module_8_21_

TECHNOLOGY
CONTRACTS

CERTIFICATE COURSE

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DEVELOPED BY

MODULE - 8

END USER AGREEMENTS AND THEIR
VALIDITY

8.1 WHAT ARE END USER LICENSE user), software updates and maintenance, fees,
AGREEMENTS? copyright protection in the software, warranties and
limitation of liabilities, and dispute resolution clause.
An end user license agreement or an EULA is defined The purpose of an EULA is to grant ‘license’ to the
as a “legal agreement between the manufacturer and consumers or end-users to only ‘use’ the software,
purchaser of software that stipulates the terms of and not grant any ownership rights over a copy of the
usage”i It is an agreement that a consumer or an end- software.iv
user electronically ‘signs’ before installing or
operating the software, or using it for the first time.ii 8.2 BENEFITS
An end user license agreement defines the usage
rights and restrictions of the end-user, that is, the An EULA has several benefits. It permits the software
licensee, and also establishes the ownership rights of developer or vendor (the licensor) to license the
the software developer or vendor.iii An EULA is software for use by the end-user without selling any
generally entered into by clicking onto an “I agree” or of his/her (licensor’s) ownership rights in the
“I accept” button prior to installing a software software. The licensor provides the terms and
product, which usually indicates the end user’s assent conditions of use in the EULA, and thus, has control
to bind itself by the terms and conditions set out in over the use of the software by the end-user. By
the EULA. Typically, an EULA contains terms placing requisite limitations and/or restrictions in the
regarding the description of the software product end-user’s right to use the software, the licensor
and its functionality, the installation and makes it clear to the licensee or the end-user that
uninstallation process, extent of use by the end user, his/her rights in the software can be exercised only in
right to distribution and modification by the user accordance to the usage rights prescribed in the
(typically these rights are not granted to the end EULA, and any excessive or unauthorized use by the

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end user or an unauthorized external user is work from the licensed software; allow any
tantamount to violation of the EULA and actionable. unauthorized use and access by external parties;
A sample license grant clause in a standard EULA is as destroy any intellectual property notice; use the
follows: software for a purpose not intended by the licensor;
or any unauthorized redistribution of the software. In
“Apps made available through the App Store are the event the licensee/ en-user violates any of the
licensed, not sold, to you. Your license to each App restrictions stated in the EULA, the licensor can
is subject to your prior acceptance of either this exercise its right to terminate the agreement, that is,
Licensed Application End User License Agreement revoke the license, and/or institute a legal proceeding
(“Standard EULA”), or a custom end user license against the end user. A sample clause is as follows:
agreement between you and the Application
Provider (“Custom EULA”), if one is provided. Any “Restrictions on Use. You shall use the
App that is subject to this Standard EULA is Application strictly in accordance with the terms
referred to herein as the “Licensed Application.” of the Related Agreements and shall not: (a)
The Application Provider (“Licensor”) as decompile, reverse engineer, disassemble,
applicable reserves all rights in and to the Licensed attempt to derive the source code of, or decrypt
Application not expressly granted to you under the Application; (b) make any modification,
this Standard EULA.”v adaptation, improvement, enhancement,
translation or derivative work from the
From the above example, it is clear that the emphasis Application; (c) violate any applicable laws, rules
is on the ‘app’ being licensed, and not sold through the or regulations in connection with Your access or
EULA. Also, it explicitly states through the last use of the Application; (d) remove, alter or
sentence, that the licensor intends the end user to use obscure any proprietary notice (including any
the software only as per the rights granted to the end notice of copyright or trademark) of Company or
user through the terms and conditions of the EULA. its affiliates, partners, suppliers, or the licensors
of the Application; (e) use the Application for any
Through an EULA, usage restrictions can be imposed revenue generating endeavour, commercial
by the licensor on the end user. For instance, the enterprise, or other purpose for which it is not
licensor can restrict the end user from reverse designed or intended; (f) [install, use or permit
engineering the software to obtain the source code; the Application to exist on more than one
make any modifications, alterations or a derivative

