s merely the form it takes so that it can be used. Same thing goes for other abstract things like music. Just because you own a CD or MP3 file of a song, you don’t become the owner of its intellectual property. And when it comes to abstract things like software, music, etc. ownership it tied to intellectual property. If you own it, you can sell it. It’s really that simple.

  • Neil

    Ah but software is special. We each use an exact copy of the code. Any wear and tear is to our own equipment. Its not like renting an apartment. The software can be returned to the lender without any degradation at all and they could lend out/sell the very same code over and over again for the same money.
    Who is to say how much or how little I made use of the code.
    Was the code I was given already used and I foolishly paid top dollar for it? 🙂
    Surely the purpose of a license is to control copying and the use of the actual code, and not to prevent ownership.
    I consider that I own the DVD ie my copy of the code and it is mine to leave to my children or sell if I choose.
    I dont believe though I have the right to make 10 copies of it and give them away or sell them or to use the code itself for anything other than producing CAD.
    Although those guys broke their agreement to destroy the older version I consider they do have the right to sell their CAD when they are finished with it.
    In this country such an unfair contract as is cheekily pushed out by CAD companies oversteps the mark and would be thrown out on its ear and quite rightly so.

  • Neil, I think you are missing my main point that if you own the intellectual property of the software, you can sell it. If you don’t, you cannot. Like I mentioned, owning a DVD of a software and owning the intellectual property of a software are two very different things.

    FYI, something like AutoCAD does not cost $4000 to develop. So yes, they need to sell the same code over and over again to make up for the millions that they spent making it and then make some more for profit.

  • Reminds me a discussion with a colleague. A customer insists we sent her the all DVDs for several different languages: she thought her company owns the software once we send the DVDs. But in reality, they are just “renting” the software (with license, maintenance subscription fees).

    I think this is one reason software business is a high margin business.

  • Neil

    I dont think I am. There isnt a defence for this sort of predatory self interest. These corporate lawyers push their luck to the max and bamboozle people and they get away with it.
    OK so I buy a television with Dolby sound chips in it. That is licensed IP. You are telling me that I dont own the TV now? Could Dolby Labs come and take my TV or sue me if I sell it on ebay?
    The TV shop dont own the Dolby rights either so why are they fraudulently selling me the TV instead of extending me the right to use it?
    If I buy a bulldozer I might have to restrict any modifications to those approved by the factory and follow exact maintenance procedures to meet the warranty conditions, but its all mine.
    Autocad have the IP rights to the code itself and copyright redress and nothing else.

  • It basically boils down to whether a product was licensed or it was sold to you. Did you sign a license agreement at the TV shop? No. So that makes the TV yours completely and you can do what you want with it.

    Dolby licensed its IP to the TV manufacturer in a way that the manufacturer could “sell” not “license” the TV to you. Why? Because their IP is required to be embedded into a physical product which needs to be “sold” and not “licensed”. However, I bet if the TV manufacturer started selling plain DVD’s containing Doldby’s IP instead of embedding it in their TV sets, things would be a lot different.

  • Neil

    Well I guess we could go on for a while with this.
    I think next time the right to sell should be challenged outside the US.
    I am slightly surprised you can see wrong in the journalists efforts but no wrong on the part of CAD vendors who tell you that you dont own your copy of their software.
    I know they push a license on you but that ought to cover its use not its ownership

  • Matt

    The issue in this case of selling old versions for which the company was using the upgrade is clearly wrong, but in the larger argument about resale of used software, it’s a red herring.

    Used movies, CDs, and games are perfectly legal in the US. These exist on the same medium (digital files and/or disks), and have exactly the same hurdles that used software would have.

    As an author, I’m very anti-pirate, and I don’t believe that countering the IP argument with freedom of speech has any validity whatsoever. But at the same time, you can sell a used book, and yet you don’t own the copyright to the material. Same exact issue.

