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The market for software and applications designed for personal computers, mobiles and cloud-based applications has increased significantly with several new businesses emerging in this space. For these businesses, since software or related services form a critical revenue stream, it is important that the software is not used in an unintended manner or in a way which prejudices their commercial interest. For their end-customers, the objective is to ensure that such applications fulfil their purpose on a reliable basis.


Intellectual property in software is primarily protected by copyright law (copyright is discussed in a separate module later). Terms of usage of such software or applications (whether it is free or paid) are typically mentioned in an End User License Agreement (EULA) which a user must agree to at the time of installing the software. Typically, this agreement is captured by making a user click or tick-mark the “I Agree” button as a precondition to installing the software. The EULA typically grants a license to the end-user to use the software, on the terms and conditions and for the purposes that are mentioned under it.

What is the relevance of a EULA for the client and the software manufacturer? Imagine software which is useful to monitor the medical condition of patients undergoing surgery. If this software malfunctions at a critical time during an operation, its malfunctioning could have a serious impact on a patient’s health and treatment, which have further ramifications for the hospital authorities – will the hospital authorities, or the doctor under whose supervision the patient is being treated be held liable for this? Can the victim, or the hospital (being the end-user of the software) sue the software company? What would the obligations of the software manufacturer in such circumstances?

This chapter briefly discusses the essential issues that should be kept in mind while framing a EULA - it is relevant for entrepreneurs and decision makers at software companies and lawyers or consultants who plan to advise entities that create softwares, apps, etc.


1. Use of open source software may be governed by a standard open-source license recognized by the Open Source Initiative (OSI) or by a custom license prepared by the manufacturer or distributor which meets the open source definition.The terms of an open source license or that of a bespoke license (that is, license for software that is custom-made for a particular client) are substantially different and are not discussed here.

2. For a list of open source licenses recognized by the OSI, visit the link.

3. In order to be qualified as open source, any software should have 10 elements which are compliant with the open source definition provided by the OSI. To read about the elements, visit here.

Key concerns in drafting a EULA

Software is treated differently from a physical product such as a television, a book, or a mobile phone. Most software creators prefer to characterise the sale of software as a ‘license’, implying a limited right on the part of the user to use the software.


Even if software is classified as freeware e.g. Adobe Reader, a EULA is usually incorporated to govern terms of use of the software. The key concerns which are relevant while drafting a EULA discussed below. Sample clauses have also been provided to see how they are addressed.

 What is the nature of the license granted to the user? What are the limits imposed on the manner in which the software is used?

The licence provided to the user is usually a ‘limited, non-exclusive and non-transferable’ license, which essentially implies that it can be only used for limited purposes by the intended user. It cannot be transferred by the user to another person (although there may be provisions to transfer the software to another computer by the same user). Further, the software company is free to sell the software to any other person, which is why it has granted you a ‘non-exclusive’ license to use the software.

Softwares sold off-the shelf or on downloadable basis, may have a trial version with limited functionality (which is free) and a fully functional paid version. Limits on functionality during may include presence of watermarks on each file. Alternately, or the software may only load a fixed number of times before it intimates the user to purchase the software in case further use is intended. In such a case, the EULA should include these limitations, specify the duration of the trial period, and responsibilities of a user after expiry of the trial period. Consider, for example the following clause:

If you have obtained the trial version of the Software Product and have not purchased the right to use a license key for the software product, subject to the terms and conditions of this Agreement, you are hereby granted a limited, non-exclusive, non-assignable, non-transferable, non-sub licensable right to install and use a single copy of the software product on a single computer for the sole purpose of evaluating the software product for a period of 30 days (the Evaluation Period). You acknowledge that:

(1) you may not use, access or retain a copy of the Software Product beyond the Evaluation Period unless you purchase the right to use a key;

(2) you are entitled to only one Evaluation Period for each version or release of the Software Product;

(3) certain functions of the Software Product may be limited or disabled during the Evaluation Period; and

(4) the Software Product will automatically stop functioning at the end of the Evaluation Period unless you purchase the right to and install a key for such Software Product.

  • At a practical level, it is not easy for a software manufacturer to detect and enforce a violation of the EULA. Therefore, some softwares contain inbuilt technological measures to limit the functionality of the software during and after the evaluation period. In such an event, they may require users to consent to not circumventing any technological measures in the software, as follows:

You understand and acknowledge that the Software Product may contain technological measures designed to limit functionality of the Software Product during the Evaluation Period or to prevent the illegal usage of the Software Product (or usage that violates the terms and conditions of this Agreement. You hereby agree not to circumvent or attempt to circumvent such measures.