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Mobile Device at a time or any other mobile liabilities and damages arising from foreseen and
device or computer]; (g) [distribute the unforeseen circumstances, and imposes a cap on the
Application to multiple Mobile Devices]; (h) make amount of damages that can be recovered by the
the Application available over a network or other licensee/end user from the licensor. A sample clause
environment permitting access or use by multiple is as follows:
Mobile Devices or users at the same time]; (i) use
the Application for creating a product, service or “Limitation of Liability. To the extent not
software that is, directly or indirectly, prohibited by law, in no event shall licensor be
competitive with or in any way a substitute for liable for personal injury or any incidental,
any services, product or software offered by special, indirect, or consequential
Company; (j) use the Application to send damageswhatsoever, including, without
automated queries to any website or to send any limitation, damages for loss of profits, loss of
unsolicited commercial e-mail; or (k) use any data, business interruption, or any other
proprietary information or interfaces of commercial damages or losses, arising out of or
Company or other intellectual property of related to your use of or inability to use the
Company in the design, development, licensedapplication, however caused, regardless
manufacture, licensing or distribution of any of the theory of liability (contract, tort, or
applications, accessories or devices for use with otherwise) and even if licensor has been advised
the Application.”vi of the possibility of such damages. In no event
shall Licensor’s total liability to you for all
An EULA permits the user to limit its liabilities only to damages exceed the amount of fifty dollars
the extent as expressly stated in the agreement, thus ($50.00). The foregoing limitations will apply
eliminating the risk of frivolous lawsuits. Limiting the even if the above stated remedy fails of its
licensor’s liability protects the licensor against essential purpose.”vii
liabilities arising out of damages or defects caused to
the software product due to the end-user’s An EULA allows the licensor to disclaim the
negligence, incapacity to properly use the software, warranties provided as regards the software product.
any unauthorized use, or using the software on an It permits the user to license the software on an “as
unauthorized third party platform. A ‘limitations on is” or “as available” basis, thus informing the end users
liability’ clause limits the exposure of the licensor to that the licensor is not bound by the warranties,

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guarantees or promises as regards the quality of of EULA by the licensee/end user. This implies that an
products delivered, and the licensee is to use the EULA does not grant an unlimited or endless access
licensed software at his/her own discretion and to the software license, and the licensor reserves the
cannot hold the licensor liable for any product right to terminate the agreement at any time due to
defects or failures. A sample clause is as follows: any reason whatsoever, thus enabling control of use
and access of the software by the licensor. A sample
“Disclaimer of warranty. You expressly clause is as follows:
acknowledge and agree that use of the licensed
application is at your sole risk. To the maximum “Termination. Company may, in its sole and
extent permitted by applicable law, the licensed absolute discretion, at any time and for any or
application and any services performed or provided no reason, suspend or terminate this License
by the licensed application are provided "as is" and and the rights afforded to You hereunder with
“as available,” with all faults and without warranty or without prior notice. Furthermore, if You
of any kind, and licensor hereby disclaims all fail to comply with any terms and conditions
warranties and conditions with respect to the of this License, then this License and any
licensed application and any services, either rights afforded to You hereunder shall
express, implied, or statutory, including, but not terminate automatically, without any notice
limited to, the implied warranties and/or conditions or other action by the Company. Upon the
of merchantability, of satisfactory quality, of termination of this License, You shall cease all
fitness for a particular purpose, of accuracy, of use of the Application and uninstall the
quiet enjoyment, and of noninfringement of third- Application.”ix
party rights. No oral or written information or
advice given by licensor or its authorized 8.3. DISADVANTAGES
representative shall create a warranty. Should the
licensed application or services prove defective, you Despite the several benefits of an EULA, it has certain
assume the entire cost of all necessary servicing, disadvantages as well. For instance, an EULA is likely
repair, or correction.”viii to contain legalese which may not be clearly
understood by regular users entering into the EULA,
An EULA allows the licensor to revoke the license, for since they might not be familiar with legal jargons.
reasons but not limited to the violation of the terms Further, owing to its length and complex legal

