EULA: What's an End User License Agreement?

When are they enforceable?

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Copyright owners, particularly software and website publishers, may want to limit how purchasers use their products and services. For example, a software maker may insist that customers use its program only for personal, not commercial, purposes. To impose these restrictions, most publishers employ a contract known as an end-user license agreement (EULA).

Shrinkwraps and Clickwraps

These EULAs were originally known as “shrinkwrap licenses” because—at least in the early days of software production—the user would consent to the EULA (visible on the back of the package) by breaking the box’s shrinkwrap. A user who proceeds to use the program is deemed to accept the terms. A user who doesn’t want to accept the terms can return the program to the manufacturer for a refund.

Nowadays, most EULAs are known as a “clickwrap agreements,” because the user enters into the agreement online and must click to accept the conditions before accessing a website or using software.

Initially, there was doubt as to whether EULAs could be enforced in court, especially if the provisions were inconsistent with the Copyright Act. The reason for doubt is because the typical EULA isn’t negotiated between seller and purchaser at the time of sale, and so the purchaser shouldn’t be held to its terms, especially if the user must waive rights under the Copyright Act. For example, some licenses may prohibit the user from copying the software, even though the Copyright Act permits the purchaser to make an archival copy.

In 1996, a federal Court of Appeal ruled that shrinkwrap licenses are valid as long as a user who disagrees with the terms can return the product for a refund. The court also ruled that a license restricting rights that a purchaser would have otherwise had under the Copyright Act is legal. (ProCD v. Zeidenberg, 86 F.3d 1447 (7th Cir. 1996).)

The same standards apply to clickwrap agreements: “[C]lickwrap license agreements are an appropriate way to form contracts.” (i.Lan Systems Inc. v. Netscout Service Level Corp., 183 F.Supp.2d 328 (D. Mass. 2002).) In a case involving America Online, a court upheld a clickwrap agreement between AOL and a Massachusetts man requiring that legal disputes with AOL be settled in Virginia. (Hughes v. AOL, 2002 U.S. Dist. LEXIS 9569 (D. Mass 2002).)

A EULA was ineffective in a case involving the Adobe Software company. In 2001, a federal court ruled that, despite the language of an Adobe license agreement, the purchaser of a bundle of Adobe software programs could resell the individual components (separate programs on CDs). (Softman Products Co. LLC v. Adobe Systems Inc., 171 F.Supp.2d 1075 (C.D. Cal. 2001).) The district court in that case determined that Adobe had sold, rather than licensed, its products to distributors, permitting the resale of the components under the first sale doctrine.

The ESIGN Act

In 2000, federal legislation—the Electronic Signatures in Global and International Commerce Act—was enacted, which helped remove some of the uncertainty that previously plagued e-contracts and prevented a contract from being challenged simply because it was created electronically. Some proponents of software licenses urged passage of the Uniform Computer Information Trans-action Act (UCITA), a proposed law that would legitimize all software licenses. However, the UCITA was only adopted in only two states, Virginia and Maryland.

Prohibitions

Another company, as a condition of its EULA, prohibited reverse engineering of its software. To the dismay of software programmers, a federal court upheld this provision. (Bowers v. Baystate Technologies, Inc., 320 F. 3d 1317 (Fed. Cir. 2003).)

Even more disconcerting for many scholars and consumers was the intro-duction of nonsoftware EULAs. For example, a book publisher used a shrinkwrap agreement to prohibit the resale of books. A museum required viewers to waive the right to claim fair use when copying material from its website. (Both of these rights—resale and fair use—are otherwise permitted under the Copyright Act.) 

 

by: , Attorney

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