Every time you’ve installed a piece of commercial software, you’ve invariably been presented with what must have appeared to be legal gibberish- a seeming difficult to read, needlessly long, solid block of text that was almost impossible to understand. Most people never bother to read the information presented- quickly scrolling to the bottom of the page, checking a box, clicking on “I Agree” or doing whatever it takes to get past this legal hurdle to access the software.
Despite the relative ease with which these legal terms are bypassed, or the wide range of names they are called (e.g., Terms of Use, Terms and Conditions, T&Cs, Terms of Service, End User License Agreement, EULA, etc.) these terms contain critical contractual language limiting your rights as a user of the software or service and granting rights to the use of your information and data to the software publisher, among a host of other conditions and limitations.
Terms of Use are your Playground Rules, placing users on notice upon entering your playground.
While this may seem like a nefarious or underhanded practice to take advantage of unwitting users, it is actually business critical for the software publisher to be able to prevent abuse of the software or service by malicious users, hackers, or even competitors. These terms also limit the liability for the business for claims that may be filed by the user of the software in ways that the business could never have anticipated.
Just as every business has different requirements that vary by size, industry, and region, software terms are not one size fits all, and should be customized to meet the specific service offering, secure the rights required, and mitigate the associated risks unique to the business model.
In this article, we will examine the various types of terms that should be included in a business’ terms of use to help setup the conversation you should have with your lawyer.
Playground Rules
As the business providing the software or services being offered, you are setting the “Playground Rules.” Your Terms of Use are your Playground Rules, placing users on notice upon entering your playground
Within the Terms of Use, you can spell out exactly what activities are prohibited on your website or platform. You can create a laundry list of prohibited practices, anything from use of profanity, multiple accounts, harassment of other users, etc. There are way too many terms that could be potentially included here to be discussed in detail, but it is sufficient to know that a social media platform would have very different terms from a personal finance management application.
At a minimum, it should allow your business to stop abusive users, terminate access or accounts at your sole discretion, and enforce restrictions and guidelines that you spell out in the Terms of Use. Users must follow your terms to access, use, and interact with your software or service.
Limiting Your Exposure
No matter how long you’ve been in business, users invariably find a way of surprising you with a confounding use of your software that you may never have anticipated. It’s baffling how these corner use cases often become the most litigious in their demands or claims when your software fails to continue meeting their needs.
A potential scenario follows. Your small business lead platform quietly becomes the default CRM for a statewide real estate agency that can no longer access closing contracts when your servers are offline for unscheduled maintenance. All of their real estate closings have to be rescheduled, loan rates are no longer valid, and the buyers are looking for blood.
While this may seem unreasonable in reliance, your terms of use can also limit the liability for your business for claims that may be filed by the user of the software in ways that the business could never have anticipated. A limitation of liability clause can easily set the maximum exposure for your business to the license fees paid by the user.
Your State, Your Laws
While electronic distribution over the internet or app stores lets you distribute your software offering far and wide, the last thing that you want for your business is to be dragged into court in some unfamiliar jurisdiction, with unanticipated state or country laws you are now subject to. You may strategically use your Terms of Use to contractually set out venue requirement in your home state and country and designate the governing law to be used in the event of a legal issue arising.
It may also be preferable for your business to require arbitration proceedings for any legal issue that arises with your users, rather than allow for litigation, as a cost saving measure.
Rights, Rights, Baby
For many software and service offerings, the information received from users (i.e., photos, written content, reviews, purchase transactions, behavioral tracking, and other data) serves as an essential element of your value proposition. But have you properly secured the right to the use of this information? For creative material, the copyright vests in the author and you will need to ensure you have been granted the right to the use of this material. Your Terms of Use is the vehicle to obtain a license to the use of any intellectual property that a user provides on your platform.
Terms of Use can allow a license to any IP a user provides on your platform.
Oftentimes, platforms with user-generated content tend to allow users to retain ownership to their content, but take a very broad license for the use of the material. This heavy-handed approach can cause customer satisfaction issues, as evidenced by the backlash Facebook and other content sharing sites have experienced when they expanded their rights to the user content. This license needs to be crafted for your specific business requirements to secure the rights you legitimately need to fulfill your platform objectives.
This information collection also raises the issue of privacy rights that is a topic in its own right and addressed in a separate article covering the usage of Privacy Policies.
User Generated Headaches
Many platforms allow for users to create content that is visible to other users on the platform or publicly. Often times this user generated content includes the ability for users to upload photos, audio, or video to make the content more engaging and attractive. The viral user video that got all the press for your platform? Turns out it included clips from Game of Thrones and HBO isn’t happy about the copyright infringement.
DMCA can provide a defense against user copyright infringement liability
Fortunately, you can provide a defense for your business from copyright violations your users may create by virtue of complying with the Digital Millennium Copyright Act (“DMCA”). The DMCA helps protect businesses and apps from having legal liability for any copyright infringement that takes place due to the actions of its users, if they follow the procedures required. While the DMCA is a United States law, other countries around the world have laws regarding copyright infringement.
In order to comply with the requirements of the DMCA defense to infringement, your Terms of Use need to include (a) clause that states you will take down/remove any material that turns out to be copyrighted if the violation is brought to your attention, (b) provide a method by which the third-party copyright owner can report a copyright violation, and (c) have a policy in place for responding to take down notices for violating material reported.
Unlawful Content
In addition to the copyright issues from user generated content, your business can still run afoul of content considered unlawful in any number of jurisdictions around the world. Many jurisdictions worldwide have laws restricting material that is considered hate speech, inflammatory, child pornography, graphic violence, depictions of abuse, and other material considered unlawful content. These interpretations vary widely in their scope and breadth.
Your Terms of Use can address this issue through a relatively straightforward clause restricting any unlawful content and stating your policy of removal of any such offending content upon review.
Summary
Hopefully, you have developed an appreciation for the benefits and risk mitigation measures springing from having a comprehensive Terms of Use tailored to your specific business requirements.
While not required by law, one of the greatest benefits to having an effective Terms of Use for your business is the intangible one from having clarity of your users on their expectations and responsibilities in using your software and services and will pay dividends in customer satisfaction.
You can learn more about terms of use and intellectual property protection by visiting this Intellectual Property Introduction page.
Feel free to contact Feras Mousilli at Lloyd Mousilli, LLC if you would like to discuss your terms of use strategy.
