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Digital Right Management and copy-protection static techniques have been used to prevent unauthorized copying and illegal distribution of software products by the software publishers. Rigid licensing structure for software distribution used with most legacy systems, is becoming less popular and less useful due to increase in businesses which dependent on flexible software applications and change according to market environment. According to Business Software Alliance, software publishers lost several hundred billions USD in previous years due to copying of their products. Many defense mechanisms have been devised till date but the hobbyists or the black market leaders so called software pirates have always found a way out of it. This paper identifies the flaws in the existing defense mechanisms and examines social and technical challenges associated with handling software piracy prevention. The paper also characterized the currently used static licensing structure in software distribution along with its drawback and proposes a dynamic software licensing scheme which comprises software serial keys integrated with hardware token to provide an ethical optimal utilization of software to customer organization and initiates to stop software piracy.