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This article is written by Senjyoti Howlader, pursuing a Diploma in Advanced Contract Drafting, Negotiation, and Dispute Resolution from Lawsikho.

Introduction

Intellectual property in software is primarily protected by copyright law. An End User License Agreement (EULA) is an agreement that typically indicates the terms of usage of such software or applications to which a user must agree when using the software or applications or installing it. It is also called a Software Licensing Agreement (SLA). It protects the intellectual property of a business that produces software, websites, or applications and is limited by potential liability. Any business that requires the user to install their software or application often faces many problems regarding intellectual property, distribution and use of the software, abuses of the software, etc. EULAs are essential in establishing the ownership rights of the applicable mobile app or software developer while setting forth the limited, conditional terms of the license that the end-user acquires in and to the underlying software/app.

What is an end-user license agreement?

End-User License Agreement is a legal agreement between a software company or software developer (licensor) and the end-user (licensee) who has installed or purchased the software for use. It is a type of click-wrap agreement, i.e., this agreement is in a digital form and used for software licensing and online transactions where the user has the choice to either accept or reject the terms and conditions mentioned, before installing or purchasing the available product or services. In our day-to-day lives, the EULA can be easily seen when we install an app. All these are done under the provisions of the Indian Contract Act, 1872.

Businesses that provide customers with a license to use proprietary software should consider having a EULA. This would include SaaS developers, software developers, and mobile app developers. EULAs are more standard with these types of businesses because these businesses grant limited use licenses to their customers, versus something like an e-commerce store that does not.

How to draft a EULA for a start-up?

EULA generally protects the Intellectual Property of a business that produces software, websites, or applications and limit by potential liability, therefore, while drafting n EULA, some questions need to be kept in mind, that is –

  • Who has created the software program (i.e. licensor) and who is the end-user (i.e. licensee)?
  • What software is being licensed and is subjected to the Agreement?
  • When and how the user becomes bound to the terms of the Agreement?
  • What is the duration of the Agreement?
  • What are the rights and liabilities of the licensor and the licensee?
  • Whether the software can be installed in one or more computers by the licensee?
  • How are the Intellectual Property Rights of the licensors are protected?
  • Where and how will all the disputes be resolved?

The clauses in a EULA are almost the same as any other agreement. The common clauses in a EULA are:

  1. Term: The ‘Term’ clause specifies the duration of the agreement, till when the agreement is valid and binds the licensor and the licensee. This clause is of extreme importance in cases such as Anti-virus Software or software like Microsoft Office, wherein the end-user needs to buy subscriptions for a definite period. An example of such a clause is given below –

This license shall remain valid only for the duration of the subscription period and shall automatically stand terminated  upon the earlier of;

(i) expiry of subscription period; 

(ii) termination of access to use the services by licensor according to termination rights as provided herein.

or,

This agreement will come into force on the effective date and will continue in force indefinitely, unless and until terminated under the Termination clause.

2. Grant of license: The clause ‘grant of license’ defines the nature of the software program and the license, and reflects the granting of the license to the licensee by the licensor. An example of such a clause is given below –

Subject to the terms of this agreement, the Licensor hereby grants the Licensee a revocable, paid, exclusive, and non-transferable license to install and use the copy of the software program produced by the licensor, solely for personal uses and shall not be used with commercial intent. This software program shall not be used for any purposes other than the purposes listed in this agreement.

3. Restrictions: This clause, in particular, lists out the restrictions of the licensee in the use of the software program. This clause describes – i. How to use the software program; ii. Which platforms can be used to run the software program; and iii. What is the purpose of the software program? An example of such a clause is given below –

The licensee agrees to the following;

  1. To not to sell, lease, outsource, assign, disclose, transmit, distribute, or otherwise exploit this software program, or give access to this software program to any third-party;
  2.  To not to share, facilitate, or create any context which is objectionable in nature;
  3. You have not used any wrongful means to get access to this software program or any other versions of this software program.

4. Intellectual Property Rights: This clause protects the Intellectual Property Rights of the licensor.

An example of such a clause is given below –

  1. All rights, title, interest, and copyrights in and to the software program, including but not limited to all images, photographs, animations, video, audio, music, text, data, computer code, algorithms, and information, are owned by the Licensor.
  2. Notwithstanding any provision of this Agreement or any other agreement between the parties to the contrary, the Licensor shall be free to use any ideas, knowledge, concepts, design, or know-how developed or acquired by Licensor during the performance in this Agreement.
  3. Nothing in this Agreement shall be construed to preclude or restricting Licensor from reutilizing methods, process, design, know-how, and technique whether or not developed during the provision of the services.
  4. Nothing in this Agreement shall confer on either party any rights in any trade name, business names, trademarks, or other proprietary names or marks of the other party.

5. Warranty Disclaimer: This clause describes that the software is made “as is” and consequently the licensor is not responsible to furnish the software to satisfy the licensee.

