EULAs

This page considers end user licence agreements (EULAs) in relation to intellectual property.

It covers -

• introduction
• wrappers - clickwrap, browsewrap and other wraps
• issues - debate about using EULAs to restrict provisions in copyright law
• effectiveness - are EULAs enforceable?
• studies

It complements the discussion of online contracts and warranties in the Consumers guide elsewhere on this site.

     introduction

Delivery of much content in digital formats, whether online or via physical media such as CD-ROMs, has seen intellectual property owners resort to end user licence agreements (aka EULAs) that seek to bind consumers to conditions regarding use of that content.

Those conditions often encompass -

• viewing of the content
• copying of the content
• communication of the content (or of a copy) to another consumer

The EULA may be backed by ECMS (aka DRM) technology, with for example online validation of a copy, attempts to disable electronic copying and even printing, unique identification of content and automatic 'reporting home' via the net.

The EULA may involve a hardcopy statement or a written contract that is sighted by the user prior to accessing the content or purchasing the content. It may instead take the form of click-wrap or shrink-wrap (discussed in more detail here), with consumers taken in some instances to assent to conditions merely by opening a physical package or by clicking an online gateway.

Some EULAs are benign and may be quite informal. Others have attracted concerns for a range of reasons.

EULAs regarding content from particular rights owners have thus been criticised as seeking to use contract law to remove rights that are statutorily provided for consumers under copyright law. A leading example is the attempt in some EULAs to void fair use (fair dealing) provisions. There have also been attempts to comprehensively limit liability, evading consumer protection provisions in some jurisdictions. Restrictions may implicitly be anti-competitive and contravene legislation such as Australia's Trade Practices Act 1974 (TPA).

Critics have frequently noted that the wording of EULAs may be difficult to understand for anyone but a specialist in the jurisdiction of origin and that the formatting of the EULA (often expressed as closely-spaced upper case type in fine print) inhibits comprehension.

The following paragraphs consider use of 'wraps', discuss particular issues and consider the legal basis of some EULA claims. The latter is of importance given debate about whether particular restrictions are inconsistent with intellectual property law (or other law) and would thus not be recognised by an Australian court.

     wrappers

As noted in discussion elsewhere on this site, publishers, software developers and retailers have sought to bound use of their services and products - or merely reduce liability - through a range of a mechanisms that include -

• shrink-wrap
• click-wrap
• browse-wrap.

Some are seeking to use those mechanisms to protect intellectual property accessed online or in media such as CDs.

In considering those mechanisms it is important to recognise that contracts can be formed in Australian and overseas law without a witnessed signature, and indeed without any writing. It is also important to recognise that aspects of agreements, online or offline, may be found by courts to be unenforceable.

Shrinkrap emerged in the 1980s alongside personal computers, with a recognition that hardware/software developers and their agents could reduce costs and uncertainty by offering a 'take it or leave it' licence.

The consumer signals acceptance of that licence, which might include a warranty of problematical value, by opening the plastic used to seal a box containing software and documentation or by breaking a seal on the oyster case housing a CD-ROM. The detailed licence terms however might be inside the plastic and thus unreadable until the seal is broken.

In principle some jurisdictions have held that it is necessary to go further and actually install software or view/listen to the contents of the disk. In practice, as highlighted in exploration of consumer protection issues, many dealers have ignored such subtleties and simply refuse to issue refunds once the wrapper has been breached unless satisfied that the disk was defective when it left their hands.

Clickwrap appeared with the development of net-based electronic commerce, with publishers and others placing content behind firewalls for delivery over the web or by email.

Access to that intellectual property - which might be an audio file, a software upgrade for installation on a consumer's hard drive, an image file or text published by an online legal publisher or newspaper - is dependent on the user being alerted that there is a licence and then signalling consent by clicking an onscreen button (usually marked 'I Agree' or 'Agree'), rather than removing a polyethylene shroud.

Clickwrap has become one of the foundations of electronic commerce, experienced if you want to read the New York Times online, participate in online auction spaces such as eBay or simply accept the latest software upgrade from dominant vendors such as Adobe and Apple. It is consistent with Australian and overseas legislation such as the Electronic Transactions Act 1999 (Cth), discussed here.

Browsewrap is more contentious, involving assertions that merely visiting a web site binds the visitor to a licence set by the site operator.

