End User License Agreement (EULA) is a license agreement regulating the relationship between the software developer and the end user. In recent years, with increased use of cellular devices, this term also refers to a license agreement between an application developer and the users of that application.
The circumstances under which these agreements are presented for signing are complex, as in most cases the software had already been purchased, or, alternately, is about to be purchased online, so the possibility of the recipient making any changes in the license is slim to none. Thus, these agreements are unilateral in nature, benefitting only the developing company granting such user license.
Such software can be in diverse fields: Software as a Service (SaaS), financial software, online gambling software, games software, medical services software etc., hence the importance of a meticulous inspection of the EULA to ensure its adaptation to the nature of the specific license, as well as minimizing software developer’s exposure.
Technological license agreements are complex and crucial, for in most cases they are the only clear definition of the relationship between the software developer and the license applicant. These agreements include many stipulations and provisions, on two main levels: the first refers to the unique aspects of technological transactions, mostly derivative of the fact that the product/service rely on intellectual property rights, which are typically difficult to define and defend, making it even more difficult to supervise in case of any off-license implementation. The second is the so-called trivial level of commercial transactions, referring to general provisions between two parties joined in a regular commercial transaction, such as payment terms, liability, indemnification, time schedules etc.
The EULA type agreements add yet another level of complexity to the “regular” license agreement, as they regulate the legal provisions between software or application developers and the end user, who does not have the option of changing the agreement’s provisions. Most of the EULAs are opened online by the users, who tend to automatically approve and authorize them without reading them beforehand. Furthermore, had the users read the agreement and noticed all of its provisions, they would still be unable to make any changes or amendments in these agreements, which are presented as a done deal. Should the user wish to make changes or amendments in the document, these would most probably be rejected, compelling the user to abandon the option of using this software.
EULA type of license agreement – a uniform contract?
Due to the circumstances described above, mainly the user’s inability to make any changes in the license agreement, most of the user agreements can be defined as a “standard contract”, dramatically weakening the defense the software developer can expect in court.
It is therefore very important for the end user that the actual wording of a license agreement is specifically suitable to the software or application they wish to license/purchase and they should not sign any generic, one-size-fit-all agreement.
As in any standard contract, a biased, unilateral wording in favor of the software developer can, in retrospect, prove to be mistaken, and many of its provisions may be invalidated as depriving conditions, by a court examining such agreement.
In addition, we often come across long and tedious license agreements (with dozens of pages) meant to wear out the average reader, urging them to click “approve”, without really examining all of the agreement’s provisions. This practice too would probably be deemed wrongful on the part of the software developer, should any dispute with a user be brought before the court.
Key provisions and mechanisms in EULA agreements
In order to try to help draft a balanced EULA on the one hand, and still protect the legitimate interests of the software or application developer on the other hand, we have detailed the key provisions to be emphasized in these agreements:
License definition – it is important that the terms of the license be precisely defined, underlining the actions which the license recipient is not allowed to perform. Most licenses are meant for personal – and sometimes private – use, they are not to be copied and disassembly or reverse engineering of the software are forbidden.
Intellectual property – as in any license agreement, it is crucial that the software developer’s ownership of all intellectual property of any kind in the software or application be specified and clarified (obviously taking into account any trivial exclusions of using open code etc.) and that granting such limited license does not constitute an assignment or an authorization to implement the software’s related intellectual property, other than by the explicit authorization in the license agreement.
Limited liability – a key clause in the EULA refers to the software developer’s limited and restricted liability to direct and indirect damages, incurred by the end user. Many of these agreements specify a compensation ceiling, equivalent to the cost of the license as paid by the specific user for using said software. We wish to point out in this context that in many cases, the courts have found that the compensation limiting mechanisms were reasonable under the circumstances.
Future changes in the software or the application – due to the absence of a direct contact between the parties, the software developer must reserve the discretion in determining the provisions regarding any future changes in the software and any future version thereof.
The governing law and jurisdiction – due to the global nature of all EULA legal interaction, the software developer must precisely determine the governing law under which the license agreement is interpreted and enforced, as well as the judicial territory authorized to resolve any disputes arising in regards of this license agreement.
A license agreement for end users (EULA) is an agreement of great significance, as in most cases it is the main or even the only instrument defining the relationship between the software or application developer and all the users. Agreements must therefore be precisely suitable to the specific software/application, stressing in particular the balance between the license granter’s interests and the legitimate interests of the users of such software/application.