It only applies to software distributed under a license. Public domain software isn't distributed under a license. It's in the public domain; no license is needed.
Technically you could argue that public domain works don't have license terms that make them free so the exception can't apply. Only an ignorant or ultra literalist judge would see it that way but you never know.
On the other hand a public domain dedication is a binding term that gives you permission (or license) to do what you want...
Public domain software is free to "copy, redistribute, and modify", so ... where's the disfavour?
On the other hand a public domain dedication is a binding term that gives you permission (or license) to do what you want...