Legally moving Microsoft software to another PC

Tim asked this in a forum thread:

I can legally install my copies of Windows XP Pro and Word 2002 on a new computer as long as I erase them from this computer, correct?

Short answer: only if it's a retail copy.

The long answer

When you buy Microsoft software in a store, with a box and everything, you're buying a retail license. Windows XP Pro at retail is $299 for a full copy or $199 for an upgrade.

Retail copies of Windows and Office work the way you describe: you can install them on one computer at a time. You are permitted to transfer them to a new computer as long as you remove them from the first one. You'll have to re-activate, though, and it won't work online, so you'll have to go through an incredibly painful process: you call a hotline and read a 54-digit number into a speech recognition system that stops you every 6 digits to say "Great! You're almost done. What's the next group of numbers?" Then it transfers you to India where you have to explain that you only have it installed on one computer and you're not pirating it. Then the person in India reads you another 54-digit number, 6 digits at a time, that you type into 9 boxes in the Activation Wizard.

Retail software is more expensive than OEM (Original Equipment Manufacturer) copies. If your copy didn't come with a box, it's probably an OEM copy. Anything that comes with the computer is usually OEM, like if you tacked Word 2002 onto your Dell order. And if that copy of Windows XP was preinstalled by Dell, it's definitely OEM. OEM copies are all "full" versions - there are no upgrades, because that wouldn't make sense in this context.

Internet retailers often sell OEM copies with the provision that they "must be purchased with hardware". This technically satisfies the OEM license requirement, but they stretch the definition of "hardware". OEM software is meant to be sold with a complete computer, but usually any piece of hardware will satisfy the store's criteria, including something trivial like a $1 floppy drive cable.

The legality of this with Microsoft's license is questionable. The "OEM" provision rests with Microsoft, not the retailer, so it's their rules you need to follow. Technically, an OEM license must be purchased with a core component required for the computer's operation.

Unlike a retail license, transferring a Microsoft OEM license between computers is not permitted. Microsoft specifies that OEM software is permanently bound to the computer it came with. (My boss owes me $1,000,000 because he lost a bet with me on this.)

But what would constitute a "different" computer? Here's where it gets tricky. Microsoft also defines this approximately as "core hardware critical to the computer's operation", but they change their definition often to close loopholes. It's usually assumed to mean the motherboard.

Microsoft allows an exception for repairs. If your motherboard dies and you replace it, that's still considered to be the same computer. But significant upgrades do not qualify, even if the old parts die: if you upgrade to a newer motherboard with a different CPU and RAM, that's a "new" computer.

Upgrades present many problems. Trivial upgrades, like adding RAM or upgrading the video card, don't make a new computer. Hard drives are sometimes questionable, and this definition has changed over time, but they're allowed to be part of the "same" computer now. Even a CPU upgrade, alone, doesn't make it a new computer. But any significant change to multiple components signifies a new computer.

Here's a tricky one: What if you put the computer in a different case? The Windows OEM license stickers are always placed on the case, and can rarely be removed without destroying them.

Sure, you can abuse an OEM license (or an academic license, or any other discount) by justifying yourself with a loophole. But if you don't follow the license in a legitimate way, you're essentially pirating the software. You're violating the license terms: that's piracy. You might as well download it from eMule and save some time.

Anyway, all of the OEM restrictions apply even if the old computer is dead, disassembled, or otherwise permanently out of service.

OEM software also cannot be the basis for a retail "upgrade" version on a different computer. Even if your Dell blows up and you'll never use it again, you can't use its OEM copy of Windows XP as the basis to get a cheap upgrade version of Windows Vista (when it's released in 7 years).

If you don't want to remember all of this, or you want to remain legal, just think of it this way: You buy retail software independently of the computer, and its license is independent of the computer. It's licensed to you. But OEM software comes on the computer, so it's licensed to the computer.