Prevent all activations sharing a license being updated?

Apologies if my question is a little obtuse or my language is a little off... I'm still learning a lot about software licensing.

No problem, these are good questions.

If I allow, say, 3 activations per serial number, I expect my typical customer to try to run three installations on different machines but only pay for one.

Then limit the product key to 1 activation per serial. The customer will still be able to move their license between computers (if you want to allow it), but they won't be able to use the license on multiple computers at the same time.

This solves both problems -- the explicitly stated one (how to prevent license sharing), and the implict problem (you want the license to be hassle free for the end-users).

Does that make sense?

Thanks for your reply, Sam, it makes perfect sense.

I also want customer to be able to move license between PCs a couple of times without my intervention. Hence the reason for contemplating three activations per serial... allows for mistakes, hardware failure, moving sw from desktop to laptop and back, etc. Am I right in thinking that with only a single allowed activation the customer would have to contact me each time to request a new activation?

Because my software becomes stale quickly (external factors), I would like to take the opportunity to re-verify serial during installation of upgrade. If MySoft 2.0 was installed and activated on three PCs (as allowed) then upon installing MySoft 2.1, the two oldest installations would become deactivated.

Hope this makes sense.

Am I right in thinking that with only a single allowed activation the customer would have to contact me each time to request a new activation?

Nope, they wouldn't have to contact you if they wanted to move between computers (and the computers still actually existed -- i.e. they didn't get stolen or explode). You can add a menu item to your app that allows customers to Deactivate from one computer and activate on another. And they wouldn't need to contact you to do it.

Plus you'd only need to have 1 activation for the product key (not multiple).

Because my software becomes stale quickly (external factors), I would like to take the opportunity to re-verify serial during installation of upgrade. If MySoft 2.0 was installed and activated on three PCs (as allowed) then upon installing MySoft 2.1, the two oldest installations would become deactivated.

You can do things this way, but as I described above, it's probably not the best way to do things.