What is an end user licence agreement (EULA)?

Unlike many physical products, where ownership changes hands once the transaction is finalised, purchasing software constitutes an ongoing relationship between the vendor and the user. This relationship requires setting boundaries. EULAs establish what the user can and cannot do with the software, set the terms of the agreement, clarify liability, provide infringement information, specify disclaimers and address how and when the right to use the application may be terminated.

An effective EULA acts as a shield, protecting the rights of the software vendor. An EULA is a vital layer of defence against copyright infringement, software reverse engineering and misuse of the application. It also allows vendors to limit their own liability and protect their reputation if the user abuses the application or uses it for improper or illegal purposes.

Additionally, the EULA gives vendors the opportunity to disclaim warranties, specifying that the application is provided on an as-is or as-available basis—ensuring that they are not held accountable in the event that certain circumstances prevent the software from fully meeting requirements. Finally, an EULA also protects the vendor’s right to revoke or suspend licences for any reason, and at any time, with or without warning.

While most EULAs are designed to support the rights of software vendors more fully, they also provide several benefits to the end users themselves. By clearly outlining the end users’ rights and restrictions, the EULA establishes expectations, defines software and maintenance terms, and describes how the software should be used for optimal effectiveness.

An end user licence agreement is a legal document; as such, it needs to follow certain established formats and protocols to be legally enforceable. Many organisations will choose to hire an EULA lawyer to help create the licence agreement, or to at least review the completed agreement before publication.

Because the EULA is a contract, a vital function is to identify the relevant parties. Clearly establish who the licensor and licensee both are, so that they may be legally held responsible for fulfilling their terms.

A major aspect of software usage is the type of copyright or intellectual property licence that applies to it. An open-source application, for example, would allow the user to perform certain actions that would be prohibited under close source software. Disclosing the copyright tells the end user what to expect.

Perhaps the most important job of the EULA is to set ground rules for users to follow. Clearly state how the software should be used and what restrictions will apply.

The EULA must also include details on the relevant conditions of software usage, such as the conditions that may result in the licence being terminated or revoked.

Finally, the EULA must address any disclaimers and limitations of liability that may be necessary to further protect the vendor.