When someone uses software or downloads an app, they will likely come across a number of End User Licence Agreements (EULAs). The most common format is a dialogue box that asks the user to click a button that states they agree to the terms of the software. As a software developer, you need to know the key terms to include in a EULA and your intellectual property rights. This article will explain EULAs and discuss their key terms.

What is a EULA?

An End User Licence Agreement (EULA) is a legal agreement between the software company or developer of software (known as the licensor) and the user who uses the software (known as the licensee). The user can be an individual purchaser or a company who buys software on behalf of its employees.

If a company buys the licence, EULAs often show up as click-wrap agreements (i.e. a pop-up window where the user clicks ‘okay’ or ‘agree’) that each employee must agree to before using the software. This means there is a direct agreement between you as the licensor and each user, which allows you to take legal action against an individual employee who breaches the agreement rather than the company. However, EULAs extend beyond desktop software. Anyone who downloads a mobile app will likely interact with a EULA.

Licence

When a customer buys software, either online, from an electronics store or a software company sales representative, they are buying a licence to use the software.

As the software company or developer, you still own the software and all intellectual property associated with it. Therefore, a proper licence clause should clarify the extent of the licence. A basic licence will state terms such as:

  • where the user can use the licence (i.e. Australia or worldwide);
  • exclusive or non-exclusive use (i.e. if only one person can use the licence). Mostly, this will be non-exclusive to allow you to sell licences to multiple users;
  • transferable or non-transferable (i.e. whether the user has the right to transfer the licence to another party);
  • revocable or irrevocable (i.e. whether you can terminate and revoke the licence). If it is irrevocable, you may only terminate and revoke the licence under a breach by the user; and
  • perpetual or non-perpetual (i.e. whether the licence lasts for a specified term or indefinitely).  

A licence clause may also address software maintenance or support. This kind of support is not automatically included. Generally, the user will buy software maintenance or support separately to the licence. It will carry its own terms on issues like the level of service.

Acknowledgements, Warranties and Representations

The acknowledgements, warranties and representations clauses are essential. From a software company’s perspective, you will want an agreement from the user that you own all intellectual property rights in the software and that the licence does not transfer any ownership.

From the user’s perspective, they will want to ensure that there’s an agreement from you that the software does not infringe upon any intellectual property rights. As a paying customer, it is essential that they know there are no intellectual property issues if they use it.

Restrictions

The restrictions clause details any restrictions when using the software. This clause may restrict:

  • reproducing the software, unless the EULA permits it;
  • modifying, adapting or creating new works from the software;
  • disabling any security measures within the software;
  • reverse-engineering the software; or
  • distributing, selling, sub-licensing or leasing the software unless the EULA permits it.

Limitation of Liability

The limitation of liability clause will clarify the extent to which each party will be legally responsible if something goes wrong with the software. It is essential that the limits of a party’s liability are clarified. For example, will you be liable for any technological malfunctions (and potential financial loss from it) that may be associated with the download, installation or use of the software? If so, to what extent?

Key Takeaways

A EULA is a licence between a software company or developer and a user that sets out the terms and conditions associated with its use. The key terms are the:

  • licence (i.e. what is the extent of the licence being granted?);
  • acknowledgement, representations and warranties (i.e. what is each party agreeing to?);
  • restrictions (i.e. what is the user restricted from doing?); and
  • limitation of liability (i.e. what are the limits of your legal responsibility if something goes wrong?).

If you have any questions or wish to get a EULA drafted or reviewed, you can contact LegalVision’s IT lawyers on 1300 544 755 or fill out the form on this page.

About LegalVision: LegalVision is a tech-driven, full-service commercial law firm that uses technology to deliver a faster, better quality and more cost-effective client experience.
Justin Ocsan

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