How-to guide: Practical considerations when drafting end user licence agreements (EULA) (B2B) (UK)

Introduction

This guide outlines the key legal and commercial issues to consider when drafting a business-to-business (B2B) end user licence agreement (EULA) in the UK. It highlights the key points for both licensors and licensees to consider, ensuring end users understand their rights and responsibilities, compliance with applicable laws and protection of intellectual property. The guide is intended to assist private practice and in-house lawyers in preparing template agreements and when assessing third-party terms.

This guide covers:

Software licensing essentials
Typical EULA terms
Other legal and commercial considerations

This guide can be used in conjunction with the following How-to guides: How to draft and negotiate an exclusion and limitation of liability clause and Checklists: Ensuring a contract is valid, What to consider when reviewing or drafting a software licence agreement – B2B and Practical considerations when reviewing and negotiating a Software as a Service (SaaS) agreement from the customer’s perspective.

Note: This how-to guide does not cover boilerplate clauses common to most commercial contracts (eg, governing law, force majeure). For guidance on these, see above and the Additional Resources section below. It also references resellers but does not delve into reseller-specific clauses.

Section 1 – Software licensing essentials

Proprietary software is software owned by a business or an individual (the licensor). It is typically licensed rather than sold to an end user (the licensee).The licensee may be: (a) an individual; (b) a business; or (c) individuals within an organisation.

A software licence outlines the terms governing access, ownership, restrictions and permitted use of the software by the licensee. It often includes limitations of liability, protects the licensor’s intellectual property rights and provides legal certainty for the licensee as to the scope of the licence granted.

Software may be delivered in different ways:

traditional on-premise – installed locally on the licensee’s own system (eg, accounting software); or
software as a service (SaaS) – accessed remotely via cloud services (eg, CRM platforms such as Salesforce).

Software licences can take different forms, usually in the form of a software licence agreement or a EULA.

Both software licence agreements and EULAs grant permission to use software but differ in intended audience, complexity and scope. Typically, software agreements involve more complex terms and conditions (which may be the subject of negotiation between the parties) while EULAs are generally standardised, written in user-friendly language and often non-negotiable (see 1.1.2 below).

The ability to negotiate the terms of either a software licence agreement or a EULA will largely come down to the bargaining power of the parties, the commercial terms (in particular the amount of fees being paid by the licensee for the use of the software), if the licensee is subject to any regulatory requirements that it has no choice but to impose on its suppliers (in particular for licensees in the financial sector), and other relevant factors.

Software licensing is typically done by the following means:

a software licence agreement intended to apply to the licensee’s organisation in its entirety;
a software licence agreement that covers the key commercial and overarching legal aspects (often referred to as the ‘head licence’) but with individual EULAs also being entered into oraccepted by the licensee’s individual employees; and
a EULA – this is most common where the software being licensed is off-the-shelf, no negotiations are possible, and/or to smaller organisations.

1.1 Software licence agreements and EULAs

Deciding whether a EULA rather than a software licence agreement is the most appropriate form of agreement for the use of the relevant software is a matter of negotiation between the licensor, licensee and any reseller involved.

1.1.1 Software licence agreements

Software licence agreements cover a broad range of B2B commercial licensing scenarios including arrangements with resellers and institutions. These agreements:

are often based on the licensor’s standard software terms, and are more detailed than a EULA;
cover payment terms, support and maintenance; and
are frequently negotiated particularly where the licensee is subject to regulatory controls (eg, financial services firms requiring them to ensure suppliers have certain operational resilience measures in place) – see, How-to guide: The UK operational resilience regime in financial services.

They are usually entered into between the licensor and a licensee organisation, which contracts on behalf of its internal end users. A software licence agreement tends to set out the broad terms under which the software is licensed (and key negotiated terms), unlike a EULA which is usually geared towards the individual end user (and is usually non-negotiable). See Checklist: What to consider when reviewing or drafting a software licence agreement – B2B (UK).

1.1.2 EULA

A EULA is an agreement between the licensor and the individual end user. The end user in this scenario could be:

the licensee’s entire organisation;
individual employees using the software (such as those who need to use the software but who are not direct customers of the licensor); or
customers of the reseller (see Section 1.3).

