Root Canal or EULA? Part 2 of 4: More important considerations when developing an End-User License Agreement

By Mike Wozniak | General Licensing Tips

May 01
frog with toothache

OUCH!  His aching tooth!

We feel obligated to take a quick moment to offer our apologies for taking over a month to post the second installment of this series regarding End-User Licensing Agreements (EULAs).  It was all but forgotten until one of our staff members came to the office one morning with an excruciating toothache and announced that he was going to have to undergo an emergency root canal to be performed the very next day.  Between applications of copious amounts of pain-relieving Orajel  (one of the few over-the-counter medicines that actually works as advertised, by the way!) to his infected tooth, the staff member remarked that he was unsure as to which activity was less desirable: (1) developing a EULA for a software product; or, (2) having a root canal?  Definitely one of life’s eternal philosophical questions, would you not agree?

Suddenly, the task to publish this post was propelled to the proverbial front burner.

Luckily for us, though, we have the luxury of calling upon a EULA expert to guide us through the trials and tribulations that typically accompany the formulation of the agreement.

In the second of a four-part series of related blog posts, Jordan Donaldson, a prominent Orlando, Florida business and intellectual property attorney, explains the two most common forms of EULAs and the four key elements which are essential for inclusion within the text of the agreement.

What’s that?  You say you are eagerly anticipating reading the second installment but you missed out on Part 1?  No worries!  Read the first installment here to quickly ramp up to speed!

Part 2 of 4:  More important considerations when developing an End-User Licensing Agreement

Licensee, Meet Thy Licensor

The main method for monetizing and distributing software for use by consumers, whether for home or business use, is the licensing of software intellectual property (IP) rights. A licensing agreement is a legal contract between two parties, known as the licensor and the licensee. In the case of software, IP rights owners use “End-User License Agreements,” or EULAs, to create such a licensing arrangement. The EULA is a contract between the software developer and end-user. Through this contract it is determined that the company or developer which owns IP rights in the software is the verifiable owner of those rights, and that a copy of the respective software bought from a vendor or downloaded from the Internet grants a license to the end-user, but transfers no IP ownership rights whatsoever in the software to the end-user. The end-user is only permitted to use the software if terms expressed in the EULA are respected, and is also forbidden from any modifications or uses of the software without the specific consent of its rightful owner (the software company or developer).

Two types of EULAs

A EULA exists in two forms: the shrink-wrap license and the click-wrap/click-through license. The shrink-wrap license pertains to packaged products with a label that clearly states that tearing the package open or breaking the seal means the individual accepts the EULA located inside the package without reading it beforehand. The second type, the click-wrap/click-through license, appears to users upon software installation, who must accept the terms and conditions before further download progress can be made by clicking a button labeled “I Agree.” If the user does not indicate acceptance, the user will be denied access to the software and the installation process will terminate. Click-wrap agreements are drafted from the perspective of the licensor and are non-negotiable.

The Four Noble Truths of a EULA

Most software licensing agreements have similar structures and terminology, but there are four key elements where a EULA is concerned: licensing, warranties, liability and laws. Licensing establishes the rights allowed to a user by a creator. It is essential to clarify that the user does not have IP rights in the software, and that it is being licensed solely upon the terms stated by the creator. It must be specified that any attempt to copy, clone, modify, reverse-engineer, redistribute, or alter the protected software without the permission of the creator is strictly prohibited. A EULA should contain a Disclaimer of Warranty, which states that while the software will most likely operate on the user’s machine, there is a possibility that it will not, and the creator is not to be held responsible for any malfunctions. A Limitation of Liability section should be included to state the extent to which the creator can be held financially responsible for any errors that might be incurred as result of using the software. This section will explain to what amount (if any) a user is entitled to in case the software damages the computer or interferes with other third-party applications.

It is critical to state what laws apply to the license agreement to which the user is agreeing. A jurisdiction must be defined and any lawsuits can only be made or filed within that jurisdiction. It is important to review state laws that may be pertinent to the EULA, and with global distribution, review international laws as well. Remember that while most EULA structures are similar, it is essential to tailor the agreement to fit the specific needs of the software.

Coming up next: Drafting the EULA

In the third and penultimate (for you wordsmiths out there, that means second to last) installment of this series, Mr. Donaldson will offer practical tips and suggestions on drafting a EULA, as well as citing particular instances where it may be prudent for you to seek the advice and counsel of an experienced IP attorney.  Be sure to sign up on the right side of this page to be notified of future blog posts! We promise not to share your email address and you can unsubscribe at any time.

About the author

Jordan Donaldson is a business and intellectual property attorney.

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About the Author

Mike Wozniak is one of the co-founders of SoftwareKey.com and responsible for marketing, content and product strategy. When he isn't plotting new ways to help customers solve licensing and business automation challenges, he likes to travel and entertain guests who come to visit the Orlando area. He also writes most of the licensing tips here.