Is your Windows license legal? Should you even care?

This software is licensed, not sold.

That sentence, which has scrolled past PC users' eyeballs for decades as they click through Windows license agreements without reading them, is what made Bill Gates rich. It is also the gateway to an insanely confusing thicket of legal verbiage, and Microsoft has made the topic even more bewildering through the years by adding layers of anti-piracy protection that are only indirectly related to the license itself. (And let's not even start on weaselly words like genuine.)

I've been studying Microsoft licensing agreements for more than two decades. During that time, I've written dozens of articles on the subject and have prepared testimony as an expert witness in criminal and civil cases where Microsoft licensing was at the crux of some serious disagreements. One thing I've learned along the way is that even people who work for Microsoft sometimes get confused about when a license is legitimate and when it's not.

And if they have trouble sorting out license agreements, what chance do the rest of us have?

Most of the time, a Windows license is strictly a formality, something you can safely ignore. But occasionally, it matters, especially if you're building your own PC or upgrading to a different edition. If you're making IT purchases for a business that involves more than a few dozen PCs, it absolutely matters.

To make this difficult topic a little easier, I've put together a list of questions and answers focused specifically on Windows PCs. Is your license valid? How can you tell? Should you care?

Let's start with the most confusing one of all. What exactly is a Windows license, anyway?

But here's the most fascinating and frustrating part of Windows licensing. If I sit down in front of your computer and (with your permission) do a thorough inspection, I cannot conclusively determine whether you have a valid Windows license.

I can confirm that the system is properly activated. I can also make an educated guess about the license status, and I will probably be right. But without seeing an audit trail of receipts for the PC and/or its system software, there's no way of knowing for sure.

We interrupt this story for some ancient history. Back in the late 1990s and early 2000s, software piracy was an existential crisis for Microsoft. Windows was the core of the company's business, and independent local PC builders represented a disproportionate share of the Windows business. Unfortunately, a depressingly large number of those resellers bought a single license and installed it on multiple PCs. Microsoft created a network of activation servers designed to flush out "non-genuine" copies of Windows to prevent that sort of flagrant copying of retail and system builder packages.

Hoo boy, did that go wrong.

Over time, Microsoft discovered that it was in the company's best interests to tolerate a certain amount of casual copying as part of its goal of not pissing off legitimate customers.

Today, the overwhelming majority of Windows PCs are sold by giant OEMs that pay Microsoft for every license. Only a tiny sliver of PCs are built by hobbyists or small system builders. If someone in one of those groups tries to reuse a product key inappropriately (by activating multiple PCs using the same product key in a matter of days), the activation servers will object strenuously. But if you reuse a product key months after the first use, it's likely that Microsoft's activation servers will wave you right through.

Also: When Microsoft quietly rewrote its activation rules for Windows 10

If you purchased a PC with Windows preinstalled, the OEM who built the device paid Microsoft for the Windows license and passed the cost along to you. For a big OEM (think Dell, HP, Lenovo, ASUS, or Acer), the price list for Windows licenses is a closely guarded secret. I generally just figure that a license for Windows Home is built into the price of the PC and a Windows Pro license adds $50-100 to that total.

Smaller PC makers who don't qualify to purchase licenses in bulk from Microsoft purchase licenses as part of the OEM System Builder program. The price for those shrink-wrapped packages is a little steeper, and the conditions of installation are more convoluted. But that cost is also built into the price of the PC. For my back-of-the-envelope calculations, I figure that this type of license costs about $30-50 more than the bulk price offered to the giants.

If you're building your own PC or creating a virtual machine for permanent use, you need to supply a license for use in that device, regardless of whether it's physical or virtual. In most cases, that means paying Microsoft (or one of its partners) for a retail license. You'll pay much more than a reseller for this privilege. On average, your back-of-the-envelope budget for a retail copy of Windows should be about $99 for Home and $149 for Pro.

You might be able to score better discounts than those, but if someone offers you a Windows Pro license for $29 or $49 or even $69, they're not legit. As the saying goes, if a deal sounds too good to be true, it almost certainly is.