End-User License Agreements Imposing Legal Restrictions on Software

When copyright owners or stores sell works to the public, consumers generally have the right to do what they want with their copies. For example, someone who buys a book at a bookstore can read it, give it to someone else, or throw it away. By contrast, software companies almost always provide their products to users through a license rather than a sale. Since a license provides permission to use a product rather than ownership of the product, it allows software publishers to impose restrictions on how purchasers use their software. An end-user license agreement may require purchasers of software to use it for personal rather than commercial purposes, among other restrictions.

Under an end-user license agreement, the user may be required to use the software only on a certain computer or type of computer, at a certain location, or in a certain application. They also may not be allowed to share the software with more than a certain number of concurrent users, and they may not be allowed to transfer or sublicense the license without permission from the software owner. The license may prohibit the user from using the software on a computer network, modifying or copying the software, disassembling it, or reverse engineering it. In recent years, license terms have grown increasingly restrictive. If you buy software, you need to be aware of the terms of the license agreement and follow them.

Shrinkwrap and Clickwrap Licenses

Traditionally, end-user license agreements were printed on the back of a software package. A consumer would automatically consent to the terms of the agreement by breaking the shrinkwrap on the package. Sometimes these agreements were not visible on the back of the box but were contained on a sheet inside it. Either type of end-user license agreement was known as a shrinkwrap license. In modern times, a consumer usually buys software online and clicks to accept the conditions of the license before using the product. These licenses are known as clickwrap licenses. Shrinkwrap and clickwrap licenses both require the purchaser to waive certain rights under the Copyright Act.

Shrinkwrap agreement = a license to which a consumer agrees when they open software packaging
Clickwrap agreement = a license to which a consumer agrees when they click a button accepting terms and conditions while downloading software online

End-user license agreements are different from most contracts for the sale of goods because they are not negotiated between the buyer and the seller at the time of the sale. Thus, some legal scholars questioned whether they were legally enforceable. Most courts have ruled that they are valid, however, since a consumer can return the product for a refund if they refuse to accept the terms of the agreement. A federal law known as the Electronic Signatures in Global and International Commerce Act has specifically upheld the validity of electronic contracts.

Licenses for Non-Software Products

Other industries have noticed the success of software companies in controlling their products through the use of license agreements. A few non-software entities have tried to imitate this system. A museum prohibited visitors from copying material from its website, requiring them to waive their fair use rights, while a book publisher used a shrinkwrap agreement to prohibit consumers from reselling its books. Legal scholars have voiced concern about allowing non-software sellers to negate rights provided under the Copyright Act, but these situations have been unusual.

Last reviewed October 2023

Intellectual Property Law Center Contents