Typically content on that site features a link to a separate page that features a licence agreement that purports to bind everyone viewing the content. In contrast to clickwrap, the viewer is not required to signal assent to the terms of that licence by clicking a button.

Depending on the architecture of a site and design characteristics the viewer may not immediately be aware that there is a licence for a site (eg may browse several pages without recognising the link or encountering the licence statement). The visitor might surf the site and/or download content without having to explicitly agree to the licence terms or even read those terms. The visitor might, of course, be a robot rather than a human (for example a bot that is systematically spidering sites on the web for inclusion in a search engine) and thus unable to make sense of restrictions on linking.

As noted below, that has resulted in arguments that browse-wrap licences are unenforceable because it cannot be shown that the user was aware of and positively assented to specific features of the licence.

     issues

Licencing of intellectual property or other assets is not innately wicked and enthusiasts for open source use mechanisms such as GPL. Proponents of EULAs justify them as an accepted and necessary business practice that is consistent with copyright law and with contract and trade practices law.

Most critics of EULAs have recognised that justification but instead expressed concern about use of licence agreements in ways that appear to restrict rights that are recognised in law or that feature provisions contrary to law (eg a requirement that you sell your children).

Concern centres on efforts to substantially reduce or eliminate statutory defences to copyright infringement (eg rights of unauthorised copying for the purposes of scholarship, reporting and criticism) and on the opacity of some licences, which one critic characterised as "unread, unreadable and often unenforceable". It also encompasses questions about privacy, with some EULAs involving waiver by consumers - on an informed basis or otherwise - of statutory protection for privacy.

Click, shrink or browse EULAs can purport to -

• prohibit decompilation and reverse engineering, contrary to statutory allowance for decompilation in certain circumstances
• prohibit any and all copying, including statements as sweeping as "You may not reproduce this site for any purpose whatsoever"
• limit particular uses, for example claim to prohibit use of software or data in the provision of commercial services by the user or by a third party
• prohibit 'export' of the content from the consumer's country of residence
• restrict use of the intellectual property to specific classes of users, for example bona fide students who have purchased an 'educational' version of software
• prohibit any citation of or linking to an online resource that is not behind a firewall
• authorise the IP rights owner/agent to install and use backdoors in operating systems or discrete copy protection software to "enforce" the rights, at any time, without notice and without liability
• restrict rental of disks and associated documentation (a restriction consistent with enactments that address the inadequacy of 'first sale' provisions) and prohibit lending through statements such as "You may not rent, lease, sublicense, or lend the Software", although it would be quite permissible to lend a book to a friend
• authorise periodic scanning of the contents of a personal computer and reporting back to an IP rights owner such as Microsoft
• prohibit transfer of the licence to a third party (ie stop you selling 'your' copy of the software, audio file or other intellectual property, a restriction that EULA proponents note is consistent with offline prohibitions on a user selling 'their' rental car or leased home improvement tools)
• prohibit editing or making derivative works.

EULAs typically also feature, or are associated with, warranties that seek to strongly protect the intellectual property owner and agents from action by the end user or third parties but often do not guarantee that the user will receive something that is 'fit for purpose'.

They generally specify the jurisdiction in which any dispute will be resolved. Some specify a particular court (which may be located overseas and in practice is thus unavailable to many consumers) or arbitration mechanism.

They may not be readily intelligible by many users and it has become a commonplace that many consumers simply ignore the legalese, click to signal agreement with unread terms & conditions, and hope for the best.

The Australian Digital Alliance, in a submission to the Copyright Law Review Committee, commented that

A very large proportion of licence agreements purport to override copyright exceptions or otherwise allow control of information that is contrary to public policy (such as controlling access to public domain material or inhibiting freedom or expression). Some licence agreements provide for usage conditions that are superior to those offered by the Copyright Act. These agreements are typically a function of the superior bargaining position of a particular agency or consortium and are not normally available to smaller institutions or consumers. The capacity of vendors and licenses to make these kinds of agreements should not be affected.

Most electronic licence agreements feature terms unilaterally dictated by the vendor, where the licensee has no opportunity to negotiate. ... Licence agreements (especially those backed by technology) are increasingly supplanting the Government's role in deciding information policy. They threaten to make the public benefit aspects of the Copyright Act redundant. If the legal primacy of licence is confirmed, vendors of copyright material will have no disincentive to insist upon ever greater control of access to and use of information.