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language, the probability of users reading the entire enough that the plaintiff was adequately notified
end user license agreement is quite low, and this about such clause. Hence, the plaintiff’s claim that he
often leads to users clicking on the “I agree” or “I had failed or otherwise opted not to read or review
accept” button without any actual knowledge of the the forum selection clause was rejected, and upheld
terms and conditions of the EULA. This, in turn, may the enforceability of the forum selection clause in the
possibly lead to lawsuits where the licensor wants to click-wrap agreement.
sue the end user for violating the terms of the
agreement, and the end users denying any obligation In Dell Computer Corporation v. Union des
since they were not aware of such terms and consommateursxi, the Canadian Supreme Court had
conditions as they had not actually read the EULA and to consider whether an arbitration clause, which the
hence, had not assented to such terms and defendant argued was buried or obscured within a
conditions. hyperlink named ‘terms and conditions of sale’, was
enforceable or not. The court upheld the
In Barnett v. Network Solutionsx, the plaintiff enforceability of such arbitration clause in the
contended that since the forum selection clause was browse-wrap agreement by observing that, “The
‘hidden’ in the online click-wrap agreement he had evidence in the record shows that the consumer
entered into with the defendant, he (the plaintiff) did could access the page of Dell’s Web site containing
not have adequate knowledge or notice of the same, the arbitration clause directly by clicking on the
and thus it could not be enforced. The court observed highlighted hyperlink entitled “Terms and Conditions
that the online click-wrap agreement required the of Sale”. This link reappeared on every page the
users to scroll through the entire agreement, consumer accessed. When the consumer clicked on
including all its terms, before the user could click on the link, a page containing the terms and conditions of
the “I agree” button and indicate their assent to be sale, including the arbitration clause, appeared on the
bound by such agreement. This implies that the screen. From this point of view, the clause was no
plaintiff had adequate opportunity to read and more difficult for the consumer to access than would
understand the forum selection clause, since the have been the case had he or she been given a paper
structure of the agreement was such that the “I copy of the entire contract on which the terms and
agree” button could not have been clicked by the user conditions of sale appeared on the back of the first
without scrolling past the terms of the agreement, page. In my view, the consumer’s access to the
including the forum selection clause, which is proof arbitration clause was not impeded by

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the configuration of the clause; to read it, he or she find that: “This warning brings the existence of the
needed only to click once on the hyperlink to the dispute resolution clause directly to the attention of
terms and conditions of sale.”xii Further, it was also the reader at the outset, and one has only to scroll
added that “analogously to paper documents, some down to find clause 13(c), where the arbitration
Web documents contain several pages that can be clause is set out to easily access all information
accessed only by means of hyperlinks, whereas needed about the conduct of the arbitration process.
others can be viewed by scrolling down them on the For this reason, we would reject the suggestion that
computer’s screen. There is no reason to favour one the arbitration clause was buried or obscured within
configuration over the other”xiii. The court cited the the Terms and Conditions of Sale.”xv
web contract of Dell, which could be accessed by
clicking on the hyperlink, and whose first paragraph In Forest v. Verizon Communicationsxvi, the court had
stated: to determine whether a choice of law and forum
selection clause in a click-wrap agreement was
“PLEASE READ THIS DOCUMENT CAREFULLY! IT enforceable. It was the contention of the appellant
CONTAINS VERY IMPORTANT INFORMATION customers that the online click-wrap agreement was
ABOUT YOUR RIGHTS AND OBLIGATIONS, AS only partly visible on the computer screen at any one
WELL AS LIMITATIONS AND EXCLUSIONS THAT time, and the choice of law and forum selection clause
MAY APPLY TO YOU. THIS DOCUMENT was located at the end of this agreement which could
CONTAINS A DISPUTE RESOLUTION CLAUSE. This be viewed only after scrolling down the entire
Agreement contains the terms and conditions that agreement. Hence, Verizon had failed to bring such
apply to your purchase from Dell Computer clause and its significance to the appellant customers’
Corporation, a Canadian Corporation (“Dell”, “our” or attention, and they lacked adequate notice of the
“we”) that will be provided to you (“Customer”) on clause. Hence, the clause along with the online click
orders for computer systems and/or other products wrap contract was unenforceable as the appellants
and/or services and support sold in Canada. By were not adequately informed of the terms of the
accepting delivery of the computer systems, other agreement including the impugned clause. However,
products and/or services and support described on the court ruled in favour of Verizon and held the
the invoice, Customer agrees to be bound by and enforceability of the clause in question by observing
accepts these terms and conditions.”xiv On the basis that Verizon had indeed provided adequate notice of
of this key term of the Dell EULA, the court went to the clause by virtue of placing the warning

