Drafting a software user agreement: this is what belongs in it

Drafting a software user agreement involves precisely defining the right to use the software: for whom the license applies, for how many users or installations, what use is permitted and what is not, and what happens in the event of malfunctions, updates, or termination. Because you, as a supplier, commit to the scope of the right of use while simultaneously wishing to limit your liability, precision is important. Below, you will find the components that should be included and what you should pay attention to.

The short answer

• Parties and object: who is the supplier, who is the user, and which software falls under the agreement.
• Right of use: describe the license as a right of use, not as a transfer of ownership, with reference to Article 45j of the Copyright Act.
• Scope: define the number of users, installations, or seats and whether sublicensing is permitted.
• Restrictions: prohibit copying, modification, and reverse engineering, with recognition of the statutory decompilation exception of Section 45m of the Copyright Act.
• Maintenance and liability: rule updates, warranty exclusions, and a limitation of liability.
• Acceptance and data: ensure valid provision of the terms and conditions and, where necessary, a data processing agreement pursuant to Article 28 of the GDPR.

Drafting a software user agreement: key components

Anyone wishing to draft a software user agreement starts with the basics: who the supplier is, who the user is, and which specific software or version falls under the agreement. This seems self-evident, but with software offered in various editions or modules, disputes often arise regarding exactly what is licensed. Therefore, describe exactly which software, which version, and any modules or add-ons fall under the license, and how this changes upon an upgrade to a new version.

Next, state that this concerns a right of use and not a sale of the software. While Article 45j of the Copyright Act provides the lawful acquirer of a program with a legal basis to use the software for the intended purpose, that provision is of supplementary law: you may deviate from it in the agreement and further restrict or expand the use. Be explicit in this regard to avoid any misunderstanding regarding what the user is and is not permitted to do.

Right of use, scope of license and copyright

The scope of the right of use is the heart of the agreement. Specify:

• The number of users, seats, or installations for which the license applies.
• Whether use within a group or by group companies is permitted.
• Whether the license is transferable upon the sale of the user's business.
• Whether the user may modify the software, copy it for backup purposes, or sublicense it to third parties.

Additionally, explicitly state that all copyrights and other intellectual property rights to the software remain with the supplier. This prevents disputes regarding control over modifications, further development, or the use of source code elements outside the license.

Limitations, maintenance and liability

Include a prohibition on reverse engineering, decompilation, and disassembly. However, formulate that prohibition in such a way that it respects the statutory exception of Section 45m of the Copyright Act: decompilation may not be contractually excluded to the extent necessary to achieve interoperability with other software. A prohibition that disregards this exception is unenforceable to that extent.

Furthermore, regulate how updates and patches are delivered, whether a separate maintenance fee applies, and until when older versions are supported. Include a warranty clause stating what you do and do not guarantee regarding the functionality of the software, and explicitly exclude what you are not liable for, such as consequential damages or lost profits. Link this to a limitation of liability, for example, to the amount of the license fee for a specific period, with the exception of intent and willful recklessness.

Personal data, acceptance, and a practical example

If the software processes personal data on behalf of the user, for example customer or employee data in an accounting or HR package, the user agreement alone is insufficient. Pursuant to Article 28 of the GDPR, you must record agreements regarding processing, security, the use of sub-processors, and the deletion of data upon termination, often in a separate data processing agreement attached as an appendix.

Also consider the manner in which the user accepts the terms and conditions. In digital distribution, this often occurs via click-wrap: the user clicks "agree" before installation or use begins. The ordinary rules of Articles 6:233 and 6:234 of the Dutch Civil Code apply to its validity. Therefore, make the terms and conditions available in a timely manner, for example prior to the download, and give the user a reasonable opportunity to review them before agreeing.

A real-life example. A software company supplied a scheduling application to SME clients in the healthcare sector, in which schedules and employee data were processed. The first version of the user agreement lacked any reference to data processing. When a larger client had its purchasing department review the agreement, the deal was suspended until a data processing agreement in accordance with Article 28 of the GDPR had been added. That delay of several weeks could have been avoided by including the provision upfront.

Honest recommendation

For a simple internal tool with a limited number of users and without processing sensitive data, you do not necessarily need a lawyer. As long as you clearly define the scope of the license, limitations, and liability, and respect the legal exception for decompilation, you can often draft a basic version yourself using the components above.

Be sure to have the agreement drafted or reviewed when you are going to supply software to customers on a structural basis, when personal data is processed, or when the financial stakes regarding liability are high. An unclear limitation of liability or a missing data processing agreement can have major consequences as soon as a dispute or data breach arises, and by then it is too late to amend the text.

Want to know more or need help? Check out our page on a software user agreement, first read what a software user agreement is and discover when you can have one drafted.

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