Special protection for consumers of mass-market products may be warranted but there must be a more general response from Government to preserve the role of the Copyright Act as the prime instrument of Australia's information policy.

Current legal protection against 'unfair contracts' is not sufficient. It only serves to protect against highly unreasonable contracts rather than, for example, countering a general contractual practice which runs counter to public policy.

The most obvious solution to unfair copyright contracts is to make them invalid to the extent that are inconsistent with the copyright law.

Others have suggested that on occasion angst is attributable to misunderstanding of licencing and more broadly of intellectual property or to perceptions that digital = special.

It is clear that some people mistakenly believe that purchase of a disk gives them unrestricted rights regarding the content, ie they perceive that they have acquired outright ownership of the intellectual property rather than merely a licence to use the intellectual property (with the rights owners presumably making a living through busking or by sale of the plastic).

It is also clear that some people conceptualise digital content using the model of a printed book or gramophone record, accordingly experiencing discomfort regarding EULAs that seek to restrict lending, swapping or rental of electronic content. One student commented to us "if I can lend my textbooks to a poor friend and rent a video from the local store each night why can't I lend use of the software". In practice some people are 'lending' electronic content, in breach of particular EULAs, on the basis that they install/uninstall the software or simply do not get caught.

Finally, it should be noted that some EULAs are more restrictive than others. Many software developers, for example, allow a consumer to transfer the software to a third party (along with print documentation) subject to deletion of the software from the first consumer's machine and destruction of any backup disks.

     effectiveness

Are clickwrap-based intellectual property restrictions - and more broady click and shrink agreements - effective?

Australian and overseas law does not prohibit electronic agreements, which are recognised in statute law and common law. It similarly does not prohibit click-wrap and shrink-wrap. As noted above, there is pervasive use of those mechanisms on the web and in distribution of software, encyclopaedias, movies and other content on disk.

However, aspects of some licences are likely to be unenforceable. There has been very little case law in Australia, including testing of suggestions that 'take it or leave it' mechanisms are so onerous as to void any agreement, and so there is doubt about potential outcomes if action was taken for breach of the licence.

The enforceability of browse-wrap restrictions is problematical. Can you be held to restrictions beyond the copyright law of your jurisdiction if you are unaware of those restrictions and have been able to use a site without passing through a gateway that is unlocked by button signalling consent?

Critics have commented that restrictions in some jurisdictions cannot be enforced, pointing for example to authorisation of decompilation in specific circumstances under Australian copyright law and under the 1991 European Union Software Directive. They have noted that the Copyright Act provides defences for infringement in relation to copying for purposes such as scholarship, criticism, news reporting and even parody.

Others have referred to the Australian Trade Practices Act 1974 and the New Zealand Consumer Guarantees Act 1993, with expectations that consumers who purchase from local businesses will be protected from misleading and deceptive conduct or unreasonable restraint of trade.

Others still have commented that much of the debate about EULAs is about resource allocation.

Universities, for example, licence legal databases such as Westlaw or LexisNexis and online journal collections from a handful of global publishers. Those licences typically restrict access to registered staff and students, in some instances to a specified number of students. The institutions are not permitted to share access with other organisations (for example municipal libraries) and ordinary members of the public - because unregistered - do not have access to the electronic publication, although in the past they may have been able to graze the stacks at that institution.

     studies

Works of interest include Debora Halbert's 2003 'The Open Source Alternative: Shrink-Wrap, Open Source and Copyright' article in 10 Murdoch University Electronic Journal of Law 4, John Adams' 2004 Digital Age Standard Form Contracts Under Australian Law: 'Wrap' Agreements, Exclusive Jurisdiction and Binding Arbitration Clauses' in 13 Pacific Rim Law & Policy Journal, Graham Greenleaf's article 'IP, phone home: The uneasy relationship between copyright and privacy' in 32 Hong Kong Law Journal (2002) 2, John Burke's 'Reinventing Contract' article in 10(2) Murdoch University Electronic Journal of Law (2003) and submissions to the Australian Copyright Law Review Committee such as the ADA document noted above and ALIA's comments on library licencing.

A selection of EULAs is here.

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