I was hoping to create my own open-source license since none of the existing ones seem to work for what I want. However, someone mentioned to me that in the USA it's illegal to practice law without a license, and that creating a contract is considered practicing law.
Is that true? In the USA, am I not allowed to write my own open-source license if I'm not an attorney?
As Greendrake says, you can legally create your "open source" license. There are two problems with this:
Since you are not an experienced contract lawyer, there is a significant risk that your license doesn't do what you intend it to do. As a consequence, people who you want to use your software might not do so, because your license prevents it or makes it too risky. Or people may use your software in ways that you didn't want to allow, because the text of your license doesn't prevent it.
Your license terms may be incompatible with other open source licenses. For example, I might want to use GPL licensed software A, and your software B with your license in my application. Being careful, I give both licenses to my lawyer, and the lawyer says, "sorry, you cannot possibly follow the terms of both licenses, because GPL and Ky's license require that you do two contradictory things. You can use software A and follow GPL's terms, or you can use software B and follow Ky's license terms, but you can't use both".
All in all I would recommend that you use a widely used open source license.
Is it legal to write a software license if I'm not a licensed attorney?
Yes.
creating a contract is considered practicing law. Is that true?
Yes and no.
You don't even need to know what the word "contract" means to create one. Indeed, you do it every time you buy or sell.
So, it's "no" when you're doing it for yourself. Or you can say "yes", but you are always allowed to "practice law" for yourself anyway.
Writing your own software license is no legally different from telling your potential buyers how much you want to be paid. What you do is simply set out terms on which people can use your software. Go for it by all means.
That said, by doing it yourself you risk to write something that won't be enforceable in court. This is, however, not to say that lawyers won't ever screw it up. Ultimately it's up to you how to ensure that your license is legally sound: do your own research, hire a lawyer or two, or leave it up to chance.
Jurisdiction: england-and-wales
TLDR; Writing a software licence is not considered "practicing law" so it is legal to do so without being a qualified lawyer.
Full answer
The relevant governing law is the Legal Services Act 2007.
Section 12 sets out the "reserved legal activities" and sections 13, 14, 18, and 19 provide that it is an offence to carry on a reserved legal activity unless you are authorised (e.g. a solicitor) or exempt.
The reserved legal activities are (emphasis mine):
(a) the exercise of a right of audience;
(b) the conduct of litigation;
(c) reserved instrument activities;
(d) probate activities;
(e) notarial activities;
(f) the administration of oaths.
Schedule 2 defines what is meant by each of the reserved legal activities and paragraph 5 covers reserved instrument activities. The following provisions are relevant (emphasis mine):
5(1) “Reserved instrument activities” means —
[...]
(c) preparing any other instrument relating to real or personal estate for the purposes of the law of England and Wales or instrument relating to court proceedings in England and Wales.
5(3) In this paragraph “instrument” includes a contract for the sale or other disposition of land (except a contract to grant a short lease), but does not include -
(a) a will or other testamentary instrument,
(b) an agreement not intended to be executed as a deed, other than a contract that is included by virtue of the preceding provisions of this sub-paragraph,
[...]
Software licenses are almost invariably executed as simple contracts rather than deeds (you will know if it is a deed because there are specific formalities for that such as signature witnesses). Even for the obscure case where you were drafting a deed, there is the following exemption available in paragraph 3(10) of Schedule 3:
The person is exempt if the person is an individual who carries on the activity otherwise than for, or in expectation of, any fee, gain or reward.
Writing your own contract can be a legal minefield. When I first went free-lancing I drafted my own agreement, then decided to show it to my lawyer just in case. He made two points (Australian law, but I think that both points would apply in the US).
IMHO it's safer to hire someone who is good at negotiating minefields.
Drafting a contract for another person could be considered practice of law:
Among the acts which constitute the practice of law . . . are the preparation, drafting, or selection or determination of the kind of legal document, or giving advice with relation to any legal documents, or matters including the following:
offers, options, deeds, mortgages, contracts, leases, schedules, petitioners, etc., in bankruptcy, the formation, change, consolidation or dissolution of corporations or partnerships, trust deeds, powers of attorney. 15 Op.Cal.Atty.Gen. 7, 10-11 (1950).
https://www.sdcba.org/?Pg=ethicsopinion83-7
However, prohibitions on the practice of law don't apply to pro se work. That is, you can draft your own contracts, just not contracts for other people. The whole point of such prohibitions is to protect one person from someone else's poor legal advice, not to protect someone from their own poor legal skills. Prosecuting someone for "unlicensed practice of law" because they wrote their own contract would be like prosecuting someone who's self-employed for violation of minimum wage laws.
