Anatomy of an End User License Agreement

By Molly McDevitt

End User License Agreements (EULAs) are long, wordy and boring. Attorneys write them and read them. They are very good at it and, if you have any questions, you should address them with your company’s legal counsel. Always. Difficulty or boredom is not a reason to skip reading a EULA. You don’t need a secret decoder ring to understand them (although that would make it way more exciting). EULAs are a legal contract and, like most contracts, they have a structure and flow. Once you understand what you are looking for, reading a EULA is much less intimidating.

A EULA generally opens with a disclaimer of your rights. This section is often in all caps, because it’s important. It states that by installing the software you are accepting the terms and conditions set forth in the EULA, so maybe you better read it; failure to read a EULA is not a defensible position in an audit.

The EULA is structured into numbered sections. The first section is a definition of terms or words that will be used throughout the document. This gives the attorney-author and person reading the EULA a common language framework. The next section is usually the license grant: what you are allowed to install and use. Next, any use restrictions the grant might contain. This is where you will find language about auditing. Then there are the warranties, what the company will and will not do for you when you use their software, and often stating that you are using it ‘as is’. Most agreements end with legal language around what happens if you don’t use the software within the stated terms, what country or territory has legal authority should any dispute escalate to legal action, severability of the agreement, and company contact information. Yes, you need to read all of it, but there are key areas you should make sure you have a clear understanding of before you use any software. These key areas are often not given enough attention, and will become the focus if you are ever in an audit.

So what are the essential areas to understand your rights and obligations in the EULA?

Defining a computer. EULA’s will state if the software can be installed only on a physical device such as a desktop or laptop, or if the software can be run in a virtual space or on a server; if the software can be installed on more than one device per user at a time, and if the devices have to be different (e.g. desktop/laptop is okay, desktop/desktop is not); if the software can be run on a server, or if its license metric is based on the physical processors. For example, I have seen “use” stated as desktop/laptop, or primary/secondary where only one device can be mobile or virtual. If the software license use is by physical processor, the vendor may also publish a “processor value unit” list that you will need to reference to make sure you are being compliant, or it may just state the number of physical processors the license covers.

What use is the software license granting? If the software is named user, that means an actual person. If the software is concurrent or pooled use, that can mean a defined number of users accessing the software at one time, regardless of their being unique users. As an example, you may have five concurrent user connections granted, but one person has two instances open, so they are using two of the licenses granted.

Is there a geographical restriction on the use? There may be a territory defined, such as, “Only for use in North America.” Or it may be for use in the country where the purchase was made. If you work for a global company, you then may have to make multiple “in country” purchases to be compliant. Licenses can also be granted global deployment rights, but don’t assume that is the case. Make sure the language is clear. If you enter into an Enterprise Agreement (EA) that gives global deployment rights, make sure you know what the terms are, should you choose not to renew the EA. They are often different from the agreement you entered into, and may retract some of the rights you were paying for in the EA.

What is the term (time, duration) of use? Perpetual, Cloud, Subscriptions are all different. If you purchase a perpetual license then you can use it, well, perpetually. As long as it will run on whatever current operating system you are using, you’re good to go. Purchasing new licenses or entering into an “all or nothing” support agreement may negate the original EULA terms, so be sure you understand the changes before you buy. Hosted Cloud software is usually similar to Subscription licensing. You pay to use it, it identifies you by a unique ID, often email address, and if you don’t pay you can’t use it. Subscriptions are sometimes less straightforward. There is the standard Subscription license, where you generally pay a yearly fee and get access, upgrades and patches to the software for a year. If you don’t pay, your access is gone. But there is also Subscription software that comes with a “fall back” license. The software doesn’t cease to work if you stop paying, but it won’t be eligible for patches or upgrades, and often you can’t create new data, but only access what you have already created. Additionally, some vendors call maintenance or support, “subscription”. When you are buying a Subscription license, be sure you are clear on what it entitles you to.

All of the above information is true of “click-through” agreements, also. Although these are the most commonly ignored EULA. You see them come up when you are installing software, and it says “Click here to accept the terms of use,” or some similar statement. Read these. You can scroll through them on the screen (Some have a printable option, so that you aren’t reading them in a little window), or you can select all the text and copy and paste it into another program to read it, or go to the company’s website and look it up. Don’t click through and assume you know what it said!

Do EULAs change? Yes! It is a good idea to keep a library of EULAs, printed or in PDF format. EULAs are generally dated so you can track the changes through the lifecycle of the software you are using. If you have been running the same software at the same version for several years, and then purchase a new upgrade, you need to check the EULA again. You are buying a new license, and it may come with new terms. Some very popular software titles started out as free, and everyone loved them, but then the terms changed, and those titles were no longer free for commercial (business) use. They now need to be purchased.

Read EULAs regularly for changes. Read them for changes whenever you buy new, or upgrade existing, software. Read them.

About the Author

Molly McDevitt is the IT License Administrator for Mentor Graphics Corporation.