Understanding Open Source and Free Software Licensing

Chapter 5. Non-Open Source Licenses

In the previous chapters, we have examined open source and free software licenses, all of which permit, to varying extents, substantial inroads on the protections otherwise available under copyright or patent law. In this chapter, by contrast, we examine one variety of a classic proprietary license, as well as the Sun Community Source licenses and the Microsoft Shared Source Initiative.

Classic Proprietary License

The classic proprietary license needs relatively little explanation. The license does not need to distinguish, for example, between source and binary code: the source code is simply not made available. The license need not distinguish between distribution of derivative and original works: with one very narrow exception, neither is permitted. Proprietary licenses, like the one described below, may contain "open source" licensed software (under the more permissive licenses, like the MIT and BSD Licenses), but the code they license may not be included in any open source project, unless the code is licensed under a parallel non-proprietary license that permits such use.

The following license is the creation of the author. It licenses the hypothetical software of the Mildew Corporation, using terms found in virtually all proprietary licenses.

1. General. The software, documentation and any fonts accompanying this License whether on disk, in read only memory, on any other media or in any other form (collectively the "Software") are licensed, not sold, to you by Mildew Computer, Inc. ("Mildew") for use only under the terms of this License, and Mildew reserves all rights not expressly granted to you. The rights granted herein are limited to Mildew's intellectual property rights in the Mildew Software and do not include any other patents or intellectual property rights. You own the media on which the Mildew Software is recorded but Mildew and/or Mildew's licensor(s) retain ownership of the Software itself.

This provision provides that the software and associated documentation provided by Mildew are only licensed, not sold, to the consumer. This provision is substantially similar in effect to language used in the open source and free software licenses already described. The only rights granted are those specifically described in the license; all other rights are reserved.

The sentence stating that Mildew does not license any property rights other than those that it owns is likely meaningless. By licensing the Software, Mildew is implicitly representing that it has the authority to license all of its components, whether those components are its own work or not. It seems unlikely that a court would hold that Mildew was not responsible for damages to a consumer arising from infringement if the Software turned out to infringe the intellectual property rights of a third party. After all, given the closed nature of the licensed software, consumers are not allowed to determine for themselves whether the software was infringing, even if they have the inclination or the resources to do so.

The second section of the license makes clear the very strict limitations on the use of the software: not only may the end user not distribute the software, he cannot even install more than one copy of it at a time.

2. Permitted License Uses and Restrictions. This License allows you to install and use one (1) copy of the Software on a single device or computer at a time. This License does not allow the Software to exist on more than one such device or computer at a time, and you may not make the Software available over a network where it could be used by multiple devices or multiple computers at the same time.

Because of these limitations, every user of the software, whether on a network or otherwise, must be individually licensed. This type of restriction is contained in almost every proprietary license and is universally enforced by the courts. The second paragraph continues with a narrow exception to this restriction.

You may make one copy of the Software in machine-readable form for backup purposes only; provided that the backup copy must include all copyright or other proprietary notices contained on the original.

The next part of this sentence expressly bars any attempt to derive any of the utility of the code for use other than in the licensed Software.

Except as and only to the extent expressly permitted in this License or by applicable law, you may not copy, decompile, reverse engineer, disassemble, attempt to derive the source code of, modify, or create derivative works of the Software or any part thereof. Any attempt to do so is a violation of the rights of Mildew and its licensors of the Software. If you breach this restriction, you may be subject to prosecution and damages.

Breaching this provision would certainly terminate the license and would render the user liable for damages for further use. Although it is hard to see what damages, if any, Mildew would suffer from such unauthorized use beyond the sales price of another unit of the Software, such use could obviously lead to more substantial forms of infringement through the creation and distribution of derivative works. In addition, reverse engineering or otherwise trying to derive the source code from software could violate U.S. copyright law or the Digital Millennium Copyright Act. Such source code certainly could not be used or distributed in any event, without violating the civil and criminal laws of the United States.

The final provision is a special disclaimer of liability, noting that the Software is not intended for use in high-risk applications.

THE SOFTWARE IS NOT INTENDED FOR USE IN WHICH THE FAILURE OF THE SOFTWARE COULD LEAD TO DEATH, PERSONAL INJURY, OR SEVERE PHYSICAL OR ENVIRONMENTAL DAMAGE.

