End-User License Agreements (EULA): Key Terms, Conditions, & Tips

If your business produces any software or has a website, you need an enforceable agreement with end users in order to protect business intellectual property and limit potential liability. Often times these agreements are referred to as End User License Agreements or EULAs. In recent years, courts have become more comfortable enforcing EULAs however, enforceability of those agreements continues to be the main area of concern.

Background Law:

Because courts still analyze EULAs as legal contracts, valid contract formation and other common law surrounding contracts still apply. Thankfully, this has been made easier with the Minnesota Uniform Electronic Transactions Act (EUTA) and the federal Electronic Signatures in Global and National Commerce Act (E-Sign).

The EUTA only covers electronic transactions between parties. Additionally, EUTA essentially gives electronic records and electronic signatures legal effect as if they were records and signatures in writing. This means that clicking on a box that “I agree” or “Yes” will usually be legally binding on the end user who agrees. Electronic signatures are attributable to a person if it was the act of the person, which is usually proven through efficacy of security procedures to verify that a person is who they say they are. Additionally, in situations where information must be provided in writing in relation to a transaction, electronic records will only satisfy those requirements if the sender inhibits the ability of the recipient to store or print that electronic record.

E-Sign similarly grants legal validity of electronic signatures and electronic records. However, E-Sign also includes several consumer protections that businesses should acknowledge. Most importantly, a consumer must affirmatively consent to receive such information electronically and not withdraw consent.

The Click-Wrap:

In addition to the laws discussed above, courts have also become more comfortable enforcing EULAs, especially when it is in the form of a click-wrap agreement. A click-wrap agreement is usually presented in a separate frame or window from the software or website and the end user must click on an “Accept” button to continue. These are generally enforceable, so long as there is clear and conspicuous notice of the terms.

Recent Examples:

  • A plaintiff clicked twice on “I agree” and shipped a $100,000 ring via UPS and bought $50,000 in insurance, even though UPS’ terms did not allow shipments valued over $50,000. When the ring was lost by UPS, the plaintiff sued and UPS denied any liability. The court ruled in favor of UPS because the plaintiff clicked twice and had ample notice of the terms, even if the plaintiff had no actual knowledge of the terms therein.
  • A user sued Facebook for banning his account claiming he never saw the terms of service. Facebook places its terms of service in a hyperlink below the sign up button when new users first enter the website. The court held that a blue underlined hyperlink labeled “Terms of Service” is well recognized on the Internet as a reference to more information and created enough notice to the user.

Best practices for click-wrap agreements include:

  •  Present the terms in a conspicuous manner, so that the end user understands they are agreeing to a EULA. A hyperlink next to the “accept” button will usually be enough.
  • Require some affirmative action by the end user, such as clicking an “accept” button, typing “accept” in a form box, or scrolling the entire agreement before clicking “accept”.
  • Provide opportunity for the end user to save, copy, and/or email a copy of the terms.
  • Provide opportunity for the end user to decline the terms with a “decline” button. This button should be as conspicuous as the “accept” button.
  • Important terms should be highlighted in a way that is easy to recognize and still easy to read.

The Browse-Wrap:

Browse-wrap agreements are more passive notices of a EULA, but courts are still willing to accept them if they meet stricter requirements than click-wrap agreements. Generally, a browse-wrap agreement will appear as a hyperlink to the terms of use on a webpage, but does not require any affirmative action by the end user. Agreement to the terms is shown by the end user using the website.

Recent Examples

  • In Cvent Inc. v. Eventbrite Inc., Eventbrite was copying Cvent’s content, which was a breach of Cvent’s terms of service. However, the court found that the EULA was not binding because the terms were not conspicuous enough. The link to the EULA was only available on the homepage and buried among several dozen other links of the same size and color.
  • Compare the results of Cvent with Southwest Airlines v. Boardfirst, LLC. Southwest’s website allowed passengers to check in up to 24 hours in advance and obtain a boarding pass that indicates order of boarding the plane, and the website also had terms of use that only allow use of the website for non-commercial purposes. The terms were available via a small hyperlink at the very bottom of the homepage. Boardfirst was a service that Southwest passengers could use to obtain an earlier boarding position for his or her plane. When Southwest sued, the court held that Boardfirst has sufficient notice of the EULA by using the Southwest website.

Best practices for browse-wrap agreements include:

  • Place hyperlinks in a position that is in a highly visible area.
  • Place the hyperlink on every page of the website.
  • Make the hyperlink noticeable by changing the color or formatting of the font.
  • The hyperlink should directly open up to the terms of service.
  •  Important or unusual terms should be highlighted by a different color or formatting.
  • If a user is about to proceed with a transaction, ensure that the hyperlink is readily and very clearly visible before the user proceeds with the transaction.