    Software people try to distinguish themselves from these other forms of IP by the use of the word “license”. But you plink down cash for the software, just like the other forms of IP. Leasing is an ongoing thing. Purchase is a one-time thing.

    I really don’t see the difference between buying software and buying recorded music, movies, games, books, etc. It may take a different case to settle this argument. Maybe one where a SolidWorks user goes out of business and wants to sell their software, which in my eye is a perfectly legitimate transaction, as long as no one else is using that serial number.

  • Michael Gibson

    > Ah but software is special. We each use
    > an exact copy of the code. Any wear and
    > tear is to our own equipment.

    What does physical wear and tear have to do with anything?

    There is no reason to consider “no physical wear and tear” to mean you should be able to get a 100% refund some time later after you are finished using it.

    When you go rent a DVD and watch it, when you are finished watching it, do you expect a 100% refund if you returned the disk in the same physical condition?

    When you pay your cable bill, after you watch it for a month, do you expect a 100% refund after you are finished watching, because there was no physical wear and tear involved?

    I don’t know how you would expect software companies to stay in business if they were expected to give a 100% refund some years in the future after you’ve been using the software.

    > Although those guys broke their agreement
    > to destroy the older version I consider they
    > do have the right to sell their CAD when
    > they are finished with it.

    Well, this case is pretty clear – they are not selling their licensed copies, they purchased an upgrade and they are keeping their current upgrade and selling the old version.

    The thing is, they got a discount on purchasing the new version and part of the reason they got a discount was specifically because they agreed not to sell the old version. The old version is effectively deactivated and the only version they own after that is the new one.

    They were not forced to purchase a discounted upgrade version, they could have purchased a new version at full price. Then the case would have been a lot more interesting.

  • Kevin Quigley

    Got to say I agree with Matt. I treat software as an asset in my business (try telling the Inland Revenue otherwise). That means it has value in the eyes of the law. I do not expect refunds on software purchases unless it is bug ridden crap – but I would have already found that out before it got to that stage – but I do think a buyer should be able to transfer the license to another party for a residual price. Put it another way, if I buy a car for £20k, use it for a year, then give it to my friend, the Inland Revenue (or IRS) play merry hell with your accounts – they expect it to have a value and you cannot just write it all off. They expect you to sell it at market value.

    Maybe it is time for the governments to focus a bit more on the way software is sold and accounted for? As we move to the cloud is the software an asset or just expenditure?

  • Neil

    Look I was being slightly ridiculous and provocative with that comment. I was surprised Deelip picked up on it and made a post out of it.
    Really I was having a poke at the farce of the vendor trying to dictate to me that I dont own my copy of the software with a farce of my own. Their assertion has nothing to do with protecting their rights and everything to do with invading and trampling on mine.
    I think their primary motive is actually to kill off the second hand market in favour of upgrade churn.
    Their rights are already protected by copyright, patents, activation/phone home etc.
    Presently users/buyers are walked on by corporate lawyers. The EULA isnt a fair contract but most people are not in a position to challenge its legitimacy up front. You take it or leave it however it is high time there was some push back on this.
    Unfortunately in this case the matter wasnt examined as it should have been because of the priority of the upgrade agreement.
    As I said in other parts of the world I dont think the same judgement would follow because the IP and consumer laws and attitudes are different.
    This issue will come around again though somewhere, sometime and eventually the line will be redrawn down the middle.

  • Neil

    I suggested on Matt’s blog a while ago that SW users should take advantage of the cloud to leverage a rehash of the EULA.
    Be interesting to see what happens.

  • Neil, I guess could go on. In fact, there are valid points on both sides. Just that I am sitting on one side of the argument and you are on the other.

    As regards me not seeing anything wrong here, for whatever it’s worth, and as I stated in my article, I also don’t see anything wrong with me not being able to “own” the software that I have “licensed” from Spatial.

  • Matt: “Leasing is an ongoing thing. Purchase is a one-time thing.”

    I believe the software vendors, myself included, are the ones to blame for the confusion. We use terms like “purchase” instead of “lease” or “license”. And to confuse things even more we use the term “purchase a license”.

