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Closed source is a term invented as an antonym for open source and used to refer to any program whose licensing terms do not qualify as open source. Generally, it means that the customer will only get a binary version of the computer program they licensed and no copy of the program's source code, rendering modifications to the software practically impossible from the technical side, because the usual way to modify a program is to edit its source code and then compile it.
The source code in this development model is regarded a trade secret of the company, so parties that may get source code access, such as colleges, have to sign non-disclosure agreements in advance.
Much of academic and scientific programming is based on free interchange of source code, as scientists freely share materials and methods in order to replicate experiments.
People like Richard Stallman were used to the openness of this hacker culture, and thus it came as an unpleasant surprise when more and more skilled programmers left academia to found their own companies and market their software, no longer giving their peers source code access.
Closed source still dominates commercial software development, but in the last few years through the success of open source projects like Linux, KDE, and Apache, corporate thinking has undergone a transformation.
Today, some corporations have recognized that closed and open source projects can complement each other, as is evidenced for instance by Sun Microsystems' move to develop their office suite, StarOffice, in parallel with its open source incarnation, OpenOffice.org. This is seen as a gain for corporate image and may be a good way to attract new talent.