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“PLEASE READ THE FOLLOWING AGREEMENT “Though found in the beginning of the last paragraph
CAREFULLY”xvii at the beginning of the agreement. of the agreement, the clause appeared in the same
Merely because the electronic contract is contained type face as the majority of the language in the
in a scroll box, it does not amount to inadequate agreement. As such, plaintiffs ... were free to scroll
notice. The court observed that a forum selection through the various computer screens that presented
clause in a click wrap contract is binding if it has been the terms of their contract before clicking their
reasonably communicated to the plaintiff. It was agreement. To conclude that plaintiffs are not bound
further observed that “absent fraud, duress or by [the forum selection] that clause would be
misrepresentation, a user who “signs” a contract is equivalent to holding that they were bound by no
deemed to have read it, whether or not he or she other clause [of the subscriber agreement] either,
actually does so. A contract is no less a contract since all provisions were identically presented.
simply because it is entered into via a computer.”xviii Plaintiffs must be taken to have known that they
were entering into a contract; and no good purpose,
Similarly in Caspi v. Microsoft Networkxix the consonant with the dictates of reasonable reliability
plaintiffs claimed that the forum selection clause in in commerce, would be served by permitting them to
the online click-wrap EULA was unenforceable disavow particular provisions or the contracts as a
because they failed to read the terms of such whole.”xx
agreement and as such, was unaware of the terms of
the online contract including the forum selection In Register.com v. Verioxxi, the court had to determine
clause at the time of entering into the contract, and the enforceability of a browse-wrap contract when
therefore, did not provide assent to be bound by such the user had not clicked on any “I agree” button. Verio
clause. The plaintiff’s claim was rejected by holding is a company providing various internet services,
that the terms of the online agreement appeared in a including website development and website hosting,
scrollable window beside the “I agree” or “I disagree” while Register.com is a company that provides
buttons. To use the defendant’s services the user domain name registration services. In compliance
must click on the “I agree” button, and since the with federal regulations, Register.com operated a
plaintiff in this case had clicked on the “I agree” publicly accessible database called the Whois
button, it indicated his assent to be bound by terms of database, containing contact information of users
the online agreement, irrespective of whether he had who registered their domain names using
read the agreement or not. The court observed that, Register.com’s services. Register.com specified

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that users who obtain data from the Whois database, agreement. This is due to Verio's repeated use of the
is prohibited from using such data to send unsolicited Whois database with actual knowledge that, under
emails, and unsolicited advertisements via regular the site's Terms of Use, such use bound Verio to its
mail and telephone. However, these restrictions on Terms. The result "might well be" different if Verio
use of the Whois data, which are terms of a browse had only used the Whois database on a few sporadic
wrap agreement called ‘Terms of Use’, do not appear occasions, without knowledge of the Terms, and their
before an user has submitted a Whois query. ‘Terms provision that they would be binding on use.”xxii The
of Use’ appear as a hyperlink at the top of the results court went on to hold that, “We recognized that
page, and do not require the user to click on any “I contract offers on the Internet often require the
agree” or “I accept” button to indicate his/her assent offeree to click on an "I agree" icon. And no doubt, in
to be bound by the agreement. Verio, in order to many circumstances, such a statement of agreement
boost its business, used an automated software by the offeree is essential to the formation of a
program (a robot) to repeatedly search contract. But not in all circumstances. While new
Register.com’s Whois database to collect information commerce on the Internet has exposed courts to
about new registrants and sent mass many new situations, it has not fundamentally
marketing/advertising solicitations via email, regular changed the principles of contract. It is standard
mails and phone. When Register.com sued Verio for contract doctrine that when a benefit is offered
violating its ‘Terms of Use’, Verio pleaded it did not subject to stated conditions, and the offeree makes
have enough notice of such terms and it had not a decision to take the benefit with knowledge of the
assented to any such terms of use. The court held that terms of the offer, the taking constitutes an
Register.com’s ‘Terms of Use’ were likely to create a acceptance of the terms, which accordingly become
contract since Verio was aware of such terms by binding on the offeree.”xxiii
virtue of using the Whois database repeatedly. It held
that, “notwithstanding the fact that (i) the user did not However, in SoftMan Products v. Adobe Systemsxxiv,
see the Terms of Use until after he had performed a the court held that a software retailer was not bound
search on the Whois database, and (ii) the user was by an EULA since he did not install the software, and
not asked or required, after seeing the terms, to thus did not assent to the terms of the agreement. In
indicate an assent thereto by clicking on an "I agree" this case, Adobe, a software development and
icon, the Terms of Use are likely to create binding publishing company, created a software bundle called

