Installed (not used) or Purchased Licenses

Short answer: in most software EULAs, the customer owes you for licenses it installed, not just the ones it actually uses. A reported case involving the Los Angeles County Sheriff drove the point home, and it is a useful teaching tool when a customer claims it should only pay for what it uses.

I represent a lot of software vendors, and “we only used half of them so we should only pay for half” is a recurring customer argument. Here is what the law and a good EULA actually say.

What the Court Said.

While most customers may say they only want to pay for the software licenses they use (not all that are installed), a reported case involving the Los Angeles County Sheriff’s Office says they have to pay for what is installed, even if it is never used. The court held that the Sheriff’s Office had to pay the vendor for the installed licenses ($210,000) plus more than $560,000 in attorney’s fees and costs. Installing the software makes a copy, and making copies is exactly what the license grant (and the copyright owner’s exclusive rights under 17 U.S.C. section 106) controls. If the EULA charges per installed copy, installation is the trigger, not use.

Why “Installed” Beats “Used” in a Good EULA.

Use is hard to measure and easy to dispute; installation is a fact you can count. That is why most vendor-side EULAs meter on copies installed, deployed, or provisioned, not on actual usage hours or seats logged in. If you do want a usage-based model, that is fine, but it has to be written that way deliberately, with a metering and reporting mechanism, because the default expectation a court will enforce is the license text, not the customer’s after-the-fact sense of fairness.

How to Use a Case Like This.

Use it to educate a customer who is installing your software and claiming it owes nothing because it is not using all the copies. Do not hit them over the head with it, but walking them through your perspective is a huge part of software negotiations. The goal is not court. When a license ends, the customer should return or destroy all copies, and a well-run IT department should not leave unlicensed copies on machines even if they are dormant. Getting the terms clear up front, so “installed” versus “used” is never ambiguous, is exactly why vendors bring in a software licensing lawyer. The same clarity discipline shows up across your broader license restrictions.

Frequently Asked Questions.

Does my customer owe for licenses it installed but never used? Usually yes, if your EULA meters on installed copies. Installation makes a copy, and the license text controls, not the customer’s usage.

Can I charge based on actual usage instead? Yes, but you have to write a usage-based model deliberately, with metering and reporting. If the contract is silent, “installed” is the safer default to enforce.

What should happen when the license ends? The customer should return or destroy all copies. Say so expressly, and make clear that leaving dormant installed copies is still a breach.

For the foundational decision between an EULA structure and a SaaS subscription structure (which drives what counts as a “license”), see SaaS Agreement vs. Software EULA: Which Template Do You Need?

I hope this helps.

Disclaimer:

This post is for informational and educational purposes only, and is not legal advice. You should hire an attorney if you need legal advice, which should be provided only after review of all relevant facts and applicable law.