Glossary: Everything You Need to Know About Used Software Licences, From a to Z

How used software works is no big secret. But do you know all the technical terms used in this market? We have prepared our specialist knowledge for you in glossary format so that everyone can save money by using used software.

The small dictionary provides you with compact information and easy-to-understand explanations of important technical terms. From A to Z. If you want to know more about one of the technical terms or have a question you can’t find an answer for here, please don’t hesitate to contact us. Our licence experts would be happy to provide you with information, including personal information, at any time.

Rule-based checking procedures are referred to as auditing. In business, this is usually understood to be a compliance check carried out on official company information to identify any errors, ambiguities or fraud.

IT audits check the consistency of information that relates to hardware, infrastructure or software. When it comes to software, the focus is on checking licensing. A check is run to determine whether the number of users matches the number of licences purchased. From a legal perspective, it is unclear whether manufacturers are legally authorised to carry out or commission such licence audits.

CAL is the abbreviation for Client Access Licence (access licences). Companies need CALs when they provide software via server-client architecture. In addition to licensing the central server, access to the software from workstations also has to be licensed. CALs are therefore purely access rights, and it is not permitted for software to be installed on local computers. They can be purchased per device (Device CALs) or per individual user (User CALs). It is difficult to determine the best CAL licences and this requires individual workstation situations to be analysed in a precise way.

Cloud computing is the dynamic use of IT resources over a network, depending on demand. This can include all company IT equipment, i.e. programmable platform offerings and software in addition to infrastructure technology (computing power, databases, data backup, availability architectures).

Cloud computing providers usually charge for use through a subscription plus extra costs that depend on use (pay-per-use). Companies outsource and make their IT costs more flexible with cloud solutions, avoid or reduce fixed maintenance, personnel and server room costs, have no investment costs and can reduce or expand use as they wish at extremely short notice. Various forms of public cloud, private cloud, virtual private cloud or hybrid cloud are available.

COA is the abbreviation for Certificate of Authenticity. This is an authentic certificate for FPP and OEM software.
The certificate can frequently be found as a sticker on the computer or on the product packaging. With OEM licences, buyers should make sure that COA stickers have not been stuck onto the CDs/DVDs. This can create issues at audits in relation to trademark law. The buyer is also on the safe side with these licences if the origin can be proven up to the first licence holder.

Copyright includes laws and case law that protect the author’s intellectual property with respect to their work from a financial and non-material perspective. It is regulated differently in different jurisdictions. The basic idea is that authors’ interests are protected, their works are protected and their services are appropriately rewarded. Compositions, paintings, sculptures or texts were traditionally classified as creations worthy of protection.

The European copyright law to protect computer programs, based on an EU directive from 1991, was subsequently transferred to national law. As such, in Germany, computer programs have been protected by EU-compliant copyright law since June 1993. Software therefore enjoys the same rights and the same high level of protection in Germany as literature, art or science. Accordingly, the copyright holder can freely decide on the initial sale and reproduction of their works. However, in accordance with the principle of exhaustion which also applies to software through the EU directive of 1991, the software author’s right to control the further circulation of a sold product expires after the initial volitional sale.

When continuing to sell used software licences, the seller, buyer and retailer must ensure the correct transfer and permitted use of the software licence. Licences can therefore only be transferred correctly through transparent communication between all parties involved.

Direct licences are licences that are acquired from the manufacturer or a sales partner directly. With software licences, there is no fundamental legal difference between using used licences or direct licences. Using used licences is synonymous with using direct licences from a correctness perspective.

A downgrade refers to the use of a software version that is older than the one you purchased a licence for. Downgrades are voluntarily on the part of the user. One reason for this could be that standardisation to a previous version may reduce IT costs. Above all, it is products that can be downgraded, where licences for such products have been acquired via volume contracts and operating system licences.

Download software refers to software products that are delivered over the Internet via download. In this case, the user receives a link to a download location and a licence key to activate the installed software. Download software may also be resold. According to the European Court of Justice judgment from 2012, software licences can continue to be generally resold and this is notwithstanding the type of original delivery.

An EULA (End User Licence Agreement) is a licensing agreement through which the software manufacturer controls the rights of use to a piece of software. In Germany and Austria, the contractual terms must be shown to the buyer before the purchase happens, and they must not contradict the legal terms and conditions. Otherwise, they are not considered to be a contractual component from a legal perspective.

