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Shrink-Wrapped Licenses

Written by Darrell Anderson.

Shrink-wrapped software licenses, often called end user license agreements (EULAs), are unenforceable as practiced.

A license is a social and legal convention whereby the lawful titleholder of property allows other people to use those resources without transferring title. Licensing is a sound principle but makes sense only when there is a meeting of the minds and the enjoined parties agree to the terms under which property may be used. Shrink-wrapped licenses prevent this meeting of the minds because there is no opportunity for discussion, nor negotiation, nor reading the agreement terms before exchanging consideration.

This is not to declare that software vendors do not have standing to declare basic copyrights or do not have standing to negotiate licensing schemes. However, they cannot pretend to have standing to enforce licensing agreements after a customer has exchanged consideration to use the product but never had an opportunity to read the EULA or negotiate.

When a titleholder and customer voluntarily agree to the terms for using property, then there are no reasonable limits to what can be negotiated between the parties. For example, a software vendor can stipulate that a customer can use the product for personal or commercial use, as long as end products created from using that tool are not used against the vendor. A software license agreement also can prohibit reverse engineering, much the same as the titleholder who leases a lawnmower can prohibit a customer from disassembling that lawnmower. Notice that a license agreement not to reverse engineer or disassemble does not prohibit a customer from trying to produce a better product based upon observation. Regardless, such usage restrictions must be foreclosed before a customer pays to lease a product, otherwise there is no meeting of the minds.

With shrink-wrapped software there is no opportunity for a potential customer to read the EULA before purchasing a product. Additionally, there is no practical method to bypass a software EULA when installing shrink-wrapped software. Although a customer previously paid to use the software, by design the installation procedure prevents a customer from installing the software without accepting the terms of the license. The only choice is to pretend to accept the EULA. One cannot read the EULA before buying the product, and one cannot install the product without accepting the EULA. This a classic Catch-22 situation.

If a customer should reject the terms of the EULA, the customer has standing to seek a return of the fee paid to use the software. However, typically such software is purchased from a third party, and those third parties typically implement policies refusing returns for any opened shrink-wrapped package. The reason is the third party wants to avoid the possibility that a customer opened the package and duplicated the package contents. Such an action would be similar to a customer buying and photocopying a book and then seeking a refund. Thus, the customer is left with trying to seek a return from the original vendor, often a lengthy and convoluted process.

There might be standing here for a civil suit, but why bother? Just select “I agree” and ignore the shrink-wrapped EULA because the EULA is meaningless. Neither party can prove intentions. Shrink-wrapped EULAs cannot stand as a true contract and are illusions.

Software that is downloaded from a web site is different issue. Almost always a potential customer is allowed to read the EULA before downloading that software and paying the vendor for services rendered. Under such conditions there is opportunity to negotiate and to be heard. There is the opportunity for a meeting of the minds. Admittedly, however, the vendor likely will refuse to negotiate. Additionally, such software typically is offered using the shareware distribution model, a marketing model promoting a “try before you buy” opportunity. Customers typically can install the software without payment, try the software during a specific period, and then later pay the vendor for services rendered. Such software often is programmed to be self-disabling after that period, essentially requiring the customer to then choose.

The difference between the two software distribution models is significant.

Some people might argue that many manufacturers reverse engineer the products of competitors, and do so often. True, but unlike software products, such products are sold with complete rights, not with licensed rights. With such products the customer becomes a titleholder, not a licensee. That difference is significant.

What can software vendors do who want to distribute software through third parties? The solution is simple, vendors must provide potential customers an opportunity to read the EULA before purchasing usage rights to that product. The EULA must be printed on the box in entirety, or must be posted in an obvious location for easy access. Printing an entire EULA on a packaging box often is impossible so perhaps vendors should print on the box an obvious good faith notice that the EULA is available for reading at the vendor’s web site, and that a customer should not buy the software until having an opportunity to read that EULA.

Software vendors who want to continue the current shrink-wrapped distribution model can have standing to enforce current EULAs only if they readily agree to refunds for customers who refuse to accept a shrink-wrapped license. Such refund information must be posted in a good faith notice on the shrink-wrapped package and must be an easy process to follow. Otherwise a software vendor offering software products through third parties using the shrink-wrapped license model has no standing for enforcement other than basic copyright protection.

Finis.

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