Clicking “I Agree” Can Cost You Millions: What Indian Businesses Miss in Software Agreements
Software has become the backbone of business operations, but its careless use can introduce silent but significant liabilities. Proactive legal review and compliance strategies are no longer optional, they are essential safeguards for business continuity, regulatory alignment, and long-term commercial success.
Software are governed by legal terms set out in a licensing agreement, typically known as an End User License Agreement (EULA). This agreement defines the terms of use, restrictions, and responsibilities of both the software provider (licensor) and the user (licensee).
Most users accept these EULAs without reading them. While this may not cause issues for individual users, businesses operating at scale can face serious consequences for non-compliance. There have been multiple cases where companies were forced to pay large penalties, buy unnecessary additional licenses, or even halt operations due to violations of these terms. A closer look at some common clauses in EULAs shows why these risks are more than just theoretical:
- Auto-Renewals
Many software subscriptions operate on an auto-renewal basis. Businesses often subscribe to these tools and overlook the renewal terms. A common clause in many EULAs states that the subscription will automatically renew without any reminders, unless explicitly cancelled by the user. This can lead to unexpected charges and long-term financial commitments.
- Data Retention
Software providers often retain user data to fulfil legal obligations or improve their services. While this is generally limited to the duration of the license, some EULAs allow the provider to retain user data even after termination of the agreement. This can pose serious privacy risks and may violate the user's right to erasure, especially where sensitive business or client data is involved.
- Auditing Rights
Licensors use audits to ensure compliance with license terms, particularly that the software is only installed on the permitted number of devices. Most software does not have in-built controls to prevent overuse. EULAs may include audit clauses that allow the licensor to conduct remote or on-site audits, often without any prior notice. This catches many businesses off-guard and results in penalties or forced bulk purchases.
It is essential for businesses to identify and mitigate these risks, through legal diligence, risk analysis reports, and strategic advice. For businesses handling sensitive data or operating under regulatory oversight, ensuring legal compliance and data security becomes crucial.