How a Well Drafted EULA Saved A Lot of Money!

January 11, 2010

A recent case was dismissed before trial, as the terms of the end user agreement were so well drafted that as a matter of law it helped to resolve the main issue in the case. In Hayes vs SpectorSoft Corporation (dated November 3, 2009) the judge dismissed the entire case at the Summary Judgment stage (before they really got started) as he determined that the case did not need to go any further. 

What is the case about?

SpectorSoft makes Internet monitoring software (the kind of software certain employers, parents, and government agencies use to check on what others are doing on the web). In this case, a man’s wife and her sister installed the SpectorSoft software on his laptop computer and monitored his Internet usage, chat, etc. When the husband found out about the remote monitoring (probably part of a divorce proceeding) he sued SpectorSoft with pretty much everything his lawyer could come up with (violation of the Tennessee wire tapping statute, aiding and abetting, product liability (saying the product was inherently dangerous or defective) and negligence). Without going into a lot of detail and boring you to tears, the court correctly threw the case out at this early stage of the game, in large part because the end user agreement had very specific language which stated that the person installing the software had “explicit permission to install the software.”

So what can a company seeking growth venture capital learn from this case?
1) All end user agreements are not created equal. Make sure your end user agreement addresses all the unique issues of your business, technology and pricing. I have never seen this language in an end user agreement (and I am definitely not advocating adding it to your end user agreement), but in this particular case it addressed a unique feature of their technology (namely it monitors computer usage without the person knowing it). 

2) While there is a movement to commoditize contract creation on the web, be very careful. The form may be a good place to start, but not necessarily a good place to end up.

3) Someone should be responsible for your end user agreement. I suggest that someone at your company should be responsible for the end user agreement and its terms (i.e. someone needs to own this as a project). The end user agreement should be regularly reviewed based on any changes to your business model, technology and pricing. 
At the end of the day, this case can be quite useful for highlighting that your end user agreement terms matter! 

President and Shareholder

<strong>Jeremy Aber</strong> consults OpenView portfolio companies on legal and contract matters. Jeremy runs his own IT focused law firm, the <a href="">Aber Law Firm</a>, and has over 18 years experience in technology and corporate law.