Contract or License?

Rod Dixon, J.D., LL.M. rod at
Fri Sep 14 11:41:31 UTC 2001

Hello Larry, as I recall, you and I have discussed this subject briefly. I
think we agree that this is a confusing area of the law. I do not know of
any caselaw that says a software license is not a contract. But, I think the
issue is slightly more complex than whether a software license is a
contract. Indeed, a software license is a contract, but the question is
whether a particular transaction should be characterized as a licensing
transaction or some other type of transaction. Consider for instance, a
different type of literary work. When a consumer purchases a book off the
shelf of a bookstore, the transaction is characterized as a sale of a
product, not a licensing transaction; this is so notwithstanding the fact
that the book is the embodiment of a copy of a literary work subject to the
exclusive rights set forth in the Copyright Act. Now, imagine the same book
in digital form purchased online. How should the law treat that transaction?
It is quite likely that the law will treat the transaction as a licensing
transaction if electronic book distributors have the ability to characterize
the legal relations between "buyer" and "seller."  UCITA, of course, is an
attempt to characterize the legal relations for that type of transaction.
In this regard, software is like an e-book. Software developers want to
characterize the legal relations between the end-user and the distributor or
Copyright holder as contractual; hence, a licensing transaction is
established by using software licenses as the legal tool to accomplish this

The controversy arises primarily from the benefits that copyright holders
may derive from using contracts instead of simply selling software like hard
bound books are sold. Since private parties may control the terms of
contract, a software developer could use this advantage to ostensibly wipe
out privileges that are authorized for end-users under the Copyright Act.
Some people think this is unfair. To thwart the effect of undermining public
policy objectives of copyright, some commentators and end-users have
challenged the validity of various software licenses (some even challenge
the whole practice, but that battle appears to have been lost). In these
challenges, courts look at the particular software license to determine - -
just like they do for any contract dispute - - whether there was mutual
assent, whether there was valid formation, whether the terms say what the
Copyright holder says they say etc. There are a number of cases where courts
have not enforced the software license because the court disagreed that the
legal relations between the end-user and the software developer/distributor
was contractual. In the early 1990's, shrink-wrap licenses were notoriously
difficult to enforce. Courts did not see the legal relations as contractual.
Instead, transactions involving off-the-shelf software were characterized as
a sale of a good. Today, the ubiquitous use of software licensing seems to
have altered the trend toward the other direction.

I suspect open source licensing faces two primary issues: contract formation
and the enforcement of terms. As long as the question of "consideration" is
not at issue, I doubt that courts will find it difficult to characterized
the legal relations between licensor and licensee as contractual simply
because the tool used was a software license.

Having said the aforementioned, you will note that I did not touch upon an
earlier issue on this list, which was: what is the point of a software
license that is nothing more than a grant of a non-exclusive copyright


Rod Dixon
Visiting Assistant Professor of Law
Rutgers University Law School - Camden
rod at

> -----Original Message-----
> From: Lawrence E. Rosen [mailto:lrosen at]
> Sent: Thursday, September 13, 2001 5:34 PM
> To: license-discuss at
> Subject: Contract or License?
> I've been following the discussion about the RealNetworks' RTSP Proxy
> License and the question about whether a license can restrict "use" as
> opposed to copying, creating derivative works or distributing those
> copies and derivative works.
> Copyright law does not restrict use of an authorized copy.  To the
> extent that the author of software relies solely on a copyright notice
> to inform prospective users of her rights, then owners of authorized
> copies can use that software without further permission.
> However, a contract can impose restrictions on use; contract law allows
> consenting adults to agree to accept conditions on their use of software
> or any other product.  (There are minor exceptions: The courts won't
> enforce restrictions on use based on race, religion, sex, etc. of the
> user, since that would violate certain constitutional principles of
> equal protection.)  To the extent that a software license is a contract,
> restrictions on use are enforceable.
> OSD provisions prevent OSI's approval of licenses that discriminate
> against persons or groups or fields of endeavor, or that restrict
> license rights to a specific product.
> The author of the note below admitted that he doesn't understand the
> distinction between a contract and a license.  (Unfortunately, he
> confuses that question by using the terms "unilateral" and "bilateral,"
> which describe two different types of contracts.)  I must admit that,
> even though I am an attorney, I have never understood the distinction
> between a software license and a contract.  Can anyone on this list cite
> any legal authority (other than an assertion by the license author) for
> the proposition that a software license is not a contract?
> /Larry Rosen
> > -----Original Message-----
> > From: Joseph Reagle [mailto:reagle at]
> > Sent: Friday, September 07, 2001 10:03 AM
> > To: Jeffry Smith; license-discuss at
> > Cc: www-archive at
> > Subject: Re: RealNetworks' RTSP Proxy License
> >
> >
> > On Friday 07 September 2001 12:01, Jeffry Smith wrote:
> > > A key point that I've found on Open Source - you place the
> > license on
> > > REDISTRIBUTION, not use.  Remember that, under standard
> > Copyright, the
> > > user has the right to use the software, but not redistribute new or
> > > modified copies.  The Open Source licenses are what enable
> > that.  Thus,
> > > by only specifying redistribution, you can mimic the GPL,
> > and say, in
> > > effect "You don't have to agree with this license, but
> > nothing else gives
> > > you the rights included.  Use of these rights indicates
> > acceptance of
> > > this license."
> >
> > I've noted this distinction between an acceptance of a license
> > (unilateral?) and contract (bilateral?) before [1]; it's an
> > interesting
> > (and perhaps) important distinction that I don't completely
> > understand yet.
> >
> > However, based on this thread I went and had a look and most
> > of the OSI
> > license *do* restrict use:
> >
> Redistribution and use in source and binary forms, with or without
> modification,
> Software without restriction, including without limitation the rights to
> use, copy, modify, merge, publish, distribute, sublicense, and/or sell
> copies of the Software
> (a) to use, reproduce, modify, display, perform, sublicense and
> distribute
> the Original Code (or portions thereof) with or without Modifications,
> or
> as part of a Larger Work
> etc.
> [1]
> 5. You are not required to accept this License, since you have not
> signed
> it. However, nothing else grants you permission to modify or distribute
> the
> Program or its derivative works. These actions are prohibited by law if
> you
> do not accept this License. Therefore, by modifying or distributing the
> Program (or any work based on the Program), you indicate your acceptance
> of
> this License to do so, and all its terms and conditions for copying,
> distributing or modifying the Program or works based on it.
> --
> license-discuss archive is at
> --
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