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.