There
are various types of contracts, which are entered into for the
conduct of business. Information technology industry is also governed
various contract entered into between various parties.
Some
of the examples are:
·
Software
development agreements,
·
Non-disclosure
agreements,
·
Annual
maintenance agreements,
·
Consultant
agreements,
·
Employment
contracts,
·
Distributor’s
agreements,
·
Software
license agreement, which is the most common found agreement.
In
this article we will discuss “ End User License Agreement” popularly
known as “EULA”
All the contracts,
in India are governed by the provisions of the Indian Contract
Act 1872.We will not be discussing the provisions of the Contract
Act here but will discuss Software License agreement by which
the Software Developer e.g. developer of a software product (like
Microsoft) will give license to the user of such software. We
will discuss this industry specific contract. By the license
the developer retains ownership over the software and gives some
limited and specified rights to the user and prescribes restrictions
on use of such software.
HOW
EULA came in existence?
In the early days software development focused on the creation
of customised software for mainframe computers and other computers.
Contracts for this type of custom software were few, and involved
two distinct parties whose lawyers could discuss all the terms
of such agreement between them. This model changed when personal
computers and their accompanying software became mass-market items
and available off the shelf.
In
such market, the number of users increases by big numbers. The
software programmer and the user could not face to face for the
license negotiate terms. Thus the terms of such licenses had to
be standardised and concise. The software license agreement needed
to be presented to the customer in a fashion that would allow
for mass distribution of software, yet would draw the customer's
attention to the conditions under which the publisher offered
to allow use of the software The standardisation also arose because
of the provisions of the Copyright Act and other Acts in USA.
SHRINKWRAP
EULA
The most commonly
used EULAs are of the "shrink-wrap" or "break the
seal" variety types.
EULAs
in this form are printed:
·
On product
packaging,
·
A diskette
or CD-ROM container (such as an envelope or a plastic case),
·
A card
inside the package,
·
A page
of the user manual.
The
user is asked to "accept" the terms of the agreement
by performing a certain action designated on the package or in
the EULA, such as:
·
Tearing
open the plastic wrapper covering the box,
·
Breaking
the seal on the diskette container
·
Installing or using the software.
The
user can refuse to accept and enter into the agreement by returning
the software product for a complete refund.
CLICKWRAP
EULA
Software programmers
also have EULA via media other than paper. One popular method
displays the EULA on the computer screen the first time a user
operates the software. The user can then accept the EULA's terms
by pressing a certain key, clicking on a "yes" button
icon or by clicking “I Accept” icon or taking some other specified
action. This form of contract is popularly known as “Clickwrap
agreement”
Presenting
EULAs via the computer screen is especially important now that
more software is being distributed electronically through Internet
and other media. For this form of distribution, the EULA often
appears on the user's screen before the software is downloaded
to the user. If the user assents to the on-screen EULA (usually
by typing "yes" or "I accept," clicking on
an icon with similar words, or simply pressing the "Enter"
key), the user may install the software.
Some
features of EULA explained.
I.
It grants
normally a nonexclusive, nontransferable personal license to the
user by the software owner to use the software subject to the
agreement.
II.
It is
not a sale of Software. The licensee does not get rights as that
of the purchaser of goods.
III.
It prohibits
user to do certain things for example Reverse engineering, Decompiling,
making additional copies, renting, leasing etc.
IV.
The software
owner disclaims certain warranties.
V.
If the
terms of the EULA are not acceptable to the consumer then the
software product can be returned to the vendor and license fees
will be refunded to the buyer in case of off the self-product.
VI.
In case
of online media the license terms should be disclosed in advance
of a buyer's purchase of the product or service. In such case
of online EULA, the consumer if not accepting the terms will not
be required to make any payment.
A principal
concern for computer software producers is providing adequate
protection for their programs. Generally, software is written
by a programmer in source-code form, which is in a language understandable
by humans. Once the source code is completed, it is processed
through a compiler that produces the object code. The object code
is comprehensible to the computer on which it runs but not to
humans. Because of this unique way computer programs are created,
the programs are susceptible to "reverse engineering"
or "decompiling." The user of a program may take the
object-code version of the program and process it through a decompiler,
which produces a higher-level source-code version of the program.
Humans can with some effort, understand this source-code version.
Thus, the secrets of the software producer can be discovered
by anybody who is willing, or who has a financial incentive, to
go through the process of reverse engineering. As a result, software
producers include an express provision prohibiting disassembly
or reverse engineering in their EULA.
Warranty
Disclaimers
Vendors, through the use of shrinkwrap licenses,
seek to disclaim both implied and express warranties by including
a provision claiming that the program is provided "as is"
without any type of warranty. Other licensing agreements limit
the warranty for a specified amount of time, usually for ninety
days, one year, or both. These provisions will be subject to the
laws of land.
Shrinkwrap
License may broadly cover following provisions.
·
Product
name (the "Software")
·
Limited
Nonexclusive, personal License
·
Restrictions
on copying
·
No
Reverse engineering, Decompiling, making additional copies, renting,
leasing etc allowed.
·
Limited
Warranty
·
Limited
Remedy
·
No
Incidental or Consequential Damages
·
Termination
·
Entire
Agreement, etc.
·
General
clauses
·
Jurisdiction
Landmark USA judgements on the enforceability of Shrinkwrap
EULA.
The
Step-Saver Case: Shrinkwrap
License Held Unenforceable
In
the seminal Step-Saver case, a software vendor
made a number of sales to a value-added reseller (VAR).
In
the first transaction, the vendor sent the VAR a copy of the software
to try out. The trial copy was in the vendor's standard packaging
with shrink-wrap license terms.
The
court held that, in this first transaction, the shrink-wrap license
terms formed part of the contract and therefore the warranty-disclaimer
language was effective.
Subsequent
transactions between the vendor and the VAR involving the software,
however, were made by telephone order, with no pre-sale mention
of shrink-wrap license terms. The court held that in those transactions,
the shrink-wrap license terms did not constitute conditions to
the licensor's acceptance of the contract under UCC § 2.207(1),
but instead were proposed additional terms to a sales contract
under UCC § 2-207(b).
Thus,
the shrink-wrap license terms did not become part of the subsequent
contracts, and therefore the warranty-disclaimer language was
not given effect.
The
ProCD Case: Shrinkwrap
License Held Enforceable
The
U.S. Court of Appeals passed a different order
in
the ProCD case. ProCD, Inc. v. Zeidenberg,
This
case is particularly interesting in that the Court of Appeals
held that the shrinkwrap license at issue was enforceable under
the Uniform Commercial Code, and that the shrinkwrap license was
not preempted by the United States Copyright Act.
Some care to be taken.
The
courts in USA have in some landmark decisions have covered the
EULA mainly the Shrinkwrap type. Indian courts have so far not
considered this unique type of Contracts in any landmark case.
We are here discussing the way the industry is doing business
by using EULA.
Following
points may be kept in mind.
·
The Indian
Laws must be considered before drafting EULA. Blindly copying
draft of American EULA may not be a good idea in India.
·
Must
take enough care that the user had the chance of reading the terms
and then accepting the EULA in the way suggested.
·
While
packaging care must be taken to draw attention of the user to
the EULA.
© ZARANA KHONA
2000. e-mail:zarana@indiaitlaw.com
Electronic
Contracts
