End User Licence Agreement (EULA)

End User Licence Agreement: the rules of the game for your software

If you licence software, the EULA is what stands between your intellectual property and everybody who touches it. It grants the end user the right to use your software, protects what you own, and caps what you could be made to pay if something goes wrong.

A well-built EULA works whether you licence directly or through a reseller who sells on to the end user. It can be annexed to an order form or presented digitally with a click-accept button.

Who needs one

ISVs and software vendors licensing their product directly
SaaS and platform providers granting access to software
Resellers and VARs passing a licensor's EULA through to their customers
Anyone whose product ships without a signed agreement in front of it

The clauses that matter most

1. Licensee obligations and the shape of the licence

You grant a non-exclusive, non-transferable and limited licence. Each word earns its place: non-exclusive means you can sell the same licence to others; non-transferable means the licensee cannot pass it to another business; limited means it does not last forever.

The software must be used only for the licensee's business, and their staff must comply with the licence too. The licensee should provide you with an authorised contact, give your team reasonable administrative support where relevant, and follow your documentation, order forms, how-to guides and the rest. Security of their own environment is their responsibility.

2. Copies and modifications

Your software is most vulnerable in the licensee's hands. The EULA should prohibit reselling, leasing, modifying, decompiling, and using your software to build something similar.

You, meanwhile, can modify, update, improve and patch at any time — and incorporating your updates is one of the few changes the licensee is allowed to make.

Two carve-outs to know: the licensee has a limited statutory right to decompile or adapt for interoperability, and because they handle their own backups, they can make one copy for data recovery. Neither can be contracted away.

Jurisdiction note — the statutory rights you cannot exclude

UK: Sections 50A to 50C of the Copyright, Designs and Patents Act 1988 permit a lawful user to make a back-up copy, and to decompile or adapt where necessary for interoperability. Contract terms purporting to prohibit these are void.

Canada: Sections 30.6 and 30.61 of the Copyright Act provide equivalent rights for back-up copies and interoperability.

US: 17 U.S.C. §117 permits an owner of a copy to make an archival copy and adaptations essential to use. Reverse engineering for interoperability has been held to be fair use in a line of cases including Sega v Accolade and Sony v Connectix, though 17 U.S.C. §1201 (the DMCA anti-circumvention provisions) applies where technical protection measures are involved, with its own narrow interoperability exemption.

Drafting point: prohibit decompilation "except to the extent permitted by applicable law". A flat prohibition is unenforceable in all three and makes the rest of your clause look overreaching.

3. Intellectual property

State it plainly: you own all worldwide IP rights in the software, the documentation and any copies, and you are granting a licence, not selling anything. The licensee has no right to access the software in code form.

4. Indemnities

An indemnity is a promise to pay if an agreed situation arises. In a EULA they run in both directions, but not equally.

Your indemnity covers third-party IP infringement only: if someone brings a claim against the licensee because your software infringes their IP rights, you pay. That indemnity should be capped at a limit you set.

Their indemnity covers claims brought against you arising from modifications the licensee made. It applies whether or not proceedings are issued, carries no financial limit, and survives termination.

5. Confidentiality

The EULA protects both parties' confidential information. For you, that means the structure, code, design and licence keys of the product. It should also cover performance, functionality and reliability, so a licensee cannot publish benchmarks that damage your reputation. For them, it means their data.

6. Warranty

You warrant the software will work as described in your documentation, for a period you choose; 90 days is a common default.

The warranty should apply only where the software has been (i) installed correctly, (ii) kept virus-free, (iii) not modified, and (iv) used in line with the EULA. Anything outside those conditions is outside warranty.

The only remedies for breach should be refund, repair or replacement. You do not warrant that the software was built for the licensee's specific needs, nor that it will run uninterrupted and error-free, which is what protects you when a bug appears. On viruses and your own obligations, commit to commercially reasonable endeavours and no more.

Jurisdiction note — how to disclaim implied warranties

US: The UCC implies warranties of merchantability and fitness for a particular purpose. To disclaim them, §2-316 requires the disclaimer to be conspicuous, which is why US software agreements shout in capitals. It is not stylistic; it is the statutory test. Where you sell to consumers, the Magnuson-Moss Warranty Act restricts disclaiming implied warranties if you give a written warranty.

UK: Implied terms as to satisfactory quality and fitness for purpose can be excluded between businesses only so far as reasonable under the Unfair Contract Terms Act 1977. Against consumers, the Consumer Rights Act 2015 gives statutory rights for digital content that cannot be excluded at all.

Canada: Provincial sale of goods legislation implies similar conditions, and provincial consumer protection statutes restrict disclaimers against consumers. Quebec's Consumer Protection Act is the strictest, and the Charter of the French Language requires consumer-facing terms in French.