Where a EULA applies to individuals within the licensee’s organisation, there is often also an overarching software licence agreement sometimes referred to as a ‘head licence’ that sets out in much more detail the scope of the licence, as well as general terms that govern all generic use of the software. By contrast, the EULA then focuses on day-to-day usage and intellectual property rights protection, typically in simpler, more user-friendly language.

If end users are individuals within an organisation, the licensee (in this case the organisation itself that is licensing the software) must ensure:

they accept the EULA terms before use of the software;
they understand that the terms are non-negotiable; and
they are not given unnecessary access to sensitive commercial details set out in the head licence.

If a reseller distributes the software (see Section 1.3), the licensor may still require a direct EULA with the end user even though the reseller usually facilitates acceptance on behalf of the end user.

End users are typically presented with the EULA at the time of purchase or during the installation of the software. They must accept the terms before being able to use the software (see Section 2.2 below). EULAs are usually non-negotiable (other than where perhaps the licensee organisation has sufficient bargaining power and/or good reason to have to negotiate the terms, such as for mandatory regulatory requirements) and end users must either choose to accept the EULA or not to proceed with installation and use.

A EULA is not normally appropriate where there are complex matters that need to be considered (such as global installation or use within the licensee’s company group), highly bespoke arrangements (such as integration with third-party systems) or high-value transactions, or the licensee has little to no oversight or control over end users.

Practical points to note:

Agreed variations to the licensor’s standard EULA should be recorded in writing, and version control put in place to ensure only the latest agreed terms are in use. Where multiple documents apply to use of the software, it must be clear which takes precedence. Licensees with sufficient bargaining power or good justification for negotiating changes will normally negotiate documents to override standard terms.
The licensee should also ensure that all the key details pertaining to the licence are set out in the relevant documentation, including key commercial terms such as fees, term, end user numbers or names.
Lawyers acting for licensees or end users should review EULA terms carefully to ensure compliance and avoid undue limitations or data access rights; for example, that the EULA does not unduly restrict the licensee’s intended use of the software, or grant the licensor undue access to or rights over data created, stored or shared using the software.

1.2 Considering the different types of EULA

Choosing which type of EULA (as opposed to the specific terms of the EULA) is the most appropriate will be a matter for consideration and negotiation between the parties, evaluating matters such as the type and nature of the software, how and when it is accessed by end users, as well as any other key issues.

The main types of EULA are typically classified by how users accept the terms, which is explained further below.

1.2.1 Shrink-wrap software EULA

Shrink-wrap software licences usually come attached to physical products (eg, provided in the form of a USB or disk). The terms of the licence may be:

printed on the packaging for the physical software;
provided inside the packaging for the physical product;
embedded within a ‘read me’ file on the software medium; or
displayed on-screen during installation, requiring acceptance before the physical software is installed on the user’s computer.

The end user is considered to have accepted the terms and conditions either on opening the package or once the software is installed. This can make it difficult for users to review the licence before making a purchase.

These licences were commonly used in the early days of software licensing, when software was usually delivered on a floppy disk, CD-ROM or USB stick or came pre-installed on a computer. They have become less common with the rise of digital distribution and cloud-based software.

Shrink-wrap licences present issues around enforceability given that users can only see the terms after purchasing the software. Best practice is to ensure that terms are clearly visible on the packaging or easily accessible online (and made prominent) so that the user can review them before being bound by them.

1.2.2 Click-wrap software EULA

A click-wrap software EULA is made available digitally (rather than a physical product) and the user must actively accept (eg, click ‘I agree’) before using the software. This presents fewer enforcement issues as users explicitly need to agree to the terms. Click-wrap licences are common for software distributed electronically, such as via a licensor’s website, a reseller’s online store or through a client portal.

1.2.3 Browse-wrap EULA

A browse-wrap licence differs from both click-wrap and shrink-wrap agreements. It is an online licence where users are notified of the terms either via a webpage (often buried in the footer of the page) or presented when the user is downloading the software (eg, downloading mobile applications). Whether users are deemed to have accepted the terms is questionable; users are notified of the licence terms and are deemed to have accepted them simply by continuing to use the software or website. There is no active acceptance of the terms and, as a result, these agreements are generally much harder to enforce and less reliable in legal terms. It is therefore advisable not to use a browse-wrap licence if possible, especially for high-value software or high-risk transactions.