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Adobe Collections (containing Adobe Photoshop, conscionability is focused on excessively harsh or
Adobe Acrobat, Adobe Pagemaker and Adobe one-sided results that shock the conscience of the
Illustrator) and was distributing the bundled court.xxvii It is imperative to note that to rule a
software through licensing agreements with its contract as unconscionable, both elements must be
distributors, that prohibited them (the distributors) present. However they need not be present in equal
from unbundling the software and reselling as amounts. In demonstrating this criterion, the court
individual pieces of Adobe software. SoftMan was not likened determination of unconscionability to ”a
a licensed distributor of Adobe, and was selling sliding scale where, an excess of one element can
individual parts of the Adobe Collection on its compensate for a deficiency in the other. That is, the
website, which was alleged by Adobe to be in clear more substantively oppressive the contract term, the
violation of Adobe’s EULA terms. The court held that, less evidence of procedural unconscionability is
“As a retailer, SoftMan had no need to install the required to come to the conclusion that the term is
Adobe software and never agreed to the EULA. In this unenforceable, and vice versa.”xxviii
situation, only the consumer, who would install
Adobe software, would assent to the EULA, not the In Bragg v. Linden Researchxxix, Linden Research was
retailer. SoftMan [was] not bound by the EULA the company that created, developed and maintained
because it ... never loaded the software, and therefore an online game called Second Life, whereas Bragg was
never assented to its terms of use.”xxv an individual player of the game.xxx Linden Research
provided the terms and agreement of Second Life in
8.4 ARE EULAs UNCONSCIONABLE CONTRACTS? the form of a clickwrap agreement, which also
included terms on choice of law, arbitration and
The doctrine of unconscionability states that courts forum selection.xxxi To play the game, an user was
may refuse to enforce contracts, either in part or as required to create an online account, and accordingly
whole, if “the clauses involved are so one-sided as to Bragg created one, which was however suspended by
be unconscionable under the circumstances existing Linden Research on grounds of suspected violations
at the time of the making of the contract.”xxvi Further, of the terms and conditions of the services
conscionability has both procedural and substantive agreement.xxxii Subsequently, Bragg sued Linden
elements, whereby procedural conscionability is Research, who, in turn, sought to compel arbitration
concerned with oppression of the weaker party due as per the terms of the services as laid in the clickwrap
to an unequal bargaining power, and the substantive

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agreement. Bragg contended the validity of such who wished to sue Linden, to share the arbitration
clickwrap contract on grounds of unconscionability. costs, which in Bragg’s case would be far higher than
When posed with the question whether the contract the cost of bringing the suit in courtxxxvii; (c) the place
was unconscionable or not, the court ruled in favour of arbitration was required to be San Francisco,
of Bragg. The court found the contract to be Californiaxxxviii, and (d) the scheme of arbitration
procedurally unconscionable on grounds that the included a confidentiality feature which would “place
EULA in Second Life was a contract of adhesion as the Linden Research in a far superior legal posture by
terms were presented in ‘take it or leave it’ manner ensuring that none of its potential opponents have
without any opportunity for meaningful access to precedent while, at the same time, the
negotiation,xxxiii Linden Research had a superior company accumulates a wealth of knowledge on how
bargaining power, there were “no reasonable market to negotiate the terms of its own unilaterally crafted
alternatives since Second Life was the only and the contract”xxxix. Hence, on grounds of both procedural
first online game which granted property rights to its and substantive unconscionability, the arbitration
players/users in virtual land and other available provision was rendered unenforceable.
online games in the market lacked that distinguishing
property interest feature of Second Life”xxxiv, and the Similarly, in Comb v. Paypalxl , the court ruled
terms of the EULA were held to be ‘hidden’ within the procedural unconscionability on grounds of the ‘take
contract, since Linden Research did not highlight the it or leave it’ nature of the Paypal agreement, which
arbitration provision but buried it in a long paragraph proved the unequal bargaining power of parties to
under the heading ‘GENERAL PROVISIONS’.xxxv The the contract.xli Further, although Paypal showed the
court found the contract to be substantively availability of an alternative, it was not sufficient to
unconscionable on grounds that (a) Linden had the disprove procedural unconscionability since Comb,
‘sole discretion’ to determine if a player-user had being an unsophisticated purchaser of online
breached the terms of its services agreement which services, may not have knowledge about an
could be amended by Linden at any time, and on mere alternative source.xlii The court found the Paypal
suspicion of breach, Linden reserved the right to agreement to be substantively unconscionable since
terminate the agreement at any time without “(a) the agreement gave all power regarding dispute
refunding the user’s money, and could also refuse any resolution to PayPal without demonstrating a
future servicexxxvi; (b) Linden Research required users legitimate business reason for this one-sidedness;xliii (

