Decision Engine Software License Models
Introduction
This is the first in a series of three articles, focused on the commercial aspects of decision engine software:
- Software license models
- Software pricing models
- Software billing models
By the end of the series, the reader will have a better idea of the various types of commercial models that are available from decision engine software vendors. Hopefully the information can be used to make more informed decisions.
As we will see in this series of articles, the following English idiom is highly applicable to decision engine software licensing, pricing and billing:
“There is more than one way to skin a cat.”
This English idiom means that there are many paths you can take to achieve the same goal.
Software License Definition
Wikipedia defines a software license as:
“A software license is a legal instrument (usually by way of contract law, with or without printed material) governing the use or redistribution of software. Under United States copyright law, all software is copyright protected, in both source code and object code forms, unless that software was developed by the United States Government, in which case it cannot be copyrighted. Authors of copyrighted software can donate their software to the public domain, in which case it is also not covered by copyright and, as a result, cannot be licensed.
A typical software license grants the licensee, typically an end-user, permission to use one or more copies of software in ways where such a use would otherwise potentially constitute copyright infringement of the software owner’s exclusive rights under copyright.”
Interestingly, United States law and legal definitions, terms and conditions have become the de facto standard for software contracts, which is probably a function of the prevalence of large US software companies in many industries.
Wikipedia goes on to identify no less than 6 different types of software licenses:
Types of Software Licenses
| Software licenses and rights granted in context of the copyright according to Mark Webbink. Expanded by freeware and sublicensing. | |||||||
| Rights granted | Public domain | Permissive FOSS license (e.g. BSD license) | Copyleft FOSS license (e.g. GPL) | Freeware / Shareware / Freemium | Proprietary license | Trade secret | |
| Copyright retained | No | Yes | Yes | Yes | Yes | Yes | |
| Right to perform | Yes | Yes | Yes | Yes | Yes | No | |
| Right to display | Yes | Yes | Yes | Yes | Yes | No | |
| Right to copy | Yes | Yes | Yes | Often | No | Lawsuits are filed by the owner against copyright infringement the most | |
| Right to modify | Yes | Yes | Yes | No | No | No | |
| Right to distribute | Yes | Yes, under same license | Yes, under same license | Often | No | No | |
| Right to sublicense | Yes | Yes | No | No | No | No | |
| Example software | SQLite, ImageJ | Apache web server, ToyBox | Linux kernel, GIMPOBS | Irfanview, Winamp | Windows, the majority of commercial video games and their DRMs, Spotify, xSplit, | Server-side computing programs and services, forensic applications, and other line-of-business work. |
|
Proprietary Software
Wikipedia defines proprietary software as:
“Proprietary software is software that, according to the free and open-source software community, grants its creator, publisher, or other rightsholder or rightsholder partner a legal monopoly by modern copyright and intellectual property law to exclude the recipient from freely sharing the software or modifying it, and – in some cases, as is the case with some patent-encumbered and EULA-bound software – from making use of the software on their own…
Proprietary software may either be closed-source software or source-available software.”
Origin
Wikipedia goes on to describe the origins of proprietary software:
Until the late 1960s computers – large and expensive mainframe computers, machines in specially air-conditioned computer rooms – were usually leased to customers rather than sold. Service and all software available were usually supplied by manufacturers without separate charge until 1969. Computer vendors usually provided the source code for installed software to customers. Customers who developed software often made it available to the public without charge. Closed source means computer programs whose source code is not published except to licensees. It is available to be modified only by the organization that developed it and those licensed to use the software.
In 1969, IBM, which had antitrust lawsuits pending against it, led an industry change by starting to charge separately for mainframe software and services, by unbundling hardware and software.
Bill Gates‘ “Open Letter to Hobbyists” in 1976 decried computer hobbyists’ rampant copyright infringement of software, particularly Microsoft’s Altair BASIC interpreter, and asserted that their unauthorized use hindered his ability to produce quality software. But the legal status of software copyright, especially for object code, was not clear until the 1983 appeals court ruling in Apple Computer, Inc. v. Franklin Computer Corp.”
Proprietary Software Licenses
A proprietary software licence is the most commonly used license type in the decision engine technology arena. Wikipedia describes them as:
“The hallmark of proprietary software licenses is that the software publisher grants the use of one or more copies of software under the end-user license agreement (EULA), but ownership of those copies remains with the software publisher (hence use of the term “proprietary“). This feature of proprietary software licenses means that certain rights regarding the software are reserved by the software publisher. Therefore, it is typical of EULAs to include terms which define the uses of the software, such as the number of installations allowed or the terms of distribution.
The most significant effect of this form of licensing is that, if ownership of the software remains with the software publisher, then the end-user must accept the software license. In other words, without acceptance of the license, the end-user may not use the software at all. One example of such a proprietary software license is the license for Microsoft Windows. As is usually the case with proprietary software licenses, this license contains an extensive list of activities which are restricted, such as: reverse engineering, simultaneous use of the software by multiple users, and publication of benchmarks or performance tests.
The most common licensing models are per single user (named user, client, node) or per user in the appropriate volume discount level, while some manufacturers accumulate existing licenses.
Sometimes one can choose between perpetual (permanent) and annual license. For perpetual licenses, one year of maintenance is often required, but maintenance (subscription) renewals are discounted. For annual licenses, there is no renewal; a new license must be purchased after expiration.
Software licensing often also includes maintenance. This, usually with a term of one year, is either included or optional, but must often be bought with the software. The maintenance agreement (contract) typically contains a clause that allows the licensee to receive minor updates (V.1.1 => 1.2), and sometimes major updates (V.1.2 => 2.0). This option is usually called update insurance or upgrade assurance. For a major update, the customer has to buy an upgrade, if it is not included in the maintenance agreement.”
End-user License Agreement (EULA)
“An end-user license agreement or EULA is a legal contract between a software supplier and a customer or end-user, generally made available to the customer via a retailer acting as an intermediary. A EULA specifies in detail the rights and restrictions which apply to the use of the software.
Software companies often make special agreements with large businesses and government entitles that include support contracts and specially drafted warranties.
Many EULAs assert extensive liability limitations. Most commonly, a EULA will attempt to hold harmless the software licensor in the event that the software causes damage to the user’s computer or data, but some software also proposes limitations on whether the licensor can be held liable for damage that arises through improper use of the software (for example, incorrectly using tax preparation software and incurring penalties as a result). Some EULAs also claim restrictions on venue and applicable law in the event that a legal dispute arises.”
Summary
It is evident that there are many types of Decision Engine software licenses, all with their own variations and different flavours.
ADEPT Decisions uses the proprietary software license type for our Decision Engine, as we believe it is the most standard and transparent way to conduct business.
The next article in this series will be a review of the different software pricing models.
For those that believe all software should be freeware, consider this quote:
“By and large, I’m in the same boat as other inventors. If we’re lucky, of the 10 or 15 items we do a year, maybe one or two of them wind up with a licensing agreement.”
Ralph H. Baer, described as the father of video games.
About the Author
Stephen John Leonard is the founder of ADEPT Decisions and has held a wide range of roles in the banking and credit risk industry since 1985.
About ADEPT Decisions
We disrupt the status quo in the lending industry by providing lenders with customer decisioning, credit risk consulting and advanced analytics to level the playing field, promote financial inclusion and support a new generation of financial products.