1.3 Resellers

Software vendors frequently appoint third parties (resellers) to sell their software to customers. This may be for many reasons, including helping the licensor to enter new markets using the reseller’s local knowledge and customer relationships. The benefit to the reseller is that it normally receives a commission for any sales it solicits or can charge a mark-up on the software price to make a profit. A software reseller agreement between the licensor and reseller covers key terms such as payments, scope of the reseller’s authority, territory and brand usage rights.

In addition, the software reseller agreement will normally set out the details of any EULA (or other end user licence terms) that the licensor requires the reseller to put in place with its end user customers. This can either be:

the reseller passing on the licensor’s EULA to its customer; the customers then have a direct contractual relationship with the licensor. There is no direct relationship between the reseller and its customer about the use of the licensor’s software; or
the reseller may be able to use its own version of the EULA provided that it is substantially similar to the licensor’s EULA.

The process that is chosen will need to be clarified in the software reseller agreement. It is normally the reseller’s responsibility to ensure its end user customers agree to the licensor’s EULA, whether the customer has a direct relationship with the licensor or not.

In addition to redistributing the software, the reseller may also be bundling the software along with other products and services provided by the reseller, as well as implementation services, training and technical support for the relevant software.

Section 2 – Typical EULA terms

This section sets out the common terms found in a EULA. There is no one-size-fits-all or standard EULA. The specific terms will vary depending on factors such as the nature and functionality of the software, the licensor’s business model and internal policies, the target audience, applicable legal and regulatory requirements relevant to the software, and whether personal data is being processed by the software. When considering what to include in a EULA, the parties should consider any priorities, compliance obligations and user expectations. The following is a summary of the key subjects typically covered in a EULA. Noting the comments in section 1.2.3, this section does not cover browse-wrap licences.

2.1 Grant of licence

The grant of licence clause is possibly the most important operative part of the terms. It sets out how the software is licensed for use by the end user, as well as any use restrictions or limitations, and any limits on the reproduction or distribution of the software and geographic restrictions.

This should be set out very clearly so that the parameters of the licence arrangement are clearly understood and there is no ambiguity. This will help manage the relationship and assist in the event of a dispute.

2.1.1 Identifying the software

Clearly identify and define the software (including the version) that is being licensed for use. This may be easier with a shrink-wrap licence as the physical media on which the software itself is supplied will usually be wrapped within the box along with the EULA, or it will be set out in the ‘read-me’ file when first installing the software.

For a click-wrap EULA, the software may be referenced in the online terms that the end user is required to accept. Alternatively, the click-wrap EULA may apply to multiple software products of the licensor and might therefore contain a generic reference to the licensor’s software by referring to a link or a page on the licensor’s website. Either way, it is important to ensure that both parties are clear as to what software is being licensed and for what purposes it may be used. See Section 2.1.6.

2.1.2 Scope of licence and permitted use

EULAs are usually used for off-the-shelf software that is available to many users. They typically give the end user a non-exclusive licence, which means the licensor can still use the software themselves and license it to others.

The EULA may include other limits, such as allowing the licensee to use the software for internal business purposes only – not for selling or using it outside their organisation.

EULAs can sometimes state that only one person can use the software at a time. If the licence covers multiple users, it might limit how many people can use the softwaresimultaneously.

2.1.3 Identify parties

Clearly identify in the EULA the licensor’s name, address, registration number (if applicable) and country of incorporation. If the EULA uses broad reference terms such as ‘licensor’ or ‘us’ or ‘we’, it is important for both parties to have clarity on which entity is granting the licence and to whom queries should be directed. See also section 1.2 in Checklist: What to consider when reviewing terms and conditions for the purchase of goods and services (buyer’s perspective) – business to business (B2B).

If the EULA refers to any definitions from the head licence, take care to ensure that the licensor is in fact the same company specified in the head licence (or if it is an affiliate, this needs to be made clear, as well as the relationship between the licensor and the affiliate).

