An EULA specifies the terms under which end users may access and use software products. This playbook guides counsel through critical clauses on license scope, restrictions, warranties, and limitations of liability.
Why This Matters: Unbalanced indemnity or unlimited liability provisions can expose a party to excessive risk or leave it without adequate recourse.
Negotiation strategy
If you're the Licensor:
Ensure indemnification obligations are mutual and liability caps are reasonable. Include carve-outs for gross negligence and willful misconduct.
If you're the Licensee:
Negotiate for a liability cap that reflects the contract's value and ensure indemnification is limited to direct damages.
Essential elements
1
Indemnification Obligations
Mutual indemnity for breaches.
2
Limitation of Liability
Caps on damages and exclusions.
3
Carve-Outs
Exceptions to liability limits.
Action framework
ACCEPT
Propose edits if liability caps are too low or indemnity is one-sided.
EDIT
Reject clauses that lack mutual indemnification or reasonable liability limits.
ADD
Add language for carve-outs in high-risk scenarios.
PRO TIP
Always align indemnification and liability clauses with your company's risk management policies.
Example clauses
FAVORABLE
Balanced Indemnification Clause
"Each party agrees to indemnify, defend, and hold harmless the other party from and against any and all claims, liabilities, damages, losses, and expenses arising out of or in connection with any breach of this Agreement."
NEUTRAL
Standard Liability Cap
"The total aggregate liability of each party under this Agreement shall not exceed the amount paid or payable by the Indemnified Party to the Indemnifying Party under this Agreement during the twelve (12) months preceding the event giving rise to the claim."
UNFAVORABLE
Unlimited Liability
"Neither party shall have any cap on liability for any claims arising under this Agreement."
Fallbacks
High-Risk Projects
For projects with significant risk, consider increasing liability caps and including more detailed carve-outs to address specific risks.
International Contracts
In international agreements, ensure indemnification and liability clauses comply with local laws and consider currency fluctuations in liability caps.
Technology Transactions
For tech deals, include specific indemnities for IP infringement and data breaches, and consider higher liability caps for these risks.
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