    We have been giving people the idea that we are selling our software when actually we have simply been renting it out to them. If they really want to “buy” our software (or rather buy our intellectual property), they would need to pay for the source code, like how I explained in my post above.

  • I have this argument with my accountant every year. He insists that the software that I “licensed” is an asset and I argue with him that its actually an expenditure. I tell him that if it was an asset I should be able to sell it, which I cannot. He then pulls out one of his fat books and reads me out a paragraph explaining what my government things software is.

    You are absolutely right. That car you bought for £20k is an asset in your books of accounts because you “purchased” it. You did not license/lease/rent it. The software you paid for is actually an expense because you did not assume ownership of it. You simply paid for the right to use it. It’s just as if you rented the car instead of purchasing it, in which case you would book the rent as an expense and not an asset.

    Actually annual subscription solves this to an extent. That’s where my accountant has no argument. I tell him that after a year, if I don’t renew my software subscription, I can’t use the software. So obviously my subscription fees are an expense and not payment for an asset.

  • Don’t give the CAD/PLM guys any silly ideas Dee.

  • Err… I’m one of them actually. 😉

  • Neil

    Well thats right in that case. You wish to utilise their code in your product so they grant you a license to do so and you dont own their code, however you own your code and sell the finished item which your customers then own. They dont have the right to reverse engineer your code or Spatials part of it or make copies for sale but they do have the right to sell their copy when they are done (unless you are another one of these wayward companies whose practices need straightening up) 🙂
    Anyway enough…

  • A small correction. I don’t sell my product to my customers. I only license it to them. So they can’t sell my product to anyone else, just like I cannot sell Spatial’s components to any other software vendor because Spatial has licensed them to me, not sold them.

    Same difference. 😉

    You and I should sit down for a beer someday, you know.

  • Neil

    Well now we have exposed Sycode as a company with these same problem business practices I think we should make an example of you in an industry test case. You will be much easier to pick off than Autodesk. 😀
    I will buy buy us two beers afterward. One for me to drink in celebration and another for you to look at because the ingredients are IP and as such not available for your consumption.

  • LOL! Look forward to it. 😉

  • Matt

    Deelip, your car analogy breaks down in a couple of places. Let’s say I pay for SW2010. I can continue using SW2010 for as long as I have hardware to run it on. I do not need to keep paying to keep using SW2010. This works exactly like a purchase. Saying I can’t sell it is an artificial limitation the company tries to force on me.

    Annual subscription for SolidWorks does not allow you to use the software. It updates you to the latest version, gives you tech support and bug fixes (a problem of its own). You obviously can’t sell subscription. It is good only for a certain period of time, and applies to a specific serial number.

    I still fail to see how buying software in any material way resembles a lease. You don’t keep paying for it, but you can still use it.

    I believe one of the reasons the industry is chasing the cloud so hard is this licensing deal. If you don’t own the server and you don’t own the software, you have to keep paying. That is definitely a lease or rental. Leases are convenient, but are rarely a good financial choice for the consumer long term.

  • Matt

    Deelip, if I start calling an armadillo a Furby, does that make it so? As you pointed out earlier, users have no use for source code. You buy a CD, and you can listen to it or sell it. Same with a book, or a movie on DVD. I don’t want the original recording data or the original manuscripts. I own the media, and can use it as it is meant to be used and then sell it. What is the difference with software? I buy it. I use it. I sell it.

    I doubt very much the “oops, I mean ‘license’ yeah, that’s the ticket, ‘license'” argument would stand up very well in a situation where the person selling the software was not also pirating the software.

  • Yes, the car analogy does not work well because the term of the lease is finite. But I guess my 99 year property lease analogy should work. SolidWorks 2010 has been licensed to you on a long lease. So are you saying that they can’t do that? If you spend ten years and a million dollars designing a complex assembly and wish to lease it to someone (not sell it), you can’t? Why not?