A EULA itself will not generally identify the end user by individual name or reference to the licensee’s organisation but typically by a generic reference to ‘you’. Specific user details – such as names or departments are more commonly set out in the main software licence agreement or head licence between the licensor and licensee, or the software reseller agreement may name the licensee or reseller, as well as individual user names or, more usually, a broad category of end user (such as ‘employees within the licensee’s Finance Department’, or similar). Responsibility for policing individual users is usually down to the licensee (and sometimes the reseller) and is normally set out in the head licence or software reseller agreement.

2.1.4 Territory

The EULA should clearly state where the software can be used – whether that is worldwide or only in specific countries. Sometimes, licensors limit use to certain territories only because they do not have the appropriate intellectual property rights within a certain country or because they have given exclusive rights to resellers to licence the software on its behalf in certain locations. It is important that the licensor, licensee and any resellers do not do anything that would breach these exclusive arrangements. The licensor may also want to exclude use of the software in certain territories that are subject to sanctions.

Since software is often installed on laptops that people take with them when they travel, it can be difficult to monitor and enforce these geographic limits on a practical level. From the licensor’s perspective, as well as including limitations on territory (if applicable), it may also want to include a clause requiring the licensee to occasionally provide proof that the software is being used within the permitted scope of the licence (territory or otherwise). This may involve the licensor being given limited audit and inspection rights, or an authorised officer of the licensee being required to provide sworn documentation to confirm that the licensee is operating in accordance with the EULA. Licensors are often flexible and may allow individual end users to access and use software outside a given territory for occasional travel – usually up to 7–10 days but this should be expressly set out in the EULA.

2.1.5 Sub-licensing

EULAs are seldom capable of being sub-licensed by the end user and are often expressly non-transferable.

The licensee should carefully check the terms (both of any head licence and the EULA) to ensure they have processes in place to prevent unauthorised sub-licences or transfers of the software. Internal procedures should address how to promptly respond to potential breaches by its end users.

The licensor will want to impose restrictions to ensure that the licensee or reseller ultimately remains responsible for any breach by end users (including any liability arising from unauthorised sub-licensing or transfer of the software).

2.1.6 Restrictions and prohibitions

A EULA is essentially a copyright licence (giving the end user consent to be able to do something with the software that would otherwise amount to copyright infringement). It is common to see standard provisions within a EULA that prohibit the end user from:

copying the software, other than to be able to use it for the purpose for which it was intended; for example, the licensee may need to keep back-up copies of the software for disaster recovery or business continuity purposes and this should be set out in the head licence/software licence agreement or EULA if required;
modifying the software or making alterations to it;
decompiling or reverse engineering the software (analysing the software to discover how it has been designed, its architecture or trying to identify its confidential and proprietary source code);
circumventing the software (to bypass technical or security controls in the software);
abstracting (or scraping) data from the software without permission;
testing or comparing software against competing software for benchmarking purposes, in particular publishing any benchmarking results; or
removing any copyright notices from the software or any copies of it.

Note, however, that, in the UK, section 296A of the Copyright, Designs and Patents Act 1988 renders void any prohibition on a permitted end user making a back-up copy of software if it is necessary for the agreed use or decompiling or reverse engineering the software if certain conditions are met.

The EULA may also prohibit end users from the using the software to infringe any third-party intellectual property rights or in relation to the conduct of any illegal activity.

The licensor will need to be clear about any restrictions and the licensee or reseller will also need to ensure they are aware of and will ensure compliance by end users with these restrictions.

2.1.7 Other end user obligations

To mitigate against the risk of unauthorised access or use, the end user may be required to regularly update the password to any system or equipment on which the software is installed and not to share the password with others. Although difficult for the licensor to oversee in practice, ensuring there are end user contractual obligations in the EULA means that the licensor can directly enforce these terms in the event it becomes aware of a breach of those restrictions.

2.2 Acceptance of terms

EULAs are not typically something that the end user has to physically sign. If acting for either party, consider how and when the terms of the EULA will be communicated to, and accepted by, the end user to record that a legally binding agreement has been entered into between the parties.

2.2.1 Shrink-wrap software licences

With traditional shrink-wrap licences (where software comes in physical packaging), the user is usually considered to have accepted the licence terms by opening the box. This is because the user has had a chance to read the terms printed on the packaging before buying or opening it.