The practical point: a B2B EULA and a consumer-facing EULA are not the same document in any of the three jurisdictions.

7. Termination

A common structure: the licence runs for one year and auto-renews annually, with three months' notice to cancel the renewal. There should be no right to terminate for convenience; that leaves you financially exposed.

You can terminate if the licensee breaches and fails to remedy within 20 days, or breaches its payment obligations and fails to remedy within 30 days. On termination, the licensee must cease all use, uninstall and delete the software.

8. Liability

Exclude loss of profit, savings, goodwill and reputation, special damage, and loss or damage caused by third parties. Where you can still be liable, cap it at 100% of the annual licence fee. Personal injury or death from negligence, fraud, and other liabilities that cannot be excluded by law stay uncapped.

Jurisdiction note — will the cap hold?

UK: Reasonableness under the Unfair Contract Terms Act 1977 for business users; the Consumer Rights Act 2015 for consumers.

US: Unconscionability, plus UCC §2-719: a limited remedy that fails of its essential purpose can be struck, and the exclusion of consequential damages is unconscionable in consumer personal injury cases by statute.

Canada: The Tercon (2010 SCC 4) framework, with provincial consumer protection legislation overriding for consumers.

9. Payment terms

30 days from invoice date. Unpaid after that — and absent 10 days' notice that the invoice is disputed, interest accrues at a stated annual rate.

Jurisdiction note — interest

UK: 30 days matches the Prompt Payment Code; the statutory default absent a contractual rate is 8% above the Bank of England base rate.

US: Contractual, subject to state usury caps. No general federal rule applies to private contracts.

Canada: State the annual rate. Under s.4 of the Interest Act, a rate expressed for a shorter period without the yearly equivalent is capped at 5% per annum.

You should be able to amend fees on written notice where the licensee's own delays change delivery or performance dates, and to raise fees annually on 30 days' notice.

If you sell through a reseller and the reseller fails to pay you, you can suspend or terminate the end user's use at your discretion, with the licensee holding you harmless and seeking their remedy from the reseller.

10. Audit

Auditing is how you find out what is really happening with your software. On reasonable notice, you should be able to audit the licensee, and they should be obliged to keep accurate usage records. If the audit shows underpayment, they have 30 days to pay the shortfall plus the reasonable costs of the audit.

11. Acceptance and governing law

Jurisdiction note — making a click-accept EULA stick

US: Courts distinguish sharply between clickwrap (the user takes a positive step to accept, with the terms reasonably conspicuous) and browsewrap (a link in a footer). Clickwrap is routinely enforced; browsewrap frequently is not. Keep a record of who accepted which version and when. Choose a state's law and venue, and decide deliberately on arbitration and class action waiver, both common in US software terms and both heavily litigated.

UK: English law with exclusive jurisdiction of the English courts. Incorporation still requires reasonable notice of the terms before acceptance, and unusual or onerous terms must be brought pointedly to the user's attention.

Canada: Name the province. Several provinces restrict arbitration and class action waivers against consumers, and Quebec requires French-language consumer terms under the Charter of the French Language.

Frequently asked questions

What is the difference between a EULA and a SaaS agreement? A EULA licenses software the user installs or accesses; a SaaS or PaaS agreement governs a hosted service you operate. The risk profiles differ; hosted services need subscription, availability and data terms a EULA does not carry.

Does a click-accept EULA work? Yes, provided the user is genuinely presented with the terms and takes a positive step to accept them. US courts in particular draw a hard line between clickwrap, which is usually enforced, and browsewrap, which often is not.

Can a licensee decompile my software? Only within the narrow statutory rights for interoperability, ss.50A–50C CDPA 1988 in the UK, ss.30.6 and 30.61 of the Copyright Act in Canada, and §117 plus the fair use reverse engineering cases in the US. Draft the prohibition as "except to the extent permitted by applicable law"; a flat ban is unenforceable everywhere.

Why are US software agreements written in capitals? Because UCC §2-316 requires a disclaimer of implied warranties to be conspicuous. It is a statutory test, not a stylistic choice, and it does not apply in the UK or Canada.

What warranty period should I offer? 90 days is a common default, but it is your call; the tighter the conditions attached, the safer a longer period becomes.

How Cloud Contracts 365 helps

Cloud Contracts 365 builds your EULA from a guided questionnaire, licence scope, indemnity caps, warranty period, and audit rights set the way you want them, and keeps every version you have ever issued in one place. When a customer or reseller sends back a marked-up copy, the reviewer shows you clause by clause what changed and what it would cost you.