  • Matt

    1. Because it was represented as a sale.
    2. Because it is represented as a sale by most companies in the same business.
    3. Because other products like it are treated as a sale.
    4. You can’t just make up your own rules as you go along.
    5. Companies that represent what they offer as a lease or pay as you go generally don’t do well.

    They can do whatever they want, but most companies realize that there is always a consequence for your actions. The consequence is that Alibre, VX and other products as a rental were not accepted by people who write checks. So business plans changed. When they changed I doubt very much it was because of what the company wanted to do, it was what the customer wanted that mattered in the end.

    I really don’t care about how much it cost to develop it. Just like the source code that builds the tool I use, that’s none of my concern. That is for the company to deal with. I care about if I can afford it. The company only has something to “sell” if folks can afford it.

    You continue to operate under the idea that corporations are somehow god-like, and can force customers into whatever terms they care to dictate. Aside from Apple and cell phone companies, extremely anti-customer actions are usually met with a loss of revenue. Which often creates a change in attitudes.

  • Careful now. I don’t know about you, but for every commercial software that I ever installed on my computer. I first agreed to something called an “End User License Agreement” which very clearly said that I was licensing the software and not buying it. Nobody is making up rules. Customers have simply not taken the time to understand them.

    However, I do see that you avoided answering my question. So I ask you again, “If you spend ten years and a million dollars designing a complex assembly and wish to lease it to someone (not sell it), you can’t? Why not?”

  • Matt

    Oh, yes, eulas. You never see the eula until after you ‘buy” the software. How many of those eulas did you read? How many would you disagree with the terms if you did read it? How many of those are even remotely enforceable or even legal? The whole point of the discussion is the legality of the eula in the first place.

    Of course you can try to lease anything you want to. But a transaction takes two parties. Walk in to a SolidWorks reseller and ask them if they can sell you a copy of Solidworks software, and you will NEVER hear them equivocate about renting you a license. The transaction of acquiring software more closely resembles a sale than a lease. It is almost always represented as a sale before the “sale”, you can keep it and use it as long as you like without invoking any special case 99 year lease out of the blue, you don’t have to keep paying for it… remind us again, how is this a lease?

  • Guest

    and normally “eulas when installing” are in a minuscule 3 lines showing windows of a inmense extense scrolling down without print frienldy version with Ctrl-Copy disabled.

  • John

    I wonder what the license fee would be if software developers gave you the right to transfer or resell their license to a 3rd party. I imagine the cost would be higher.

    Are there no viable applications that give you this right?

  • Neil

    >You never see the eula until after you ‘buy” the software.

    Good point. That was the case for me. I paid over my $ and the software arrived by courier. Looking through the stuff that came with it I discover I dont own the software I just bought. WTF.
    No one told me of this beforehand. Now to be fair I think SW allow you 7 days to return it if you are not happy but in reality you are stuck with the EULA conditions if you want the software.
    Immediately I read the EULA I was an unhappy customer/user.
    I actually believe what is said there contravenes our countries laws anyway and yet you have to agree to go along with a crooked contract.
    If you said well look I’ll buy the software but not on these terms you’ll have to negotiate where would that get you?
    I think Paul Waddington knows – you get marginalised as a crank.
    At the very least vendors should have to send out the EULA before you purchase IMO.
    If this were the case then the consumer would be fully informed and empowered to say no and market forces would consign this absurd assertion to the dustbin.
    The fact is though vendors dont want a second hand market for software. They want people to buy new or continuously upgrade. As such the EULA is protectionist, monopolistic and anti competitive.
    Deelip and his crony coders luv this 😉

  • Neil

    btw it could be said that vendors conspire as an industry to keep this exploitation going…

  • Neil

    No doubt they would try to put that one over too however in this artificial non-market for their goods the industry perpetuates the number of sales and the profit margins are held up over what they should be and the abysmal quality std across the board is considered normal.
    If these cosy constructs of self interest where to be busted then prices ought to fall and quality rise.