Alternatively, if the software is installed digitally, the EULA might appear on screen often in the form of a ‘read me’ file during installation. In that case, the user typically has to click on an ‘accept’ button before they can finish installing the software and use it. Whether they actually read the terms is another matter. From the licensor’s perspective it is helpful to force the end user to have to scroll to the end of the terms before clicking on accept. While this does not necessarily mean that they will read the terms and is not a guarantee to show a legally binding agreement has been made, it is helpful for the licensor to be able to show that it has taken proactive steps to draw the terms to the end user’s attention.

However, if the end user did not see the EULA before paying for the software and when the contract between the parties was initially intended to be formed, it can be difficult for the licensor to be able to show that the terms of the EULA formed part of the contract and as a result whether the end user can be held to the EULA’s terms. This is part of the rules relating to general contract formation and enforceability and can be especially difficult when it comes to business-to-consumer contracts where a court is far more likely to determine that such terms are unenforceable against individual consumers. See Section 3.5

Due to the difficulties in knowing whether an end user has seen (and is therefore bound by) the terms of a shrink-wrap EULA, and the move away from providing software on traditional media, such as disks, to online links or portals, it is more common to use click-wrap licences.

2.2.2 Click-wrap software licences

With click-wrap software licences, the end user is usually required to accept the terms through a website or online link by clicking on an ‘accept’ button (ideally by scrolling to the end of the terms but this is not always the case in practice) before being able to use the software. The same issues apply as with shrink-wrap software licences.

An additional point to consider for click-wrap software licences is whether there is a broader agreement in place directly such as a head licence or a software reseller agreement between the licensor and licensee (or reseller). In these cases, the EULA might be entered into directly between the licensor and the individual end users, such as employees or contractors of the licensee. This creates a direct legal relationship (called privity of contract) between the licensor and those individuals, allowing the licensor to enforce the terms against them.

EULAs that sit under a head licence or software reseller agreement do not typically include commercial details like fees or contract terms. Those are normally covered in the head licence or the software reseller agreement or in an order form since individual users are not involved in negotiating those terms.

2.2.3 Authority to bind

Where end users are required to accept EULA terms on-screen or online, a key issue is whether the person clicking ‘accept’ has the actual authority to bind their organisation to those terms. Although the rules dealing with authority are outside the scope of thishow-to guide, both parties should think carefully about how this issue is handled in the head licence or software reseller agreement as well as in the EULA itself. If this is not properly addressed, there is a risk that a court could decide that no contract was formed because the person who accepted the terms did not have the legal authority to bind the company.

2.3 Fees and payment terms

As noted at section 2.2.2 above, licence fees or payment terms for use of the software (as well as any consequences for not paying the fees, including late payment interest and the right for the licensor to terminate) are not normally set out in the EULA itself, but in the head licence (or order form if there is no head licence), or where the licensor is using a reseller, in the reseller’s order form or agreement with its end user customers. Fees can be:

upfront fixed fees (regardless of the number of users or amount used) normally paid at the time of purchase; or
consumption- or use-based – for example, covering use up to a certain number of hours or up to a certain amount of storage incurred using the software, with different rates (discounted or increasing) applying if the hours exceed the maximum use.

The licensee should ensure that it is clear where the fees are set out and that the documentation covers this is sufficient detail, including when and how any price increases may be made. Additional fees may be payable by the licensee if use is extended beyond the scope of the licence itself.

2.4 Support, maintenance, training and documentation

The EULA itself does not always include details about the support, maintenance and training provided by the licensor for the use of the software. Instead, it might just link to the licensor’s website where those details are explained (if they are available). Alternatively, the licensee might need to sign a separate contract with the licensor for support and maintenance, which comes with extra fees – usually payable on a periodic, often annual, basis. Another approach is for the support and maintenance function to be serviced by the licensee’s own IT team.

2.4.1 Support and maintenance

End user support and maintenance under a EULA is often limited. It depends on the type of software and any alternative arrangements the licensee has made with the licensor about the type of support needed. Where support is provided, it may be expressed to be at the licensor’s discretion or limited to the licensor using its reasonable endeavours to provide support (and during business hours on business days only). The licensor’s support obligations may also be limited in time, for example, during the first 12 months of the licence and not on an ongoing basis. The licensee should carefully review any support terms to ensure these meet its expectations and requirements.

