The Software License Agreement (or EULA) Dissected and Explained

We’ve all come across the End User Software License Agreement (“EULA”) (also called “software license agreement”) at one point or another and most of us simply disregard it. Let’s face it, as a consumer, we have very little to no leverage with these types of agreements and we must simply accept them or choose not to purchase, download or use the licensor’s product. And most of us simply accept EULAs without a second thought, but I think it’s good to understand what you’re signing up for and accepting.

EULA is a software license agreement between a licensor/author and an end user of computer software whereby the end user obtains a license to use the product under certain terms and conditions. EULAs come in different forms such as a “click through” (digitally click to accept) or “shrink wrap” (found inside software products that you purchase), but the terms are all generally similar.

The key provisions that impact you as a licensee/end user and what it means:

1. Grant of License: This provision tells you what type of license right you are getting and restricts your right to use the product to those specifically defined rights. You will find that most licensor’s of computer software grant to end user’s a personal, non exclusive and non-transferable license to use the software. This means, you are not permitted to share, sell, distribute or sublicense. You may be permitted to make a copy for backup purposes, but any such copies must contain an IP legend of the licensor and again, no sharing.

2. License Restrictions: This provision lists out everything you cannot do with the computer software. You can assume here, that you are basically prohibited from doing anything outside of what your license grants, including anything that jeopardizes the licensor’s IP rights or rights to monetize.

3. Ownership: This concept is everywhere throughout the EULA, but emphasized further by its own section. Just remember, that you are only obtaining the right to use. Even if you are paying for computer software, you don’t own it—you are simply purchasing a limited, non exclusive, non transferable license to use it.

4. Right to Audit and Termination: This provision isn’t typically called out and is often buried somewhere. It gives the licensor, the right to audit your use. If you violate the terms of the EULA, the licensor retains the right to be compensated and further retains the right to terminate your license with or without notice.

5. Limited Warranty and Disclaimers: This provision always gives me heartburn. In this provision, the licensor disclaims any and all warranties and specifically states that the product is being provided “as is”. All the CAPITAL and bolded words in this provision basically means one thing, and that is, if sh*t blows up, then too bad for you. The licensor typically warrants nothing, including in many instances, warranty against non-infringement.

6. Exclusion of Damages: This is where the licensor caps its liability by strictly excluding out damages/loss for any type of consequential, indirect, special damages (including loss of profits) arising out of your use of the product for any reason whatsoever. Here, we are talking about foreseeable damages arising out of the consequence of the initial act giving rise to injury. So if you install a program and it destroys your laptop, then direct damages would be the cost of your laptop and consequential damages may be loss of your income from destruction of your laptop.

7. Limitation of Liability and Remedies: While licensor’s will disclaim everything and cap their liability, they will often times want to have you agree to a set remedy for whatever damage you may incur for use of their product. Setting a remedy in advance like this is good for the licensor and lets them understand and factor in the cost of their maximum liability to you. Don’t hold your breath. Typically, the remedy you will agree to for any damage you may incur for whatever reason will be capped to either replacing the product, refund the purchase of the product or some nominal dollar value.

If you were able to get through this article, then you won’t be shocked to know that the goal of the attorney drafting the EULA is to put in place “belt and suspenders” type protection for their clients and they do a pretty good job. While these provisions are harsh for the end user, the majority will not have to think twice about the EULA. And despite the unfavorable terms of the EULA to you, if you sustain damages/loss resulting from use of computer software, then depending on the facts you may be able to obtain remedies outside of the EULA under various legal theories. Hopefully, you will never have to experience the dreadful process of filing a claim, which I can’t help with… but I hope I’ve helped you through the dreadful process of reading the EULA!