Top 5 Reasons Software License Agreements are Unlawful

by Kavan Wolfe (published on Sep 5)

A Software License Agreement is a contract between a software producer and a software user that grants the user a license; an End-User License Agreement (EULA) is a Software License Agreement that indicates terms of use. EULAs are fine in principle, but the way many EULAs are written makes them legally meaningless, unenforceable nonsense. This article explores five reasons why EULAs are bogus: the first three are based on legal and commonsense principles, the last two are specific to US laws.

1. One Way Contract

In common law systems, for a contract to be legally binding, both sides must provide “consideration.” When you buy an apple, you give money and you get an apple. The money and the apple are consideration. Many EULAs have a clause to the effect that the Software Provider can change the terms of the contract at any time, without notice. In other words, after you have agreed to the contract, the Provider can remove all of its obligations from the contract, and change your obligations to whatever it wants. I call this a one way contract because you are bound by the contract, but the Provider is not, because the Provider can just change it. This means the Provider has not given consideration, and the contract is invalid.

2. False Advertising

Often times, the advertising for a software packages makes promises that the software does not keep. Voice recognition software is a prime example. If you buy software that doesn’t work as promised, any contract you may have entered into is null and void. It’s like ordering a car off Ebay and finding out when you get it that it won’t start. If the ad said the car was in working order, the sale is invalid.

3. Agreement Unavailability

When you buy software at a store, you don’t see the agreement. Usually, you don’t see the agreement until you’ve opened the box and tried to install it. Some EULA’s say, if you don’t agree to this contract, return the software to the vendor for a full refund. Except, the vendor won’t take it back because it’s open. Does this make sense to anyone?

4. Adhesion Contracts

In some countries, such as the USA, a Contract of Adhesion or Standard Form Contract is a take-it-or-leave-it contract with no negotiation and unequal bargaining power between parties. If a term in an Adhesion Contract is outside the normal expectations of the weaker party, it is not enforceable. For instance, terms that say ‘the Provider is never liable for anything, ever,’ or ‘the Povider can change the terms of the contract whenever we damn-well please and to whatever our lawyers can dream up’ would be considered unreasonable and not enforceable.

5. Unconscionability

In same countries, a contract is unconscionable if the consideration from one side is so dismal as to make the contract unfair to one party. For instance, if you buy software that crashes every five minutes or produces the wrong outputs, it’s not worth the money you spent on it, and therefore the contract is unconscionable. Unconscionable contracts are not enforceable as-is and courts have a fair bit of leeway in dealing with them.

On Liability

In closing, not everyone can exempt themselves for the damage done by their crappy software. An open source programmer who makes no claims and takes no money for his or her work is perfectly safe in declaiming responsibility. Microsoft, Oracle, Cisco, IBM, etc. are not. The difference is in their advertising. Lying to customers about one’s products is generally illegal. If GE makes a hot water boiler that explodes and ruins someone’s basement, GE is responsible. Similarly, if Oracle claimed that its database software safeguards information, but an actual Oracle database spontaneously emptied itself, Oracle would be responsible: not because it broke the contract but because it lied in the advertising.

Now if everybody would please stop accepting these bullshit EULAs, we might foster some responsibility in the software community.

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7 Comments

  1. Alex says:

    Do you know of any examples where these principals have been tested in court, specifically with Software EULAs or a direct parallel?

  2. Philo says:

    The leading holding on clickwrap contracts is ProCD v. Zeidenberg ( http://en.wikipedia.org/wiki/ProCD_v._Zeidenberg ). Judge Easterbrook came to the horrendous conclusion that clickwrap contracts were enforceable because:
    1) All the terms in software contracts are fundementally the same (this is absolutely false)
    2) If you did not like the contract, you could return the software.

    Point 3 above tries to contradict the second part of the reasoning. However, I did a survey of major software publishers in the late 90′s, and they *all* had money back guarantees. For example, Microsoft offers a 45 day money back guarantee on all their software:
    http://www.microsoft.com/mscorp/productrefund/refund.mspx

    Incidentally, contracts of adhesion *are* generally enforceable. See:
    http://en.wikipedia.org/wiki/Contract_of_adhesion

    Having said all that, I do agree there are problems with EULA’s and a lot of software publishers really abuse them (the standard “you can’t publish a review without our permission” is pretty abusive).

  3. Kavan Wolfe says:

    @Alex: Some other relevant cases in U.S. law are Step-Saver Data Systems, Inc. v. Wyse Technology (939 F.2d 91) and Vault Corp. v. Quaid Software Ltd.

    @Philo: good points. Just one thing: keep in mind that the issues vary by country. I’m more interested in principles of low than the specifics of US law. The treatment of adhesion contracts, for instance, varies depending on the country.

  4. SaaSonhand says:

    do we really read this license agreement or we never bother….just as long it can be useful or something….

  5. liberty says:

    this issue depends on the each country.
    but the most problems in ProCD, Easterbrook has contradiction in his reasoning because he stated this transaction is “sale with restriction”, but the EULA has a clause which states that the transaction is a just license not sale.”

    while he states this is sale, EULA states not sale but license

    depending on this case, all program developers argue the owner of program CD is the developers and the consumers are just licensee not its owner.

    therefore, consumers cannot resell the CD and only because the licensee can use the program, your family or friend cannot use the program. it may be copyright infringement because ram reproduction is also copyright infringement in the USA.

  6. liberty says:

    moreover, nobody cannot return the program CD when he cannot accept the license agreement in the retail shop because all retailer has policy not to refund the open CD

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