Often support and maintenance are only given to the licensee’s IT team, who are then expected to provide support and maintenance directly to the end users themselves. If so, the licensee must ensure that its IT function has all the information and training it needs to be able to do the job properly.

2.4.2 Training and documentation

Training is rarely included in a EULA. Users are often directed to the licensor’s website or customer portal to find training materials or user manuals. The licensee should ask the licensor to confirm what training resources are available for use and ensure they are easy to access. Note that there may be express provisions in the EULA that limit the use or access the licensee or end users may make of these resources (commonly referred to as ‘documentation’ in the EULA). For example, there may be limits on how many copies can be printed or downloaded and how they may be shared within the licensee’s organisation. The licensee should ensure that its end users are aware of any such restrictions.

Sometimes, licensees may contract separately with the licensor for additional consultancy and training services.

2.5 Intellectual property rights

Ownership of intellectual property rights in software licensed under a EULA will always be specified to vest in the licensor, with no rights (other than the rights specifically granted in the EULA or head licence, such as to access and use the software) being granted to the licensee or end user.

Similarly, if any documentation or training manuals are supplied for use with the software, ownership of the rights in this documentation or manuals will belong to the licensor. The EULA may, however, permit the making of copies of documentation or manuals by the end user to the extent necessary for their use of the software.

The EULA may contain the grant of a licence to the licensor in relation to content created or stored using the software. For example, particularly if the software is being used in conjunction with a cloud storage service, the licensor may require a licence:

to copy the licensee’s content, for the purposes of storing it;
to distribute it, to enable access by multiple end users; and/or
to create derivative works, so that the software can compress it, translate it or convert it into a different file format.

A licensee should ensure that any rights granted to the licensor to its content are limited to rights that are necessary to facilitate the licensee and its end users’ use of the software.

For clarity, a statement should be included in the EULA that ownership of any intellectual property rights in content created or stored using the software remains vested in the licensee or end-user.

The EULA may or may not contain warranties and indemnities dealing with third-party intellectual property rights claims or claims by the licensor for misuse of its rights. See Section 2.7.

2.6 Data protection

If use of the software will involve processing of any personal data by the licensor, this should be addressed in the EULA (and also in the head licence or software reseller agreement). The licensor is required by law to notify end users of certain information in respect of processing of their personal data, including the type of information that is being processed, the reasons for processing, what rights the end user has and how to make complaints or to contact the licensor. This is often set out in a separate privacy policy and not directly in the EULA. The EULA may contain a clause directing the end user to a link to its privacy policy. See How-to guides: How to ensure compliance with the GDPR and How to comply with data processing principles under the GDPR.

2.7 Warranties and liability

Warranties and liabilities in a EULA are typically very limited, particularly in relation to licensor liability. When acting for the licensee, it is important to carefully review the warranties and liability clauses. Even though EULAs are rarely negotiable, the licensee will need to be aware of any potential high-risk provisions. This helps the licensee to conduct an appropriate risk assessment and take steps (where possible) to minimise its potential exposure to claims, for example, by having clear internal policies and processes to ensure compliance with the EULA terms. The licensee should also consider whether any contractual risks trigger notification obligations under the terms of its insurance policy, particularly where the agreement involves unusually high liability or operational risks.

2.7.1 Warranties

A licensor will often seek to exclude any warranties from the terms (including terms implied by statute, to the extent allowed by law). Whether this is reasonable or not is outside the scope of this how-to guide but please see How to draft and negotiate an exclusion and limitation of liability clause.

What would be more reasonable (and standard) is for the licensor to warrant, at a minimum, that the software will meet any associated documentation or specification. This is because it is a fair expectation from the licensee paying for the software that it should function as the licensor claims it should.

However, any warranty is usually time-limited (often 30–90 days) as the licensor will not want its potential exposure under any warranty to be open-ended. It is also reasonable for a licensor to seek to reduce its exposure in this way as, once the software is installed on the licensee’s systems, to a certain extent it is out of the licensor’s control how it is used. The longer the software is out of the hands of the licensor, the more reasonable it is to expect the licensee or end user to assume responsibility for it.

The licensee or end user should also be careful not to invalidate any warranty. For example, if the EULA prevents the end user from modifying the software and it does so in breach of the EULA, the licensor may no longer be liable under the warranty.