  • The point of this discussion is to highlight the difference between buying a software and licensing it. Go read my original post again if you need to. If you want to buy software go buy the source code, if you want to license it go pay for the object code. It’s that simple.

    The reason I asked you that question (twice) which you still have not answered (and I don’t think you want to) is to show you that intellectual property can be sold or licensed depending on what the creator/owner of the IP wants to do. If you reserve the right to license (not sell) that complex assembly, then I reserve the right to license (not sell) my software. Period.

    You can’t have it both ways.

  • One sided EULA’s are an entire different topic which is not being discussed here. The point here the difference between selling and licensing itself. For the amount that you pay for object code, even if you had a negotiated and fair EULA, it would still be a license and not a sale. You would still not be able to resell the software.

  • Ah! At last I see someone who seems to be getting my point.

  • Neil: “No one told me of this beforehand.”

    Do you need someone to remind you that the earth is not flat every morning when you wake up? You make it sound like you always owned the intellectual property of all software that you bought and now things have changed.

    And this stuff about already paying for something before agreeing to the license agreement does not hold much water. There is a reason why the EULA is shown to you before you install the software and not after.

    The following appears right at the top of my EULA, and highlighted in UPPERCASE:

    “IF YOU DO NOT AGREE OR DO NOT WISH TO BIND YOURSELF OR THE ENTITY YOU REPRESENT: (A) DO NOT COPY, INSTALL, DOWNLOAD, ACCESS OR USE THE SOFTWARE; (B) SELECT “I REJECT” AT THE END OF THIS AGREEMENT (WHICH WILL CANCEL THE LOADING OF THE SOFTWARE); AND (C) WITHIN THIRTY (30) DAYS FROM THE DATE OF ACQUISITION, RETURN THE SOFTWARE TO THE LOCATION WHERE YOU ACQUIRED IT FOR A REFUND.”

    So if you don’t agree, you will get your entire money back. No questions asked. Any decent EULA should have this or something like it.

    • LOL@ WRITING THINGS IN UPPER CASE, WHICH ONLY MAKES TEXT HARDER TO READ AND WHICH SHOULD REALLY BE CONSIDERED TO INVALIDATE ANYTHING IN LEGAL DOCUMENTS THAT HAS BEEN WRITTEN IN SUCH AN ABUSIVELY SHOUTY MANNER.

      Also, see here:

      http://www.blog.cadnauseam.com/terms-of-use/

  • Autodesk used to allow resale of their software and charged a fee for handling the transfer paperwork. Then the legal weasels quietly slipped a clause into the EULA effectively forbidding license transfers, but Autodesk continued to cooperate with them. This went on for a couple of releases, then Autodesk started to enforce the EULA clause. There was an outcry, and no response other than the usual “you agreed to it” obfuscation.

    Now, on to the “the cost would be higher” point. When Autodesk switched to the no-resale model, did the price of AutoCAD drop accordingly? Go on, take a guess.

  • R. Paul Waddington

    This thread has been interesting to follow and equally interesting to see how people still grapple with an issue (licencing) that is quite easy to understand.
    I have never misunderstood what software licencing entailed and the reasons for it; and why it is both appropriate and a reasonable business tool.
    Problem is though it is being abused by vendors: that’s their mistake. It could do, quite easily, all the things they want it to do, but only if they apply it correctly. That is what most have failed to do and Autodesk is no exception.
    It is extremely disappointing to see how little wisdom is shown in this area, by the senior management of software vendors. There are unintended consequence of treating your customers poorly. This post, CIP the Bomb; Fragments CAD in the Cloud http://www.miletter.blogspot.com outlines one of those consequences; an undermining of Trust!

  • Smartin

    First off, I agree that the sale of the AutoCAD copies in this case was unlawful. The larger picture of whether resale of ‘licensed’ software is lawful or not is yet undecided.