The third section bars transfers or sales of the licensed software, except for the exception provided under law by the first-sale doctrine, which permits users to sell the rights acquired by license along with the physical medium, regardless of the terms under which the work was originally acquired.

3. Transfer. You may not rent, lease, lend or sublicense the Software. You may, however, make a one-time permanent transfer of all of your license rights to the Software to another party, provided that: (a) the transfer must include all of the Software, including all its component parts, original media, printed materials and this License; (b) you do not retain any copies of the Software, full or partial, including copies stored on a computer or other storage device; and (c) the party receiving the Software reads and agrees to accept the terms and conditions of this License.

This paragraph does not grant any rights to the licensee that he or she would not otherwise have by operation of law.

Like most of the open source and free software licenses already examined, the license provides for automatic termination upon any breach of the license.

4. Termination. This License is effective until terminated. Your rights under this License will terminate automatically without notice from Mildew if you fail to comply with any term(s) of this License. Upon the termination of this License, you shall cease all use of the Mildew Software and destroy all copies, full or partial, of the Mildew Software.

However, because the rights granted by the license are so limited in the first place, the effects of the termination are not likely to be severe, at least for programs purchased by individual consumers. As already noted, the measure of damages for continuing use of the licensed program is not likely to be greater than the sales price of the Software. It should be noted, however, that U.S. copyright laws provide for potentially severe penalties for unlawful distribution of copyrighted material, including punitive damages.

The fifth section provides a limited warranty for the medium on which the code of the Software is carried. Commercial software usually carries at least this minimal a warranty.

5. Limited Warranty on Media. Mildew warrants the media on which the Software is recorded and delivered by Mildew to be free from defects in materials and workmanship under normal use for a period of ninety (90) days from the date of original retail purchase. Your exclusive remedy under this Section shall be, at Mildew's option, either a refund of the purchase price of the product containing the Software or replacement of the Software which is returned to Mildew. THIS LIMITED WARRANTY AND ANY IMPLIED WARRANTIES ON THE MEDIA INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND OF FITNESS FOR A PARTICULAR PURPOSE, ARE LIMITED IN DURATION TO NINETY (90) DAYS FROM THE DATE OF ORIGINAL RETAIL PURCHASE. SOME JURISDICTIONS DO NOT ALLOW LIMITATIONS ON HOW LONG AN IMPLIED WARRANTY LASTS, SO THE ABOVE LIMITATION MAY NOT APPLY TO YOU. THE LIMITED WARRANTY SET FORTH HEREIN IS THE ONLY WARRANTY MADE TO YOU AND IS PROVIDED IN LIEU OF ANY OTHER WARRANTIES (IF ANY) CREATED BY ANY DOCUMENTATION OR PACKAGING. THIS LIMITED WARRANTY GIVES YOU SPECIFIC LEGAL RIGHTS, AND YOU MAY ALSO HAVE OTHER RIGHTS WHICH VARY BY JURISDICTION.

The following provisions restate the same limitations articulated by the second to last sentence of the fifth paragraph: Mildew disclaims all responsibility for any damages caused by the Software, except to the extent it is prohibited from doing so by law.

6. Disclaimer of Warranties. YOU EXPRESSLY ACKNOWLEDGE AND AGREE THAT USE OF THE SOFTWARE IS AT YOUR SOLE RISK AND THAT THE ENTIRE RISK AS TO SATISFACTORY QUALITY, PERFORMANCE, ACCURACY AND EFFORT IS WITH YOU. EXCEPT FOR THE LIMITED WARRANTY ON MEDIA SET FORTH ABOVE AND TO THE MAXIMUM EXTENT PERMITTED BY APPLICABLE LAW, THE SOFTWARE IS PROVIDED "AS IS", WITH ALL FAULTS AND WITHOUT WARRANTY OF ANY KIND, AND DANGER AND DANGER'S LICENSORS (COLLECTIVELY REFERRED TO AS "DANGER" FOR THE PURPOSES OF SECTIONS 6 AND 7) HEREBY DISCLAIM ALL WARRANTIES AND CONDITIONS WITH RESPECT TO THE SOFTWARE, EITHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES AND/OR CONDITIONS OF MERCHANTABILITY, OF SATISFACTORY QUALITY, OF FITNESS FOR A PARTICULAR PURPOSE, OF ACCURACY, OF QUIET ENJOYMENT, AND NON-INFRINGEMENT OF THIRD PARTY RIGHTS. DANGER DOES NOT WARRANT AGAINST INTERFERENCE WITH YOUR ENJOYMENT OF THE SOFTWARE, THAT THE FUNCTIONS CONTAINED IN THE SOFTWARE WILL MEET YOUR REQUIREMENTS, THAT THE OPERATION OF THE SOFTWARE WILL BE UNINTERRUPTED OR ERROR-FREE, OR THAT DEFECTS IN THE SOFTWARE WILL BE CORRECTED. NO ORAL OR WRITTEN INFORMATION OR ADVICE GIVEN BY DANGER SHALL CREATE A WARRANTY. SHOULD THE SOFTWARE PROVE DEFECTIVE, YOU ASSUME THE ENTIRE COST OF ALL NECESSARY SERVICING, REPAIR OR CORRECTION. SOME JURISDICTIONS DO NOT ALLOW THE EXCLUSION OF IMPLIED WARRANTIES OR LIMITATIONS ON APPLICABLE STATUTORY RIGHTS OF A CONSUMER, SO THE ABOVE EXCLUSION AND LIMITATIONS MAY NOT APPLY TO YOU.