It is unlikely that a EULA will include any warranties that the software is fit for the licensee’s or end users’ purposes. Software would commonly be sold on an ‘as-is’ basis (with the associated pricing reflective of that). The licensee should take all steps to ensure that the software meets its requirements before making any long-term commitment to the licensor – ideally by testing it during a short (ideally free) trial period.

2.7.2 Indemnities

It is unusual to see the licensor offer indemnities in a EULA because of the ‘as-is’ nature of the software and the associated fees reflect that.

However, the EULA may include an express indemnity from the end user to the licensor for any use or misuse of its intellectual property rights in the software; for example, sub-licensing without the licensor’s consent, or using the software for external commercial purposes when the licence limits to internal business purposes only, or for any other breach of the terms of the EULA.

Any licensee indemnity obligations should be carefully reviewed by the licensee. Even if these terms cannot be negotiated, it is important to understand them so that the licensee can take appropriate steps to try and mitigate the potential risks within its organisation, such as making sure the relevant team is aware of, and follows, the explicit EULA terms. This is important so as not to invalidate the terms of any indemnity (eg, the licensee may be obliged to promptly inform the licensor of any circumstances giving rise to a claim under the indemnity). If it fails to do so, the licensor may not be required to indemnify the licensee as the licensee is expecting.

2.7.3 Liability

As for indemnities, it is uncommon for the licensor’s liabilities under a EULA to be more than the fees paid for the licence (or a percentage of those fees). Liabilities may be addressed in more detail under the software reseller agreement or head licence.

The licensor will usually seek to exclude any liability for indirect, special or consequential losses, other than for the usual carve-outs, such as liability for death or personal injury resulting from death, or liability that cannot be limited by law. Liability clauses, including any caps, exclusions and carve-outs may be subject to the reasonableness test, which requires all terms of a contract to be ‘fair and reasonable’ and known to the parties at the time the contract was made. See section 3, Unfair Contract Terms Act 1977 (UCTA).

2.7.4 Events outside the licensor’s control

Events of force majeure (eg, natural disasters or major disruptions) are often excluded from the licensor’s liability under the EULA. Additionally, the licensor will usually seek to exclude liability for limited access to the software due to internet issues (especially the strength of the customer’s connection) or issues caused by third parties hosting the software as this is outside the licensor’s control and it may be unreasonable to hold them accountable.

Extra care is needed when entering into a EULA with an individual consumer (rather than a business) as statutory restrictions govern what liabilities are reasonable for an organisation to exclude as between it and public consumers. See also Section 3.5.

2.8 Term and termination

A EULA will often contain standard and very limited termination rights (often limited to allowing the licensor only the right to terminate). A licensee or end user should carefully review the termination provisions to understand when the licensor may be able to terminate. They should also take steps to ensure that they do not inadvertently breach the EULA resulting in termination of the EULA by the licensor.

2.8.1 Term

Depending on the nature of the software, whether it is shrink-wrap or click-wrap, and how the fees are structured (ie, one-off upfront, or annual rolling), the term of the EULA may be perpetual, or end automatically after a set period, or continue as long as the fees continue to be paid by the licensee. The term is normally set out in the head licence or software reseller agreement or order form.

2.8.2 Termination and consequences of termination

EULAs are typically one-sided; they often give limited rights of termination to the licensee or end user. The licensor can typically terminate the agreement (either immediately or with prior notice) if the end user breaches any of the EULA terms.

Ideally the licensee should be able to first remedy the breach before the licensor is able to terminate. If there is no such option, the licensee will need to ensure that it has robust procedures in place to ensure compliance especially if the relevant software is business-critical. Otherwise, a single breach by an end user could result in the licensor terminating the EULA as a result and the licensee is left without access to the software.

Once the EULA has been terminated, the licensee or end user will normally be required to:

stop using the software immediately; and
permanently delete all copies of the software from its systems or return it (if supplied on a physical media), along with copies of any documentation supplied with the software. The licensee may sometimes be allowed to retain copies for back-up or audit purposes but this will usually be very limited in time (usually no more than 30 days from termination) to enable the licensee to extract its data from the software and make alternative arrangements for how and where it is to be stored or used.