    I think the ‘you have to pay for the source code to buy it’ arguement is bogus. There are plenty of programs I own and can resell where I do not have any access to source code, that do not involve post-sale license ‘agreements’ (that you cannot read much less negotiate prior to purchase). These programs all cost a lot less than a single purchase of most of my unsaleable programs, too. These programs have a lot of anti-copying/single use restrictions with varying degrees of success, but no anti-resale obligations – in fact there’s a substantial market for such resale. Computer/console gaming industry anyone?

  • “resale of licensed software” is an oxymoron. I think you mean that the thing which is undecided is whether (a) software absolutely must be sold and not licensed at all; or (b) software can be licensed or sold depending on the wishes of the developer.

    If you have “plenty of programs that you own and can resell” it means that the developers of those programs have given you the right to do so. Its their wish. But you are implying that developers who license their software and not sell it are doing something “unlawful” (your word), which is what I am finding hard to digest because at least in my country no such law exists.

  • Smartin

    I’m far from an expert in consumer law, which is why I’d like to see a more relevant case eventually decide this matter. In my point of view, the transaction by which I gain software in return for giving the vendor a one-time chunk of money looks a lot more like a sale than a restrictive license – ESPECIALLY those transactions where the “license agreement” is not even visible until after the money changes hands. I think regardless of which way this falls there needs to at least be more communication and education about what comprises a sale vs. a license.

    The main point of my post was that I don’t believe access to the source code is a requirement for ‘sale’ – a stance you take in your original post. I admit, maybe my intended point could have been made more obvious with fewer words. As I mentioned, other software is legally sold and resold without any of the recipients having access to the source.

    As to whether nontransferrable licensing is supportable by law… (a) I hope either no or it gains more defined requirements/definition that better distinguish it from actual sales, (b) I don’t actually know, and (c) I won’t be suprised if this ends up varying by country – which could become a real mess.

  • The source code stance is my personal view on things and this is how I operate, as I explained in my post about developing custom solutions and offering them to my customers as source code or object code. As far as I know there is no law that prohibits me from doing so. If I develop something I should have every right to sell or or license it as I please. Just the same way like if you design a model you should have the right to license it or sell it as you please.

    I am really not bothered with how other software developers sell or license their software. Or how authors and musicians sell or license their intellectual property. What I have stated in my post is my view as a software developer and why I see absolutely nothing wrong in licensing software.

  • Kevin Quigley

    Deelip I have no issues with individual company terms over licensing. But there is a huge grey area here when it comes to how software is accounted for. Strictly speaking if I license something “in perptuity” it does have an asset value. If The license is annual though, or over several years it is expenditure. I wonder how the likes of Airbus or Boeing account for software? A few thousand seats of Catia is a major cost – or is it a major asset? That makes a big difference to investorscand banks. For small companies who are “CAD heavy” the asset bs expenditure ratio makes an even bigger impact.

    So as we move to a cloud based rental our expenditure rises dramatically and our asset base reduces.

    The fact is that many software companies recognise this and allow licenses to be sold. Some even allow users to sell on their company user forums. I for one think this is a fair treatment of customers and it does sway my decision making. I have never actually sold software but if I am forced to treat it as a capital purchase I want the flexibility of being able to sell it if I need to.

  • Kevin Quigley

    One more thought. What happens to software licenses when conspire get bought and sold? One of my customers has just been sold. The have many seats of Catia, Solidworks, Ansys, Powermill etc. Probably in excess of £250k of software. I know that was capitalised so it probably added to the sale price. Surely in the strictest sense this contravenes a typical EULA?

  • Michael Gibson

    > Look I was being slightly ridiculous and
    > provocative with that comment.

    I’m not sure how you would characterize it as “slightly” ridiculous, the demand to get 100% refund due to no physical wear and tear seems more like “totally” ridiculous to me…

    > Their assertion has nothing to do with protecting
    > their rights and everything to do with invading and
    > trampling on mine.

    Is this also intentionally meant to be ridiculous as well?

