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The limitation is to prevent distribution to your software's users.

Isn't that an inherent requirement of using the font in software/websites/etc? If I have, say, an open source CMS, I'd have to ship the font somewhere with the code to be able to use it in the UI, no?

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yes, but you cant give other people the ability to compose (use) these fonts...... they aren't yours to license.

They are licensed to you for use in your own apps, to display them, but you don't have the right to pass that on to others - pretty straightforward. Bad legalese, that's all.

So in other words, a developer can display menu/text in their app in this font, but is not allowed to give the user a way to enter their own text and have this font rendered for them. Am i interpreting it correctly?

No, the font can be used in any way inside the app, such as rendering a text box where the user would enter their own text. What's not allowed is the redistribution of the font outside the app. e.g. If your app generated CSS for users to paste into their own sites, then including the font as a @fontface hosted on your server, or as a data-url would not be allowed.

But if I use it in my web-based app it is downloaded automatically (thus passed to others) by the browser. Any user that has a tiny bit of knowledge about technology is simply able to get it.

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