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Software licensing is a contract of agreement between the software publisher and the end user, sometimes referred to as the End User License Agreement, or EULA. Though licensing can be a paper agreement, it is most often imbedded in the software itself as part of the installation process. If the user does not agree to the software licensing terms, he or she can indicate so with a click. This aborts the installation process. In most cases, end users click in agreement whether they actually read the license or not.
Most notably, software licensing protects the copyright by placing restrictions on the end user in relation to the product. Duplication for purposes other than backup, installation on more than one computer, editing the code, or changing the program in any way is usually forbidden. Software licenses might also restrict reverse engineering and bypassing controls intended to cut down on pirating.
Aside from restrictive uses of the software, licensing functions as a kind of disclaimer. Most EULAs include statements to the effect that the publisher will not be held liable for any unforeseen circumstances that might arise as a consequence of using the software. This could refer to anything from a computer crash to loss of data, time or income.
Some publishers have held that once the shrinkwrap is broken on a retail product, the end user automatically accepts the license. Courts in various states have heard cases on this matter, as a user cannot read the EULA until the product has been opened when a paper agreement is not included. Once the shrinkwrap is opened, the item is not returnable. In effect, this forces agreement on the user. The outcome of such a legal case depends on the court in which it's heard, but most have found 'shrinkwrap software licensing' to be invalid. This is not to be misconstrued as definitive, as a minority of courts found otherwise.
Software licensing differs among types of software. Freeware licensing is less restrictive than retail or shareware, in that it allows unlimited copying and distribution while still forbidding any changes to the program. Public domain software is the one type of licensing that has no restrictions, as the software belongs to the public.