7. Limitation of Liability. TO THE EXTENT NOT PROHIBITED BY LAW, IN NO EVENT SHALL DANGER BE LIABLE FOR PERSONAL INJURY, OR ANY INCIDENTAL, SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES WHATSOEVER, INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF PROFITS, LOSS OF DATA, BUSINESS INTERRUPTION OR ANY OTHER COMMERCIAL DAMAGES OR LOSSES, ARISING OUT OF OR RELATED TO YOUR USE OR INABILITY TO USE THE SOFTWARE, HOWEVER CAUSED, REGARDLESS OF THE THEORY OF LIABILITY (CONTRACT, TORT OR OTHERWISE) AND EVEN IF DANGER HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. SOME JURISDICTIONS DO NOT ALLOW THE LIMITATION OF LIABILITY FOR PERSONAL INJURY, OR OF INCIDENTAL OR CONSEQUENTIAL DAMAGES, SO THIS LIMITATION MAY NOT APPLY TO YOU. In no event shall Mildew's total liability to you for all damages (other than as may be required by applicable law in cases involving personal injury) exceed the amount of fifty dollars ($50.00). The foregoing limitations will apply even if the above stated remedy fails of its essential purpose.

For a more thorough discussion of the meaning and effect of such provisions, see the discussion of warranties in Chapter 1. The last sentence of the seventh paragraph provides a fallback position for Mildew. In the event that use of the Software results in damages to the user, the most the user can collect is $50. It seems unlikely that this provision would ever be enforced: to the extent that a court determines that Mildew is liable in spite of all the previous disclaimers, it seems unlikely to limit the injured party to $50 in recovery.

8. Export Law Assurances. You may not use or otherwise export or reexport the Software except as authorized by United States law and the laws of the jurisdiction in which the Software was obtained. In particular, but without limitation, the Software may not be exported or re-exported (a) into (or to a national or resident of) any U.S. embargoed countries (currently Cuba, Iran, Iraq, Libya, North Korea, Sudan and Syria) or (b) to anyone on the U.S. Treasury Department's list of Specially Designated Nationals or the U.S. Department of Commerce Denied Person's List or Entity List. By using the Software, you represent and warrant that you are not located in, under control of, or a national or resident of any such country or on any such list.

The eighth section of Mildew's license does not impose additional restrictions on users so much as inform them on the limitations on their ability to transfer the software, even in the limited manner described in the third section.

The ninth section provides that U.S. government users are bound by the same terms of the license as are other users, provisions typical in commercial software licenses.

9. Government End Users. The Software and related documentation are "Commercial Items", as that term is defined at 48 C.F.R. §2.101, consisting of "Commercial Computer Software" and "Commercial Computer Software Documentation", as such terms are used in 48 C.F.R. §12.212 or 48 C.F.R. §227.7202, as applicable. Consistent with 48 C.F.R. §12.212 or 48 C.F.R. §227.7202-1 through 227.7202-4, as applicable, the Commercial Computer Software and Commercial Computer Software Documentation are being licensed to U.S. Government end users (a) only as Commercial Items and (b) with only those rights as are granted to all other end users pursuant to the terms and conditions herein. Unpublished-rights reserved under the copyright laws of the United States.