    Because it’s certainly not true – vendors try to control what rights you have with the software specifically because people often make copies of software and then give them or even sell them to other people without the vendor’s permission. It’s called piracy.

    > As I said in other parts of the world I dont think the
    > same judgement would follow because the IP and consumer
    > laws and attitudes are different.

    You mean even in this case where they received a special upgrade discount and failed to do adhere to the terms that the discount was offered under?

    That seems ridiculous again.

    I do definitely agree that the issue of whether a full purchased license should be transferrable
    or not is a different issue.

    In this case someone is trying to profit by breaking some rules that they agreed with in order to get a special discount. That’s clearly wrong.

  • Michael Gibson

    Hi Matt, so here’s a question for you – should someone who purchases an academic license at a huge discount then be allowed to sell their copy to a commercial user?

    Because that would seem to follow if software was just “regular” property to be 100% treated the same as a book for example as you seem to be stating here.

    But certainly allowing that kind of educational license resale would be disastrous for many companies. If that was normal and legal there would be some kind of market built up around students purchasing copies and selling them to commercial users for a slight markup from their price but still way under full commercial price.

    If you don’t think that it should be legal for educational licenses to be resold to commercial users, then doesn’t that mean that you actually agree that a “license” purchase is not the same thing as a physical entity purchase? Otherwise how would you reconcile this?

  • Your argument collapses Deelip when subscription is involved.
    If Autodesk make changes to their T&Cs, you load your ‘new’ version; read the EULA and find it is no longer acceptable;
    Autodesk’s ‘will’ refund your money, will not let you return to the ealier version and cancels the customers subscription.
    This is a processs we have been through!

  • Kevin in Autodesk case (at least as it has been inequitably applied in Australia) they do not ‘automatically’ allow the sale of software within the sale of a company.
    We have experienced several of these events and it has caused considerable angst and cost to both us and our customers.
    Additionally, a past head of Autodesk Australia, publicly stated, in a release event Autodesks’ software was not an asset but a business consumable; he compared it to pen and paper and indicated we SHOULD also.

  • Michael Gibson

    Hi Matt,

    > This works exactly like a purchase.

    Yes, but what difference does that make?

    Just because one stage of a transaction resembles something else does not mean that it should automatically follow that everything else about the transaction must then be the same as well.

    > Saying I can’t sell it is an artificial
    > limitation the company tries to force
    > on me.

    Well, you’ve basically described what contracts in general are – every contract is something that puts some artifical limit on what you are allowed to do.

    I mean that’s basically a good short description of what contract law is all about.

    Let me make a much clearer example – unlike cars, software purchasing with licenses (which are a type of contract) allow for different rules for different kinds of customers. So for example a student gets a different kind of license which they pay a lot less money for.

    This is totally unlike cars where there does not exist a special “educational discount” car that is offered with special rules on what you can do with it.

    If you agree that there should exist something like an “educational license” where the student who purchases it agrees to certain conditions, then why would you not also agree that conditions could be placed on any kind of license that is sold?

  • Michael Gibson

    Hi Matt,

    > You continue to operate under the idea
    > that corporations are somehow god-like,
    > and can force customers into whatever
    > terms they care to dictate.

    In what way are you “forced” to purchase any particular software?

    Some company says they will sell you a certain software product under these certain terms of use.

    You have a choice to purchase or not to purchase.

    If you want to purchase it, it’s just a fundamental part of contract law that you make an agreement to abide by the terms the company decided on.

    Nobody was forcing anything, there is nothing resembling god-like powers or force or anything even remotely close…

    It’s much more the reverse – if you’re saying you think you should personally have the power to just break any contract you enter into and arbitrarily behave how you want instead of how you agreed to with the contract, that’s a fundamental breakdown of how law works.

  • Kevin Quigley

    Here’s the thing though. It is one thing for a software maker to say it is a consumable (therefore expenditure) but quite another for the tax authorities in your country. Certainly here in the UK it is general accounting practise to capitalise software “purchases” and write down annual maintenance as expenditure because that is what the Inland Revenue tells us to do.