An example of such a clause is given below –

  1. The working of the software is dependent on many factors and circumstances outside the licensor’s control and therefore the licensor does not warrant the integrity or accuracy of data in the software. Licensee’s use of the Software is at licensee’s own risk.
  2. The Licensor disclaims all risks of data corruption due to the failure of the Software or any part thereof. licensee disclaims all liability for the software’s results and performance. 
  3. Furthermore, any coverage map provided by the licensor must only be treated as its best estimate for geographical coverage and shall not be taken to constitute any warranty. 

6. Limited Liability: This clause clarifies the extent to which each party will be legally responsible if erroneous events occur with the software. This clause protects the interests of the licensor against any damages or liability that may arise.

An example of such a clause is given below –

  1. The Licensor shall not be liable to the licensee or any other person or entity claiming through licensee for any consequential, incidental, special, punitive, direct, or indirect damage, whether arising in contract, tort, warranty, or otherwise. Even if the licensor was warned of the risk of such damages. These restrictions apply regardless of the primary objective of any limited remedy. 
  2. Under no circumstances shall Licensor’s aggregate liability to the licensee, or any other person or entity claiming through Licensee, exceed the financial amount paid by the Licensee to the Licensor for the software program. 

7. Indemnity: This clause is drafted to protect the indemnified party (licensors) against any third-party lawsuits, losses, costs, etc. by the licensees. An example of such a clause is given below –

The licensee hereby agrees to indemnify and hold harmless the Licensor and its affiliates, and their officers, directors, employees, contractors, and agents (each an “Indemnified Party”)against all losses, costs, actions, proceedings, claims, damages, expenses, and/or liabilities suffered or incurred by an indemnified party as a result or in connection with

  1. breach of any terms and conditions mentioned herein or licensee’s use of the software in a manner not expressly permitted by this agreement; and/or
  2. violation of any third party rights through licensee’s use of the Software,
  3. any violation by licensee of applicable laws, or
  4. licensee’s access, contribution to, use, or misuse of the product.

8. Confidentiality: Confidentiality clauses are drafted to maintain the secrecy of the confidential information that may be acquired by the licensors or the third party. It forbids the licensee from disclosing such information gathered by the licensors or the third party. An example of such a clause is given below –

  1. Licensee agrees that the products contain sensitive and proprietary information generated, acquired, or licensed to the Licensor and that the results of testing of the Products, whether undertaken by the licensee or a third party, are kept confidential.
  2. Without the express prior written consent of the licensor, the licensee will not publish or reveal the results of any testing or performance specifications of the product.
  3. The parties agree to take all reasonable steps necessary to maintain the confidentiality of all confidential information disclosed by the other party, including (i) those precautions taken by the disclosing party to preserve its Confidential Information, and (ii) the safeguards reasonably requested by the disclosing party or its authorized representative from time to time. 
  4. Neither party shall permit the defacement or removal of any confidentiality or proprietary notice placed on the disclosing party’s Confidential Information. The inclusion of copyright notices on Confidential Information does not constitute publication and does not jeopardize the confidentiality of such information. 

9. Data: This clause describes what data would be collected by the licensor during the period when the agreement is in force.

An example of such a clause is given below –

  1. By accessing or using the software, the licensee hereby gives consent that Licensor can collect and use information under Licensor’s Privacy Policy available at _______ (Weblink).
  2. Licensee must register and install the software program in order to utilize the product. The software program’s access is restricted, requiring a user ID and password or a validated and authorized email sign-in. 
  3. The Licensee accepts that all information about the licensee provided to access the product and during its use is true, and the licensee agrees not to use any aliases or other means to conceal their identity. Licensee accepts that any email accounts used in conjunction with access to and use of the product are solely owned by licensee and not by anyone else.

10. Termination: The termination clause contains the grounds based on which the contract can be terminated by the licensor. An example of such a clause is given below –

  1. Licensor may cancel licensee access to the software at any time if Licensee is in breach of the terms of this agreement, terms of use, privacy policy, or if the licensee fails to pay the required service fees. Upon the expiry or termination of this agreement, terms of use, privacy policy or expiration of the subscription plan the access to the Mobile App will automatically be terminated and the licensee may not be able to use the Software and has to return the product to the licensor depending on the subscription model opted by the user or otherwise as instructed by the licensor.
  2. The termination of these terms does not preclude the licensor from seeking any legal remedies, including injunctive relief, or relieve the licensee of the duty to pay all fees that have accrued or have become payable by licensee hereunder. 
  3. Upon termination, clause ___ of the agreement will continue to survive.

11. Governing law: This clause specifies the law of the particular country or state that will govern the EULA and will be applied when there will be a dispute.

An example of such a clause is given below –

  1. This agreement shall be subject to and governed by the laws of India.
  2. Any dispute, which may arise between the licensor and licensee concerning any matter about this agreement, shall be subject to the exclusive territorial jurisdiction of courts situated in Delhi.

