Proprietary formats
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Proprietary formats are file formats which are covered by a patent or copyright. Typically such restrictions attempt to prevent reverse engineer though reverse engineering of file formats for the purposes of interoperability is generally believed to be legal by those who practise it. Legal positions differ according to each countries view on, among other thing, software patents.
The opposite of a proprietary format is an open format which does not place restrictions on end users and are often also human readable.
[edit] Privacy, Ownership, Risk and Freedom
One of the contentious issues surrounding the use of proprietary formats is that of ownership. If the information is stored in a way which your software provider tries to keep secret, you may own the information, but have no way to retrieve it except by using their software. If you can't retrieve it but the software manufacturer can - they have practical control of your information. If you think of aspect in terms of giving almost guaranteed sales for future releases of the software, you can understand why this is called vendor lock-in.
The issue of risk comes about because exactly how a proprietary format works is not publicly recorded. If the software firm owning right to that format stops making software which can read it then those who had used the format in the past may lose all information in those files. Such situations are quite common, especially for outdated versions of software.