    I think there needs to be a test case for this sooner rather than later. I can just see a case where a company takes over another company and ends up with the legal eagles writing letters from said software company claiming that they are no longer legally licensed for the 200 seats of “CAD” they took over with the purchase.

  • I agree. Though can I say I do not necessarily agree a ‘test case’ needs to be fought to resolve many of the issues to do with licencing and how procurement of software is ‘viewed’. The issues surrounding ‘ownership’ and licencing, for me, are quite simple to understand and resolve between customer and vendor – if the vendors is willing. That is, of course, the stumbling block. Once done though, the confusion diminishes or disappears and decisions relating to how software is handled for transfers, within company sales and general accounting are also more clearly understood.

  • Kevin, the “A” in EULA stands for “Agreement”. Whenever one company acquires another one, apart from acquiring the assets and liabilities, they also become party to all the agreements that the company they bought has ever signed.

  • Kevin Quigley

    I agree 🙂

    No seriously, like Paul I find the whole understanding of licensing etc easy to understand. My point is that until this discussion started I, if I am being honest, never really gave much thought to the way we account for software in our business. What is clear to me is that there is a big difference in the way software vendors see things, and the way the Inland Revenue appears to.

    Every year I sit down with my accountant and go through major purchases to see if we can offset these against tax, and at what rate. Up till now we have always capitalises software purchases, and annualised upgrades/maintenance. Funnily enough there are frequent schemes available for SMEs to offset all IT purchases at 100% in year 1, and that is the time I tend to make the big purchases.

    Speaking personally, my business is so small that I would prefer to write everything off at 100% in year 1 as this effectively reduces the cost of software purchases, but I do have many customers who I know do capitalise all IT and treat it as an asset on the balance sheet.

    My point about a test case is perhaps that it should come from the software vendors so that they approach the tax authorities as a group and ask for definitive rulings on this.

  • Lol a whole discussione for something that you absoluty can’t do anything about. You need the software so you buy it. Reselling isn’t your main purpose for buying it. Off course if you could choice for a resel able program you would buy that but you almost never can choose between the excact same program with diffrent licences.
    But Sycode is a bit harsh on the lock on mac adress, but you can always sell your network card with it 😛 (don’t know if it works, and most pc have network card on there motherboard)

  • Neil

    I take it you are a vendor then?

  • Michael Gibson

    Yes I am, although a very small scale one.

    Actually I do allow my customers to sell/transfer their full licenses though.

    But I don’t allow transfers of educational discount licenses. And also if you purchase an upgrade version at a discount you can’t keep only the new upgrade version and sell just the old version (as was the particular problem in this actual Autodesk/Vernor case), you have to own them together as a bundle.

    So even though I do allow transfers of a full license, there are still other cases where it is important for me to disallow it.

    Otherwise if anybody could transfer any license that they wanted to anyone else, that would cause a big problem with students transferring their educational discount licenses to commerical customers. If that were allowed, I would have to stop offering an educational discount.

  • Kevin, I think you need to get this financial issue clarified. You could be unnecessarily writing booking software as assets when you should be booking it as expenses.

    I get almost all my software for free. The one’s I don’t I try and book them as expenditures. For example, my yearly payments to Autodesk and Microsoft for their software is treated as an expense as I show them as membership fees for their respective partner programs, which is not very far from the truth.

  • Marijn, I’m glad you put that smiley there. But for those who didn’t get your humor, let me say that software is not licensed to hardware. Rather it is licensed to a person or company. This means that if you change your hardware we will issue you a new key free of cost. But if you sell your hardware to someone, that person cannot use the software on it.

  • Mule Pankaj

    i want to take CATIA software on rent ,in INDIA so can i get it can u send me  the details of its cost ,terms & conditions.or any contact person we do this.
    plz send me the software rent agreement copy if u have ?  on my ,mail id
    mule.pankaj@gmail.com