12. Dispute resolution: This clause defines the jurisdiction of the court which has the authority to try legal disputes if they arise.  It also specifies whether the licensor prefers an alternative dispute settlement process, preferred by the licensor to which the users agree while making the agreement. An example of such a clause is given below –

  1. In case any dispute occurs between the parties in respect to or in connection with any of the terms and conditions of this agreement, the parties shall attempt to resolve the dispute promptly in the first instance, failing which the dispute shall be brought to arbitration by a sole arbitrator. 
  2. The arbitrator shall be appointed by the parties mutually.
  3. The principles of the  Arbitration and   Conciliation  Act,   1996   shall apply to the arbitration proceedings.
  4. The arbitration shall take place in Delhi, India, and the language of the arbitration proceedings, as well as all documents and communications between the parties, shall be English. 
  5. The arbitrator’s decision is final and binding on both parties. Arbitral awards must be in writing. The expenditures of the arbitration shall be shared equally by both Parties.

Miscellaneous clauses 

  1. Severability: A severability clause allows the remainder of the legislation’s or contract’s terms to remain effective, even if one or more of its other terms or provisions are found to be unenforceable or illegal. A severability clause in a contract states that its terms are independent of one another so that the rest of the contract will remain in force should a court declare one or more of its provisions void or unenforceable.
  2. Assignment: An assignment clause allows for a transfer of rights, benefits, and obligations under a contract from one party to another.
  3. Force majeure: It is a provision that relieves the parties from performing their contractual obligations when certain circumstances beyond their control arise, making performance inadvisable, commercially impracticable, illegal, or impossible.
  4. Notice: This clause states how the parties to the agreement will communicate with each other in written form. 
  5. Survival: This clause specifies the terms or clauses of the agreement that will remain in effect even after the termination or end of the agreement.
  6. Waiver: Through this clause, either party can voluntarily waive off its rights without holding the party liable. 

Some clauses depend upon the types of software programs and may or may not be there in every EULA. Such clauses are –

  1. Subscription fee: This clause expresses that to access the software program an amount will be charged, which may be a one-time fee or maybe charged after a certain period. This amount is called the ‘subscription fee’. This clause defines the nature and amount of the subscription fee, the subscription terms and conditions, and some additional terms regarding it.
  2. Third-party services: This clause recognizes the authorization, inclusion, and use of any third-party services which may be required to access and use the software program produced by the Licensor.
  3. Ownership: This clause is basically drafted in EULAs of software which allows the user to create, or produce using their skills, such as Adobe Photoshop, Trello, Wix, SketchUp, Garageband, etc. It usually answers, (i) Who owns the software, and (ii) Who has the ownership and Intellectual Property Rights of the works produced by the Licensee using the software program of the Licensor.
  4. Maintenance and support: This clause is present in EULAs of software that needs constant modifications to cater to the needs of the users.

Conclusion

An End User License Agreement (EULA) is a license given to the licensee to use a software program. Thus, while drafting a EULA, one needs to protect the maximum rights and minimize the liability (that might arise due to copyright infringement and misuse of the software program) of the licensor. To structure a EULA, the questions of ‘who’, ‘what’, ‘when’, ‘how’, ‘whether’, and ‘where’ need to be answered throughout the agreement. Some clauses are common in every EULAs like the clauses defining ‘Term of the agreement’, ‘Grant of license’, ‘restrictions’, ‘intellectual property rights, ‘warranty disclaimer’, ‘limited liability’, ‘termination’, ‘legal jurisdiction’, and ‘miscellaneous’ clauses. But, there are some clauses like ‘ownership’, ‘subscription fee’, ‘third party services’, and ‘maintenance and support’, that are not present in every EULA, but depending on the kind of software program, they are inserted as required. These agreements are generally lengthy which makes it difficult to read the whole agreement. Hence, the licensors must make these agreements friendly for the end-users so that the users agree to these agreements being adequately informed.

References

  1. Janice M. Ryan, Understanding Force Majeure Clauses, Venable LLP, (May 23, 2021, 4:40 PM), https://www.venable.com/insights/publications/2011/02/understanding-force-majeure-clauses
  2. Adam Hayes, Severability, Investopedia, (May 23, 2021, 4:30 PM), https://www.investopedia.com/terms/s/severability.asp
  3. George Turnbull, How do you draft an Assignment clause?, LegalVision, (May 23, 2021, 4:30 PM), https://legalvision.com.au/draft-assignment-clause/#:~:text=An%20assignment%20clause%20allows%20for,from%20one%20party%20to%20another.&text=The%20assignee%20does%20not%20become,the%20assignor%20assigned%20to%20them.
  4.  Knut Helge Kirkhus, What is an End User License Agreement (EULA) and its key terms?, Ipleaders Intelligent Legal Solutions, (May 23, 2021, 4:30 PM), https://blog.ipleaders.in/end-user-license-agreement-key-terms/.
  5.  David O. Klein, The Importance Of An End-User License Agreement (EULA), Klein Moynihan Turco LLP, (May 20, 2021, 3:30 PM), https://kleinmoynihan.com/the-importance-of-an-end-user-license-agreement-eula/.
  6.  Kalpana Borjha, End-User License Agreement and Key Terms In Eula, Lexforti, (May 20, 2021, 3:35 PM), https://lexforti.com/legal-news/end-user-license-agreement-and-key-terms-in-eula/.
  7. Sara P., Sample EULA Template, TermsFeed, (May 20, 2021, 3:30 PM), https://www.termsfeed.com/blog/sample-eula-template/.

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