The exhaustion principle implies that a manufacturer’s right of distribution is exhausted as soon as they have sold goods. This ensures the marketability of products. The principle that a seller can no longer exercise any influence over the successive resale of goods also applies to essentially intangible commercial goods such as text, music or software. According to European law, a software manufacturer must therefore not prohibit the further circulation of software on the market and cannot participate in this financially. In the European Union, data-based software products and software licences are subject to the exhaustion principle and may be resold as used software.

FPP is the abbreviation for Full Package Product. This is the name given to traditionally packaged individual data storage devices containing software, which can also be purchased from retail outlets. These individual packages are usually made up of the data storage device, the documentation and the licence papers in one package (software box). FPP software does not include volume activation (it is usually only allowed to be installed on a single computer – single licence), downgrade rights (to older versions), reimaging rights or virtualisation rights.

A Key Management Service is a way of centrally activating Microsoft volume licences for client devices over a network. To do so, the KMS must first be configured on a host computer (Windows Server) and the KMS key activated. This method requires a minimum of 25 clients to be activated. Other methods include Active Directory Activation and Multiple Activation Key (see ‘MAK’).

The licence key (also called a product key) is a mostly alphanumeric code that has to be entered to activate a computer program. Its purpose is to prevent the illegal use of software products. Buying a licence key is not the same as buying a licence. Using it can be illegal, even if the licence key has successfully activated the software. Many manufacturers have therefore started to integrate a licence key check by phone or online in the activation process.

Using an MAK is one of two product activation processes (see ‘KMS’) for software manufacturer Microsoft’s volume licence keys, where all workstation computers are connected directly to Microsoft via the Internet. The Multiple Activation Key is more likely to be used for smaller volume licences of up to 25 Windows computers or computers that have limited network connection. For the devices to be licensed, the MAK is entered locally so that clients are activated once, directly through the Microsoft Activation Service. Administrators can also use the Microsoft Volume Activation Management Tool or set up a MAK proxy to support MAK activation.

When planning software use across the company, a number of variables must be taken into account. These include licence or maintenance models or different versions of individual products. The complexity of this then often results in incorrect licensing, i.e. under-licensing or over-licensing. This is usually only discovered through audits or during SAM (Software Asset Management) projects. Remedial action can be taken by acquiring used software, through which cheap standardisation can be carried out. Unused software can be resold if it is not a rental product.

OEM is the abbreviation for Original Equipment Manufacturer. OEM software is designated as programs to initially set up computers that have been sold together with a new PC for a cheap overall price. Therefore, the customer pays less when buying a new computer with a pre-installed OEM version compared to buying the PC and software separately.
OEM software licences, on the other hand, often come with restricted rights of use or features. Usually, OEM contains a data storage device, the COA with a product key, and a handbook. OEM software can also be resold, but manufacturer trademarks and copyrights must be protected.

On-premises software is software that a company runs itself on self-managed servers and provides to several users in parallel to the company’s own network. The purpose of the term is to differentiate between cloud software and software-as-a-service (see ‘SaaS’).

Over-licensing is a form of mislicensing where a company owns more licences it uses. Such surplus licences can now be sold without any issues, provided the original purchase has sufficient documentation. The result is an inflow of liquidity for the company.

Microsoft publishes new Product terms every month. Product Use Rights form a part of volume licensing agreements and legally binding documents that define user terms for software use. You will find information on how a specific product and version should be licensed and what restrictions and terms apply when using the software.

Software is referred to as proprietary to the extent that its further use, reuse and changes by the user are restricted by the manufacturer. This can be done via software patents and copyright, but the licence terms of commercial standard software are also considered proprietary insofar as the use of the software by the buyer is contractually restricted in many respects. For example, according to the licence rights, the user is not permitted to arbitrarily change the software or merge parts of it with other software. Proprietary software is therefore often characterised by the fact that the manufacturers keep the software’s source code and interfaces secret.

With remote computing, the software is executed on a remote computer (server or terminal server), while operation and display takes place on a workstation computer (client). Appropriate RDS access licences are required to implement a remote desktop solution in a company (see also ‘Client Access Licences’). Remote Desktop Services must be licensed for each device.

