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An EULA is an End User License Agreement, and is a license that grants a user the right to use a piece of computer software in a specific way. Usually, an EULA delineates the amount of computers a user can use the software on, how they can use the software, and any legal rights they are giving up by agreeing to the EULA.
An EULA may be presented with software in a hard copy form, usually as a piece of paper or a sticker on a sealed product. Often this type of EULA will be a more limited form of a longer EULA which is presented later, on the computer itself. Physical EULA of this nature are sometimes referred to as shrink-wrap licenses, because they are often inside a shrink-wrapped product. Since this means a customer can’t actually read the license until after they’ve bought the product, some legal challenges have been brought against this sort of EULA.
The more familiar form of an EULA is a software EULA, sometimes jokingly referred to as click-wrap, in reference to the hardcopy shrink-wrap licenses. Usually these licenses are presented when a software installer is opened. The user is given a digital copy of the EULA to read, and they must agree with the terms laid out in order to install the software.
In recent years, EULA have become more and more broad in the scope of rights they seek to claim for themselves. Modern EULA often seek to limit the rights of the user in copying the software, even for backup purposes, even though 17 USC 117 specifically grants that right to users. Companies claim they are able to do this because 17 USC 117 says that the owner has that right, and companies are claiming that they are actually just renting the software to the user, and so the user never becomes the owner, as such.
A number of EULA also seek to reduce the liability a company might have from a user suffering some sort of harm by using a piece of software. At its most basic, this is just saying that if a user misuses the software in such a way they are put in jeopardy, say by using a piece of chat software to break the law, the company that made that software is not responsible. At the next level, an EULA may claim that even if the software itself is faulty, such as with a piece of accounting software that rounds improperly, the company is still not responsible.
Precedent was set for upholding this sort of liability release in a fairly major case, M.A. Mortenson Co. v. Timberline Software Corp. The plaintiff was a construction company, and they used software from Timberline to prepare a bid. They later discovered the software led them to underbid by more than a million dollars and sued Timberline for a defective product. The judge affirmed an order of summary judgment, clearing Timberline of any damages.
The law surrounding EULA continues to evolve. It is a very sticky area, and many courts have disagreed at the lower levels. The Supreme Court has lain down very little precedent in the area of EULA, and when they intervene they tend to do so with great caution, leaving the entire realm quite gray.