The Importance of the End User License Agreement

What is a EULA, and why is it important? What should a EULA include, and what problems might exist that parties to an end-user license agreement should be aware of?

End-user license agreements (EULAs) provide a simple and efficient means of protecting a software publisher’s intellectual property. What exactly is a EULA, what provisions should it include, and what potential problems should parties to an end-user license agreement consider?

Anyone who has installed computer software added an app to their mobile phone, or subscribed to an online software service will be familiar with an end-user license agreement or EULA. EULAs help to protect the intellectual property rights of software developers. Still, they often contain many other provisions to strengthen the publisher’s legal position and discourage licensees from taking action against them.

end user license agreement

What Is an End-User License Agreement (EULA)?

An end-user license agreement grants a person or organization the right to use a software application. Typically, EULAs set forth other terms and conditions, but their primary purpose is to protect the software developer's intellectual property rights. It's often essential, though, that various other contingencies be addressed to provide further legal protections for the publisher.

Many EULAs specify how a software application can be used. For example, some applications may be licensed for non-commercial use at no cost. In contrast, commercial businesses must pay a licensing fee based on the number of users, the volume of records processed, or even the size of the business. Most EULAs contain provisions that prohibit end users from distributing the software in ways that might be detrimental to the developer. Some even include provisions prohibiting end users from openly criticizing the software or the company that produced it.

EULAs may take different formats, from signed paper contracts to the so-called "click-through agreements" or "shrink-wrap licenses" that pop up during a typical software installation process. Most of us are more familiar with the latter format, which is presented as a "take it or leave it" proposition, leaving the user free to accept the agreement (if they want to use the software) or reject it (in which case, they cannot continue the installation).

Common EULA Clauses

Most EULAs include some basic provisions such as a description of the software application, clarification of ownership (including any content created by the end-user), a disclaimer of warranty and limitations on liability, the method by which any updates to the application will be delivered, support and maintenance fees, and policies regarding cancellations and refunds.

Here are some of the clauses that software owners should consider including in their end-user license agreements.

Grant of license: This clause addresses the primary purpose of the EULA, granting the user the right to use the application.

Copyright infringement: Software publishers should always include a statement in their EULAs asserting copyright ownership and making it clear that users who violate the copyright may be held liable.

Restrictions on usage: Many software developers include provisions prohibiting the user from making copies or distributing the software to anyone other than the licensee. Many EULAs explicitly prohibit reverse-engineering the software. Some companies have even added clauses restricting users’ right to publish benchmark tests or critical reviews.

Warranty disclaimer: Software is complex and is typically dependent on other software, such as operating systems or databases. As such, it’s strongly advisable to disclaim any warranty, such that the developer cannot be held responsible for making changes if the user has problems with the application.

Limitation of liability: This clause stipulates that the software company is not responsible for any damages resulting from using the software.

Related agreements: If the user is subject to other agreements, such as the company’s privacy policy or general terms & conditions, it’s a good idea to reference those within the EULA. For online or click-through EULAs, providing direct hyperlinks to those other agreements may be helpful, making them easier to access.

Termination provisions: Software developers may wish to terminate the license grant if the user violates the terms of use.

end user license agreement

Why Use an End-User License Agreement?

EULAs emerged as a widespread phenomenon with the advent of personal computers in the 1980s and 90s. Several characteristics of computer software made it especially well-suited to this approach. Those factors remain important today.

First, the software is easily copied and distributed. Although technology companies have developed sophisticated anti-piracy methods, there remains a legitimate concern that users may use the software in ways that go against the developer's interests.

Second, the software is complex and highly interdependent with other systems. Disclaimer of warranty and limitation of liability is therefore critically important in protecting software publishers from responsibility for conditions that may be outside of their control.

In the case of content-oriented applications such as mobile video-sharing platforms or social media, software developers also wish to maintain some control over how their technology is used. EULAs provide a means of restricting activity and content that could otherwise paint the software developer in a negative light.

The Problem with EULAs

Unfortunately, there is still some debate as to whether EULAs are enforceable. Several courts have upheld their validity, – including the landmark ProCD, Inc. v. Zeidenberg case of 1996, in which the US 7th Circuit Court of Appeals determined that a click-through license was enforceable. However, others have argued that although click-through EULAs help protect the intellectual property rights of software developers, many provisions may not be legally binding. Restrictions on copying software, for example, may conflict with US law (US 17 USC 117) granting users the right to duplicate software for backup purposes.

Given the wide range of provisions in software license agreements, it’s no surprise that court challenges have continued over the years, and EULAs continue to evolve as case law establishes new precedents.

end user license agreement

Customizing the End-User License Agreement

Software technology continues to evolve as publishers have shifted from so-called perpetual licenses to software-as-a-service (SaaS) business models. New pricing paradigms have emerged, providing flexibility in how technology services are purchased and used.

The specific terms in a EULA may vary greatly, depending on how an application, website, or mobile app is used. Some may place strict limitations on content, for example. Others may apply volume restrictions, limiting users to a specific number of records or transactions unless they pay additional fees to move to a higher usage tier.

Given the complexity of the technology industry and the evolving body of case law surrounding software licensing, it’s highly recommended that software vendors retain qualified legal counsel to help them craft a EULA that protects their intellectual property and guards against any other contingencies.

Conclusion

Growing businesses must grapple with a myriad of different agreements and contracts. As a result, EULAs have a unique place in that domain. As such, it’s essential that software developers understand the key elements of a EULA, craft suitable end-user license agreements for their organization, and keep track of the people and organizations with whom such agreements are in effect.

Icertis Contract Intelligence helps companies manage contracts and agreements, enhancing business value, monitoring compliance, and increasing efficiency. To learn more about Icertis, contact us today for a free no-obligation consultation.