By purchasing software, the buyer receives set rights of use, which generally relate to the use of the copy of the computer program for their own purposes. The respective contracts mainly contain detailed copyright terms and determine the extent to which the software can be installed, adjusted and used by the individual user or company.

Behind the term ‘secondary marketing’, also referred to as ‘remarketing’, is selling and marketing used investments, e.g. servers, computers, manufacturing machines, vehicles or even software licences.

With the first Federal Court of Justice judgment in 2000 (Az.: I ZR 244/97), there is the option to have surplus licences further utilised as part of the process designated as software remarketing. Trade and industry in particular are making increasing use of this option, because it allows direct IT budget savings. In our experience, it’s not uncommon for companies to finance up to 50 percent of a licence project by remarketing licences they have but do not need.

With single licences, acquired software may only be installed and used on one single computer, in contrast to licences from volume contracts. The counterpart to single licences is volume licences.

Software Asset Management (SAM) is defined as different processes, with the help of which a company’s stock of software can be administered and controlled. The aim here is to control costs and audit risks (over-licensing and under-licensing) and to optimise investments. The process-orientated method is mainly supported by Software Asset Management Tools.

Software Asset Management Tools support administration and the creation of inventories for the software and licences available in the business. With this approach, the devices and the number of licences available in a company are counted and compared against one another. The result of an SAM project is a licence record with surpluses and shortfalls for software licences (see ‘Mislicensing’). On this basis, unused software can be recapitalised, while licence gaps can be closed in a cost-effective way with (used) licences.

With a software licence, the user receives the right to install and use a software program. Therefore, you need a fee-based software licence for every software licence that is installed to be able to used it. It doesn’t matter whether the software was marketed as an OEM, FPP or volume licence.

Renting software, often referred to as ‘software as a service’ (SaaS), replaces the purchase price with periodic and mainly unlimited subscription payments. Despite the expense, payments never result in the user becoming the owner of the software. Today, rented programs often run on the provider’s servers or in a public cloud, but some of them are also hosted on the company’s computers. Services such as maintenance, support and updates are usually included in the rental. Furthermore, different tariffs are usually offered, depending on the range of features and with discounts for certain user groups such as schools or universities.

Providers of rental software benefit from economies of scale, no middleman and a continuous, reliable flow of income regardless of the innovation cycle and advertising expenditure. For companies, rental models are similar to traditional outsourcing services. They offer a higher degree of flexibility with respect to costs and take the pressure off internal IT departments.  

If you evaluate rental models over several years, the regular payments add up to significant additional costs compared to buying software licences. The advantage of not having to take care of maintenance and updates internally is offset by data protection disadvantages and a dependency on service availability. Logically, rented software cannot be resold.

System builder licences are offerings from software manufacturers to system manufacturers (system builders) who preconfigure a computer and sell it to their customers together with the installed software as a bundled complete solution. System builder licences are therefore always single licences that are sold directly or through authorised distributors. The products are often cheaper than Full Package Products (see ‘FPP’).

Under-licensing is a form of mis-licensing where a user company has equipped more workstations with software than it bought licences for. Under-licensing poses a legal and financial risk, especially in the event of an audit by the manufacturer (see ‘Audit’). Under-licensing can be offset cheaply via the used software market.

Used software (used software, second-hand software, etc.) is software that the manufacturer or a trading partner has already sold once and that is now being resold. This requires the seller to no longer use the software and delete it from their computer. In contrast to direct licences, used licences are not acquired from the manufacturer directly or from one of its distributors. It is safer to acquire them from a specialist retailer. As software cannot wear out, the term ‘used’ does not describe the condition of the software, but only that another party has already owned and used it. In terms of quality, used software is like new.

In contrast to single licences, with volume contracts (volume licensing), the user acquires a large number of licences with a single purchase contract. A volume licence includes the right to install and use the software on the respective number of devices. Typically, the company that has purchased a volume licence will receive a data storage device containing the software or a link to download the software from the manufacturer’s server or the distributor’s server. The software file may then be used in accordance with the provisions of the licensing agreement to implement the software in the company. When acquiring a volume licence, the user receives the right to make a corresponding number of copies of the software on the company’s devices. Any surplus licences can be sold on by the buyer as used software.