The tenth section provides choice of law and forum selection clauses as previously discussed in connection with the Mozilla Public License in Chapter 3.

10. Controlling Law and Severability and Choice of Forum. This License will be governed by and construed in accordance with the laws of the State of Colorado, as applied to agreements entered into and to be performed entirely within Colorado between Colorado residents, that is, without giving any effect to the choice of laws provisions of the State of Colorado. This License shall not be governed by the United Nations Convention on Contracts for the International Sale of Goods, the application of which is expressly excluded. If for any reason a court of competent jurisdiction finds any provision, or portion thereof, to be unenforceable, the remainder of this License shall continue in full force and effect. You agree that the only courts in which You will bring lawsuits concerning the application or enforcement of this License are courts of competent jurisdiction located in the State of Colorado and you consent to the exercise of jurisdiction by any such court. This paragraph shall survive in full force and effect regardless of any termination of this License.

This paragraph works one minor variation on the typical forum selection clause, in that it imposes a limitation only on "You"—i.e., the licensee. The Licensor presumably could bring an action in any court having jurisdiction over the licensee, not just the courts of Colorado.

The eleventh section reflects that the Software contains code originally licensed under an open source license, in this case, code licensed under an MIT License.

11. Third Party Notices and Conditions. The Software may include or utilize certain software which is owned by Mongrel Mix, the source code of which is available under the MIT License (the "Mongrel Mix Code"). Mildew may make modifications to this Mongrel Mix Code. The license for the Mongrel Mix Code is included here as Exhibit A. Those terms are fully applicable to the use of those portions of the Software that consist of or are derived from the Mongrel Mix Code.

The conditions imposed by the MIT license are described in Chapter 2. Mildew, as a licensee of Mongrel Mix, has complied with its license obligations by noting that Mongrel Mix originated part of the code contained in the Software and by attaching the license applicable to that Code as an exhibit. As described in Chapter 2, Mildew is under no obligation to make available the source code for its modifications to the Mongrel Mix code or the original, unmodified source code. Enterprising end users, of course, can track down the original source code for themselves.

The final provision contains a merger provision and a bar on oral modifications, as previously described.

12. Complete Agreement; Governing Language. This License constitutes the entire agreement between the parties with respect to the Software licensed hereunder and supersedes all prior or contemporaneous understandings regarding such subject matter. No amendment to or modification of this License will be binding unless in writing and signed by Mildew.

A proprietary license, because it authorizes so few actions beyond the use of the program for the purpose for which it was intended, is usually simple to describe and to understand, despite the legal language. As described in Chapter 1, because the underlying code is kept closed, these licenses tend to create evolutionary dead ends. Every year, as software companies like Mildew go out of business, all of the utility of their code dies with them. Even after the rights under copyright or patent have expired, that code is essentially buried (assuming anyone, at that point, is still interested in it), because the source code for the program is unlikely to be available.

The proprietary license described here is a " shrinkwrap" license typical to single license sales of programs to individual members of the public. Like any other license, however, proprietary licenses are subject to significant variation. For example, it would not be impossible for a proprietary license to make available the source code for the licensed program but prohibit any use of that source code for some defined period of time, such as five years. This would preserve much of the benefit of the proprietary license model—the ability to make income off of a monopoly—while avoiding at least one negative outcome of the proprietary model.

As in everything else, negotiating power has considerable effect on the terms of the license in question. This license presumes highly asymmetric bargaining power. The seller of the software in question has the better bargaining position: the incremental profit increase associated with the additional sale of a single license, from its point of view, is far too little to justify individual negotiation. The buyer of the software is left essentially in a take-it-or-leave-it position and the result is a license highly favorable to the seller.

This is not always the case. In a situation in which the poles of power are reversed, such as when the seller is a small software cooperative and the buyer is a Fortune 500 company, the buyer will probably demand a number of benefits not included in this license, such as express warranties that the software will work as described, access to the source code, and perhaps the right to make changes to the source code, or even to distribute modified versions of the program.

Thus, while the Mildew proprietary license is not an atypical license for the class of licenses it represents—that is, "shrinkwrap" licenses for sales of individual licenses to the public—it is not intended to describe all proprietary licenses. Individually negotiated licenses, particularly between parties with more equal bargaining power, may contain substantially different terms and avoid some of the negative consequences of proprietary licensing.