Want to learn more about drafting, negotiating, and understanding intellectual property and technology contracts and have 10 minutes to spare? Grab your morning coffee or afternoon tea and dig into our Tech Contract Quick Bytes—small servings of technical contract insights expertly prepared by our seasoned attorneys. This month we are talking about EULA agreements.
In the fast-evolving world of software licensing, mobile app, and software-as-a-service (SaaS) agreements, your end user license agreement (EULA) or end user customer agreement is more than a formality. It is a risk allocation tool, a compliance mechanism, and a foundation for customer trust.
The legal landscape around AI, data use, and digital contract enforceability has shifted rapidly in the past six to 12 months, making it critical for in-house legal teams to update their contract form. Below is a practical, updated guide to restructuring EULAs and end user customer agreements and incorporating recent legal trends and regulatory developments across U.S. jurisdictions.
EULA Structuring and Version Control
- Use role-appropriate agreements. Consider applying end user license or customer terms for individual end users and separate MSAs or SaaS agreements for B2B buyers, especially where license scope differs
- Maintain version control and auditability. Use document tracking and keep records of accepted versions—critical considering recent litigation over assent and notice
- Ensure enforceability through assent. Courts continue to scrutinize browse-wrap and embedded links. Use clear, conspicuous hyperlinks and click-wrap or dual-click flows for robust acceptance
- Address jurisdiction-specific terms. Incorporate governing law provisions and disclosures that account for differing state rules (e.g., CA, CO, UT)
License Grant and Restrictions
- Define license scope with precision. Scope? Include whether access is for internal use only, per seat, by region, etc. Match the language to your actual product delivery model
- Add explicit restrictions. Common examples include prohibitions on reverse engineering, circumvention, scraping, or use for competitive benchmarking
AI Licensing, Ownership, and Legal Compliance Usage
- AI-specific licensing. If AI-generated output is involved, clarify who owns it, what can be done with it, and whether it is for internal or commercial use
- Disclose AI use. Laws in Utah and Tennessee, by example, may require disclosure of AI-generated content
- Clarify use of customer data for AI training. State law(s), such as California's, may require transparency around datasets used for model training
- Define ownership of AI inputs and outputs. Address whether customer prompts, user-generated content, or resulting outputs are owned by the customer or vendor or are shared
- Limit reliance and define risks. Include disclaimers for hallucinations, bias, or errors in generative outputs, and require human oversight where necessary
- Comply with evolving state usage laws. Colorado (2024) and Maryland are enacting high-risk AI regulations
Data and Intellectual Property (IP) Protection
- Reinforce data ownership and permitted use. Make clear that customer data remains the customer's property, and define your rights to use it (e.g., for analytics or service improvement)
- Aggregate/anonymize responsibly. State privacy laws (e.g., CCPA/CPRA, VCDPA, CPA) require care in how data is anonymized or aggregated
- Preserve vendor IP. Use strong IP reservation clauses for code, tools, documentation, and any enhancements or learnings
- Feedback clauses. Secure broad rights to use customer feedback for product development
Service Levels Agreements (SLAs) and Support
- Clearly define SLAs (if offered). Provide objective metrics (e.g., uptime percentages) and remedies or credits. Include carveouts for planned maintenance and third-party failures
- Support scope. Distinguish between included support and premium tiers. Clarify response times and escalation paths
Security and Compliance
- Match commitments to actual practices. State security obligations in terms of "industry standard" or "reasonable safeguards," not hard-coded technical specs
- Prepare for audits and legal change. Build in flexibility to revise features or practices to comply with new privacy, security, and AI laws
- Vendor risk allocation. Limit liability for failures by hosting or infrastructure providers not under your control
Payment and Commercial Terms
- Autorenewal clarity. Comply with state laws that require clear notice of autorenewals and cancellation rights
- Suspension for non-payment. Reserve the right to suspend access before termination for operational leverage
- Flexible pricing adjustments. Allow for fee changes with reasonable notice at renewal or following regulatory-driven cost changes
Risk Allocation and Termination Clauses
- Customize liability caps. Align with deal value and carve out higher caps for core risks like IP infringement, confidentiality breaches, or data loss
- Use indemnities surgically. Vendors typically cover third-party IP claims; customers may be responsible for misuse, unlawful data handling, or prohibited AI use
- Allow for legal-based termination. Include clauses that allow exit if compliance with new laws makes delivery commercially unreasonable
User Experience and Enforceability
- Tie terms to user action. For enforceability, require affirmative steps (e.g., checkbox or "I Agree" buttons) that clearly reference the applicable agreement
- Evaluate the implementation. Work with product and engineering to ensure legal flows and user interfaces reflect the contractual structure
Closing Thoughts
Your EULA agreement should no longer be a "set it and forget it" template. The rise of AI, intensifying state-by-state regulation, and heightened scrutiny of digital contracting flows have reshaped what to monitor and deliver. Whether you are negotiating enterprise deals or publishing mass-market terms, a flexible, legally current contract foundation is necessary. We recommend annual updates at a minimum.
If you or your company would like to discuss drafting strategies regarding IP ownership terms, please contact A.J. Zottola.
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