How a Well Drafted EULA Saved A Lot of Money

Short answer: a well drafted EULA can end a lawsuit before it ever reaches a jury. In Hayes v. SpectorSoft Corporation (E.D. Tenn., November 3, 2009), the software maker won summary judgment and walked away from the case, and the way the end user agreement was written was a big part of why. That EULA case dismissal is the whole point of getting your end user agreement terms right.

I represent software and SaaS vendors, literally 100s of them, and this is the case I point to when a founder asks why the end user agreement actually matters. Here is what happened and what you should take from it.

What the Case Was About.

SpectorSoft made internet monitoring software, the kind employers, parents, and (as here) a suspicious spouse use to watch what someone does online. A man’s wife and her sister installed SpectorSoft on his laptop and monitored his web usage, chats, and messages. When he found out, likely during a divorce, he sued SpectorSoft under the federal Electronic Communications Privacy Act and the Tennessee Wiretapping and Electronic Surveillance Act, and he added product liability, negligence, and aiding and abetting claims for good measure.

Why the EULA Won the Case.

Judge R. Allan Edgar of the Eastern District of Tennessee dismissed the entire case at the summary judgment stage. Under the ECPA, Hayes had to show that SpectorSoft acted with the conscious objective of causing an illegal interception. He could not. A big reason was the EULA: the software could only be installed after the person installing it agreed to language confirming they had explicit permission and authority to monitor that computer. The vendor built consent into the product itself. So when a user broke that promise, the misuse sat with the user, not the maker. (Tennessee is also a one party consent state, which did not help the plaintiff either.)

The clause that saved SpectorSoft was not boilerplate. It was written for how this product actually gets used and who is responsible for that use. Specific consent language, drafted for your real use case, is what turns your EULA from decoration into a defense. That kind of term only lands in your agreement if someone puts it there on purpose, which is usually a job for a lawyer who drafts software licenses for a living.

Three Takeaways for Software Vendors.

• All end user agreements are not equal. Make sure yours addresses the real issues of your business, your technology, and your pricing. A clause that maps to how your product is actually used is the one that protects you.
• A form is a starting point, not a finish line. There is a strong push to commoditize contracts online. A template can get you going, but it rarely accounts for the consent, authority, and misuse questions that decide cases like this one. See how to write better EULAs and SaaS agreements for the drafting habits that matter.
• Someone has to own the EULA. One person at your company should own the agreement and keep it current as your business, tech, and pricing change. An annual tune up of your EULA or SaaS contract is the cheapest insurance you will ever buy.

EULA or SaaS Agreement.

One more thing this case raises: are you even using the right kind of agreement? If you deliver installed software, an EULA fits. If you deliver a hosted service, a subscription agreement usually fits better. I walk through that choice in SaaS agreement vs. software EULA: which template do you need. Either way, the lesson from Hayes holds: the specific terms are what protect you, not the label on the document.

If you want a second set of eyes on your terms, that is exactly what a software attorney does, and you can read a little about my background before we talk. Trust me on this one: the hour you spend on the consent and authority language is the hour that saves you the lawsuit.

Frequently Asked Questions.

Did SpectorSoft win the Hayes case?

Yes. The court granted SpectorSoft summary judgment on November 3, 2009 and dismissed all of the claims, including the ECPA and Tennessee wiretapping counts.

Why did the EULA matter to the outcome?

The software required the installer to confirm they had permission and authority to monitor the computer. That built-in consent helped show the vendor had no intent to cause an illegal interception, so the misuse by the ex-spouse did not land on SpectorSoft.

Does a EULA protect a software company from how customers misuse the product?

Not automatically. It protects you when the terms are specific to your product and use case, the way SpectorSoft’s were. Generic boilerplate is far weaker, which is why the drafting is the whole game.

Do I need a EULA or a SaaS subscription agreement?

Installed software generally fits a EULA; a hosted service generally fits a subscription agreement. The choice changes which terms carry the weight, so it is worth getting right up front.

I hope this helps.

Resources:

• SaaS Agreement vs. Software EULA: Which Template Do You Need?
• How to Write Better EULAs and SaaS Agreements
• Annual Tune-Up for Your EULA or SaaS Contract
• Software Licensing Attorney

Disclaimer:

This post is for informational and educational purposes only, and is not legal advice. You should hire an attorney if you need legal advice, which should be provided only after review of all relevant facts and applicable law.