  • While it is clear that the software is being licensed to a user, there is usually an additional clause clarifying the ownership of intellectual property rights in the software (in case the software has a third party components, the company may not own all the components of the software. The clause will also prohibit users from removing any copyright notices or proprietary markings on the software. For example, consider the following clause:

The [Company] and its licensors retain all title, trade secrets, copyrights, patents and other intellectual property rights to the Software and any copies made by You.  You acknowledge the foregoing and that the Software, including its structure, organization and code, are owned by, proprietary to and valuable trade secrets of the Company and its licensors, and are protected by [United States] copyright law and international treaties.  You agree to duplicate in all copies and not to remove or destroy any copyright notices, other proprietary markings or confidentiality legends placed upon or contained within the Software.

Can the software be used for a commercial purpose, or can it be rented or sub-licensed by users?

The entity which has made the software may specify whether it can be used for a commercial purpose. Some EULAs prohibit the use of the software for a commercial purpose. Other softwares are permitted to be used for commercial purpose by users. For example, Adobe Photoshop, Dreamweaver, or an e-learning software are expected to be used for making images, designs, websites or courses that will be commercially sold and their EULAs permit users to use the software for such purposes.

However, a EULA (even one for softwares which can be used by users for their business) typically contain a prohibition against licensing or renting the software itself to third parties by the end-user – if commercial distribution is contemplated, a separate license may be necessary.

 What is the term of the license? What are the provisions for support and upgrades?

The term of license should be specified. A trial version has a limited period of license, while paid version may be perpetually licensed. Certain other softwares, such as anti-virus softwares may have an annual license, after which a user may be required to a paid upgrade.

A sample clause for a software could look like this:

Term of License

If You have acquired an evaluation Use or beta license, then the term of the License shall coincide with the Evaluation Period, and shall terminate upon the expiration of such term.  If You have acquired a Full Use license, then the term of the License shall be perpetual unless the terms of Your initial purchase of a Full Use license were for an annual subscription (in which case the term of the License shall coincide with the designated subscription term, and shall terminate upon the expiration of such term unless You renew the License).

A clause for support (applicable only to paid users) could be worded as follows:

The Company may from time to time make additional content, available at its website for use with the Software, or make community and marketplace areas at its website available where end users of the Software can post and share such content for use by other end users.  The posting and use of such content shall in each case be subject to the Terms of Use set forth on the website. 

Any other Support offered by the Company for the Software shall be set forth from time to time at the Company website and is subject to any Terms of Use set forth on the website.  You must have a valid License for a supported Full Use version of the Software, and have purchased Support, to be eligible to receive Support.

How many licenses are issued? Can a user take a backup? Under what circumstances is use of the software on another computer permitted?

  • As seen, most softwares allow use on only one computer (which is often implemented through technological measures). For using on multiple machines, a multi-user license may be available (typically at a discount). The EULA should clarify the number of licenses or machines the software can be installed on.
  • Similarly, unforeseen circumstances, hard disk crashes or viruses pose risks to the intended use of software by the user. In such cases, it is important to permit users who have purchased the software to retain backup copies. While EULAs may not contain warranties for suitability of the software for a particular use (or from being secure from viruses), they should specify whether can make a backup copy.
  • Although a user (who has purchased the software) may only be permitted to install the software on a single machine at a time, the flexibility and freedom to migrate the software to another computer is important from a user’s perspective for various reasons. Typically, transfer from one machine to another is permitted. A sample clause is provided below:

Transfer of License

You may transfer this License to another Computer controlled by You only on a permanent basis (that is, with no intent to transfer again) provided the Computer, workstation, or other device from which You have transferred this License no longer Uses the Software, and the Software is Used thereafter in accordance with the terms of this License.

Are there any warranties accompanying the software? Is the software fit for its intended use? What is the liability of the software manufacturer in case of malfunction?

Traditionally, physical products are typically sold with certain warranties. The Sale of Goods legislation in most countries also by default implies certain standard warranties to sale of any product (which may be contractually excluded). For example, under Indian law when a product is purchased from a seller (irrespective of whether he is the manufacturer) who sells such products in the ordinary course of his business, there is an implied warranty that the product is of merchantable quality. (See Section 16, Sale of Goods Act, 1930).

Further, on account of various legal developments in the product liability regime (typically under tort law) in various countries may also result in the manufacturer being required to pay heavy compensation or penalties for malfunction that causes risk to health, safety or life of a purchaser.

Are the responsibilities of a software manufacturer the same as those of a manufacturer of physical products?

Software manufacturers try to limit their responsibilities through the EULA. Most EULAs customarily tend to have very wide disclaimers, by which the seller intends to severely limit its liability in case of any malfunction. While some jurisdictions have enacted statutes to expressly disregard such unreasonable disclaimers, validity of such exclusions in other jurisdictions has not been tested in a court of law. In this discussion, we will discuss the clauses that are customarily included by software manufacturers in a EULA.

However, softwares are sold on completely different terms. Most softwares that are sold off-the-shelf or are available for download over the internet are sold on an as-is basis, without any warranties of good quality. We will examine the warranty clause below:

Limited Warranty clauses:

Company warrants that the Software will perform substantially in accordance with the Documentation for 90 day period following your receipt of the Software.


