Burden Shifting in Software Licensing Agreements

Customer information is exchanged more frequently with each passing day. As consumers expect to purchase goods more easily in our electronic economy, they also increasingly rely on businesses to protect their personal information. Businesses protect personal information by installing encryption and data security software. But compared to many other contracts, software licensing agreements greatly favor vendors, and software vendors draft them in a way that virtually limits all of their liabilities. As state legislatures have enacted a panoply of statutes to protect consumers, the reporting costs and added liabilities imposed on companies have increased dramatically. This situation squeezes businesses that hold consumer information because they now experience more regulation on one hand, while continuing to face licensing agreements that remove the possibility of meaningful relief on the other. To account this risk shift, courts should adopt the minority position regarding the failure of essential purpose doctrine when reviewing these agreements. This position would allow courts to use the doctrine to render limitations of liability unenforceable if the remedy provisions frustrate the contract’s essential purpose