The licensee should ensure its organisation has appropriate policies and procedures in place to ensure that its end users can and will comply with these requirements on termination of the EULA.

Section 3 – Other legal and commercial considerations

3.1 Pre-requisites

Not all software is compatible with all operating systems, environments or hardware. Before accepting the terms of the EULA, the licensee or reseller should be made aware in advance if there are any pre-requisite conditions that need to be fulfilled for the software to work properly. This may include a minimum specification requirement, such as the need for hardware with minimum storage space and a compatible operating system or other technical conditions. Sometimes, the software may also need third-party programs to function correctly and in that case, it could also specify whether separate licences for third-party software are required for the software to perform.

Failure by the licensee or end user to meet these conditions is likely to mean that they will be unable to enforce the EULA against the licensor.

3.2 Updates to the EULA

Due to the constantly evolving nature of software, the licensor will want to update the terms of the EULA from time to time, to reflect industry or legal changes, updates to the licensor’s own business model or policies, or as a result of technological advancements. The EULA will usually include a clause that allows the licensor to make changes to the EULA from time to time, often on at least an annual basis. Practically, it is difficult for the licensor to have to send formal written notification to each end user especially if they do not have the user’s contact details.

Licensors commonly include clauses in the EULA that allow them to make changes to their EULA – updates are commonly posted on their website and for any continued use by the licensee or end user of the software to be deemed acceptance of the updated terms.

While it is preferable for the licensor to put the onus on the licensee or end users to have to check the licensor’s website regularly for updates, this approach can make it difficult for the licensor to prove that the licensee or end user was made aware of, and should be legally bound by, any updated terms. Note also that if the licensee has negotiated specific terms of the EULA, it must be made clear that any updated version is subject to those negotiated terms. The licensee may wish to make this clear in writing at the time it is negotiating changes to the original EULA.

From the licensor’s perspective, it is sensible to do everything possible to let end users know when the EULA has been updated. The clearest way to do this is for the licensor to send out a mailshot to end users (if it has their contact details) explaining the changes and making it clear that continued use of the software means they accept the new terms. If it does not have individual contact names, the licensor should take all reasonable steps to ensure any amended terms are drawn to the attention of the user (eg, putting a clear and prominent banner on its website and/or alongside any download link on its website).

3.3 Notices

As noted at Section 3.2, notices may often be posted on the licensor’s website with the responsibility placed on the end user to check regularly for updates.

However, for more formal notices, such as notice of termination or notice of breach, the licensor will require the ability to contact the licensee or end user directly. If the licensee has entered into a head licence for use of the software, it will normally be sufficient for the licensor to serve notice on the main licensee organisation, rather than individual end users. Notice requirements should be clearly set out in the relevant contractual documents including the head licence, software reseller agreement, order form or the EULA as necessary.

3.4 Publicity

If acting for the licensee, it is important to check whether the EULA includes a publicity clause allowing the licensor to name the licensee’s organisation as an end user of the software. The licensee may not want the licensor to be able to use its name (or any information about its end users) in this way or may want the licensor to have to seek the licensee’s prior consent before undertaking any publicity using its name or information.

3.5 Consumer end users

This how-to guide does not specifically address considerations for EULAs to be entered into with individual consumers. If drafting a EULA for use with individual consumers, the licensor will need to consider the impact of any consumer protection laws and ensure that the EULA appropriately addresses these. In particular, how and when the terms are deemed accepted by the end user need careful consideration to be binding and enforceable against the end user, and any exclusions or limitations of liability are subject to stronger protections in favour of the consumer.

If acting for a licensor who will be licensing software to individual consumers rather than business customers, it is advisable to seek expert legal advice from someone qualified in consumer rights and consumer protection.

Additional resources

Supply of Goods and Services Act 1982 (SGSA) (where goodsand services or just services are being provided)
Sale of Goods Act 1979 (SGA) (where only goods are being provided)
Unfair Contract Terms Act 1977 (UCTA) (business-to-business)
Contracts (Rights of Third Parties) Act 1999 (C(RTP)A)
Data Protection Act 2018 (DPA)
Data (Use and Access) Act 2025
UK General Data Protection Regulation 2016 (UK GDPR)