The Company warrants to you for a period of 30 days after delivery, that the media on which the Software is furnished (if any) will be free from defects that prevent you from loading the Software on a Computer. 

Example of a clause which disclaims all warranties is provided below:

Disclaimer of Warranties:
  The software is provided on an as-is basis. All express or implied conditions, representations and warranties, including any implied warranty of merchantability, fitness for a particular purpose or non-infringement, are disclaimed.

Procedure for making a warranty claim and the liability of the company in such cases should also be specified, for example:

To make a warranty claim, you must return the Software to the location where you obtained it along with a copy of your sales receipt within 30 day period.

If the Software does not perform substantially in accordance with the Documentation, the entire and exclusive liability of the Company and its distributors, and your exclusive remedy shall be limited to the replacement of the Software or the refund of the license fee you paid for the Software either, at Company’s option. To the extent not prohibited by applicable law, in no event shall company or its licensors be liable to you or any other party for any special, indirect, consequential, incidental or punitive damages of any kind.

Some manufacturers recognize that it may not be possible to disclaim liability for all kinds of losses through a EULA, and include a clause such has the following:

Some jurisdictions do not allow the exclusion of incidental or consequential damages, so some of the terms above may not be applicable to you.

 Are there third party components in the software? If yes, what are the licensor’s and the user’s obligations with reference to such components?

Softwares often embody components, codes or otherwise borrow from the work of third parties. In such cases, the EULA must ideally provide a notice to users about such third party components (see below for more details) and inform them about their rights and obligations vis-a-vis the third party software. For example, consider the following clause in a EULA:

Party Components

The Software is distributed with certain open source or other third party components each of which, when included, is provided pursuant to the terms of the applicable third party license governing the component's use and distribution.  You may use any third party software products or modules supplied by the [Company] solely with the Software, except as expressly otherwise provided in the third party's license.  The licenses granted under this License do not alter any broader rights and obligations that you may have under such third party licenses; however, the disclaimer of warranty and limitation of liability provisions in this License will apply to all software components included in the Software.

Often, the entity manufacturing the software (if the software contains third party components) may be required to include copyright notices from relevant third parties. To illustrate, you may access the notice of third party rights in relation to the Adobe X Suite, available on the link.

As is clear from the link above, Adobe Suite X has components from Hewlett Packard, Netscape, Apache Software Foundation and various other entities (including individuals) (Third Parties). Each of these Third Parties has required Adobe to display copyright notices pertaining to them in a particular format on the software. Some copyright notices also specify whether the Third Party is providing any warranties with respect to the use of its components in the Adobe software. In certain cases, the notice also specifies that the software can be used without payment of any fee to the Third Party, as long as the notice is incorporated in its original form without any modification.

A EULA can place substantial restrictions on the end-user’s use of the software, but it may be extremely difficult to monitor compliance with it 

The EULA can be used to protect not only the copyright under the software (for example, by prohibiting the user from copying and distributing the software), but it can also restrict other actions that a user can take. In order control what a user can do with software, a seller may deploy a EULA to afford a higher level of intellectual property protection that is typically afforded by copyright. For example, the EULA for the Mac OS X states that the operating system can only be installed on ‘Apple-labelled’ computers. Such a provision may be workable for Apple so long as there are no other manufacturers making computers which can run Apple Software, and so long as Mac OS X does not provide an easy way to install it on Windows-based machines or other machines sold by Dell, HP, etc.

However, what if someone found out a loophole by which Mac OS X can be installed by users on Windows machines? How would that affect the sale of Macbooks? While Apple is not currently facing this problem, many other software manufacturers face similar problems – their software is often used for purposes that are not permitted under the EULA. They are not aware of when or where copyright violations have taken place. Unlike other internet crimes which are detectable, copyright infringement of software (software piracy) is not easy to detect by the manufacturer, since such violations occur in a private space (e.g. an end-user copies or cracks software while sitting in his home or office). Hence, they are prevented from taking preventive action in time, and from identifying and proceeding against a person who has violated the EULA. This can potentially compromise the efficacy of the EULA. This is a major problem in enforcing intellectual property right in software.


8. Using technological means to ensure compliance with EULAs

Software manufacturers have resorted to various technological measures which prohibit software from being used in ways possible to perform certain actions. Such technologies are referred to as digital rights management (DRM) technologies in technical parlance. Some DRM technologies can lock software or files such that they will be accessible only if they are used together with a USB token, or they include a key which can only be activated once. Such technological means could be deployed to prevent copying of the software and any unintended use of the software that is inconsistent with the EULA.

While DRM technologies are not fool-proof and can be compromised by sophisticated hackers (breaking a DRM technology is a punishable offence under copyright law of most advanced jurisdictions), they are extremely useful in ensuring that the essential terms of the EULA are adhered to in a vast majority of situations.

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