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b) the agreement contained a prohibition against of Santa Clara County, California, which was PayPal's
consolidating claims, which meant that customers "backyard," as the jurisdiction in which arbitration
with small claims were left without an effective would be conducted, was unreasonable given that
redressal mechanism;xliv (c) the high cost of individual PayPal serves millions of customers across the
arbitration discouraged consumers with small United States.xlvi”xlvii Thus, the Paypal clickwrap
damages from pursuing justice;xlv (d) the designation agreement was held to be unconscionable.

i Michael Teraski, ‘Do End User License Agreements Bind viii ibid
Normal People?’ (Western State University Law Review, 1 ix Sara Pegarella (n 6)
May 2014) 41(2) x 38 S.W.3d 200 (Tex. App. 2001)
https://lawscl.org/cgi/viewcontent.cgi?article=1027&context= xi [2007] 2 SCR 801, 2007 SCC 34 (CanLII)
wslawreview accessed 31 January 2019 xii ibid, McLachlin, C.J.
xiii ibid
ii Thomas Ledger, ‘The Software Student’s Handbook’ (2013) xivDell Computer Corporation v. Union des consommateurs,
[2007] 2 SCR 801, 2007 SCC 34 (CanLII)
iii ‘The Importance of an End-User License Agreement xv ibid, Bastarache JJ.
(EULA)’ (Klein Moynihan Turco LLP) xvi 805 A.2d 1007 (D. C. App. 2002)
xvii ibid
ivTeraski (n 1) xviii ibid
xix1999 WL 462175, 323 N.J. Super. 118, 732 A.2d 528 (N.J.
v Licensed Application End User License Agreement (Apple App. Div., July 2, 1999)
Media Services, 2019) https://www.apple.com/legal/internet-
services/itunes/dev/stdeula/ accessed 31 January 2019 Page | 4

vi Sara Pegarella, ‘5 Reasons Your Software Needs an EULA’ xx ibid
(TermsFeed, 11 December 2018)
https://termsfeed.com/blog/5-reasons-your-software-needs-
eula/ accessed 31 January 2019

vii Licensed Application End User License Agreement, Apple
Media Services (n 5)

xxi 356 F.3d 393 (2d Cir. 2004) xxxvi ibid at 608
xxii ibid
xxiii ibid xxxvii ibid at 608-10
xxiv171 F. Supp. 2d 1075, 1087-88 (C.D. Cal. 2001)
xxv ibid xxxviii ibid at 610
xxvi Uniform Commercial Code § 2-302 cmt. 1 (2003) xxxixibid
xxviiArmendariz v. Foundation HelathPsychcare Services, 6 P.
3d 669 (Cal. 2000) xl 218 F. Supp. 2d 1165, 1175 (N.D. Cal. 2002)
xxviii ibid
xxix 487 F. Supp. 2d 593, 611 (2007) xli ibid
xxx ibid at 595
xxxi ibid at 603 xlii ibid
xxxii ibid at 597
xxxiii The court relied on Nagrampa v. MailCoups, Inc., 469 xliii ibid at 1173-75
F.3d 1257, 1282 (9th Cir.2006)
xxxiv ibid at 606 xliv ibid at 1175-76
xxxv ibid xlv ibid at 1176

xlvi ibid at 1176-77
xlvii William J. Condon Jr., ‘Electronic Assent to Online
Contracts: Do Courts Consistently Enforce Clickwrap
Agreements?’ (Regent University Law Review, 2004) 16(2)
https://www.regent.edu/acad/schlaw/student_life/studentorgs/l
awreview/docs/issues/v16n2/Vol.%2016,%20No.%202,%207
%20Condon.pdf accessed 31 January 2019

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