Small business owners like me like to keep things simple. But in the digital age, that is simply not possible. 

Technology is forcing us to adapt. There’s a bunch of cloud software services that we need for our business like fintech. These software subscription services come with end-user license agreements (EULA) that are “take it or leave it” propositions. 

But not all agreements or contracts are created equal. There are sneaky clauses that you need to keep an eye on. These terms are tilted unfairly in favor of the provider. If something goes wrong, small business owners who don’t have the resources of corporate lawyers, are often left with barely the clothes on their back. 

First, there are three kinds of software contracts that we deal with.

1. Click-through licenses. These are terms and conditions (T&Cs) that you see when you install a software. They appear in little boxes in your installation window. You have to scroll down the T&C. Only then will the gray check box turn to color. If you don’t agree to the terms by clicking the agree check button, then you can’t proceed.  The “next” button will remain gray until you change your mind or pigs start to fly, whichever comes first. 
2. Then there are cloud computing contracts or T&Cs. This is common for Software as a Service or SaaS products. You don’t need to install anything on your PC or device. You just access the software or service any time you are online. Just like in click-through licenses, you have to agree by digitally ticking something off before you can proceed. 
3. End-User License Agreements or EULAs for hardware or devices. These are usually digital documents that pop up whenever you are using hardware for the first time. It could be a smart TV, game box, smartphone, or anything that connects to the Internet. You have to agree to the contract before you can play. 

In all of these cases, and, especially, in the third type, you have already purchased the hardware. You cannot return the product if you don’t want to accept the terms of the EULA. 

Merchants only accept returns when the product is defective, and in its original undamaged packaging. Buyer remorse doesn’t count.    

So whether you are installing an application, buying a product, or subscribing to an online service, pay attention to these contracts because they are legal documents with the full backing of the law. 

If you have to use a product, then be careful and read the EULA. You have to watch out for these six sneaky clauses:

1. Auto-renewal clauses

This is a painful one not only because of the costs. It’s extra painful because it is easily avoided. 

Some companies try to collar customers for a few more extra cash and a lifetime of hate. One way they do this is by inserting “auto-renewal clauses” in the terms and conditions. 

Remember those T&Cs that no one reads? These T&Cs are presented in barely readable type. Tucked away in some corner, buried under legalese is a clause that says you will be billed continuously until you explicitly state in writing, at least two months in advance, that you don’t want to continue the contract. It looks like this: 

“The term of this contract shall be one (1) year. This contract will automatically renew for additional one (1) year increments unless either party informs the other in writing at least ninety (90) days in advance that it does not intend to renew the contract.” 

You can only do this when the contract is about to expire. If you forget, then the contract extends automatically for the same length of time and amount of money. Get the ugly picture?

Small business owners are hands-on creatures. We do not have a team of lawyers pouring through every contract. 

We don’t have administrative staff who remind us when paper works need to be filed. 

We rely only on ourselves to keep everything organized. This means prioritizing the tasks with the most immediate deadlines, not projects that are months away. Things like this will certainly be missed.

Auto-renewal clauses are sneaky because:

1. Auto-renewal clauses hide the true deadline. You’d think both parties have fulfilled their obligations and will part ways satisfactorily after a pre-set date. 

Not so fast, says the other side. You are thinking about the wrong date because you should have informed us three months ago that you have no intention of renewing. So you are stuck with us for 12 more months.

2. The advanced notice is usually set too far ahead of time that it is subject to sudden changes that are hard to predict. 

A month is already a stretch. Anything more than a month is unrealistic. Customer behavior, legislation, natural disasters, or the next pandemic may occur without warning. 

You are suddenly forced to change your business or close down temporarily. You are then left with a big hole in your pocket where money flows out but none flowing in. 

3. Auto-renewal clauses are short-sighted and turn-off return customers. You can imagine the hate that these kinds of T&Cs breed. 

Customers who are forced to continue with a service they did not agree to just seethe with anger for months. The moment they are freed from the contract, they will never return, and rightly so. 

These wronged customers will undoubtedly tell their friends, colleagues, and industry peers about the injustice that was done to them. 

These companies may win in the short game, but they will not get too far in the long game.    

2. Watch out for “notwithstanding”

There is another sneaky term that providers insert into contracts. When you see the word “notwithstanding” that means anything that was discussed previously does not apply if the conditions currently being stated occur. 

So here you are, persevering reading through a long list of obligations the provider seems willing to accept until you come to the word “notwithstanding”. It’s time to pay attention.  

After “notwithstanding” will come a list of things that will exempt the other party from fulfilling commitments stated before the word “notwithstanding”. Pretty sneaky, eh.

Normal people, lawyers not included, would not use notwithstanding but instead say, “however, in spite of, despite of, in any case, nevertheless, even if,..” These are words that we encounter every day and we know what the speaker means. Meaning if I find these things, then forget about everything else. 

Usually, you see this as notwithstanding and subject to, notwithstanding the foregoing, notwithstanding section XX, notwithstanding the previous sentence. 

In short, notwithstanding are exemptions to the rules.

3. Intellectual property clauses

Anyone who creates art, photography, song, or poetry automatically gets ownership of said creative materials. 

For small businesses that contract artists or small creative firms, this is usually not a problem. Both parties, especially in the setting of a small town where everyone knows everyone, there is an understanding that the customer, in this case, the small business owner, owns the artwork. 

This goes without saying even in the absence of a contract. 

Not so, says the law. The artist still owns and retains the right to his art without his express willingness in writing to transfer the rights to you. 

This is the default law in the US, Canada, Europe, and most countries. 

It’s better to put this part in writing at the start rather than sue each other at the end. Make it very clear in the contract that you will get full ownership and all the rights that come with the artwork that you commissioned and paid for.   

I can be an inconvenience for small business owners. 

We are used to getting cost estimates, signing off, having the thing delivered, and paying for it. Is there a problem? We just refer to the details in the quotation. No-fuss about it. 

However, in the digital age where artwork can be viewed and downloaded from anywhere in the world, an artist may not appreciate seeing his creation used for things other than the intended purpose. 

To protect your business from such change of heart by your artist, better put everything in a written contract. Nope, a price quotation is not a contract. 

4. Data privacy clauses

Any software will generate a lot of data over time and with continued use. It could be about your company, employees, or customers. 

The big question is who owns this data. Of course, you do, being the client. 

We’ll that is not a sure ball. Not if it’s not included in the contract. 

You have to make sure that you explicitly state in the contract that any data generated from your use will remain your property, will not be used for other purposes, nor sold to a third party. 

There is also the subject of liability. Make sure that you are limited in your exposure or there is a cap on your liability. Revisit your insurance policy to check if they have you covered. 

You see, hackers are always on the prowl for vulnerabilities that they can use as their trojans. If hackers use your PCs to break into a bigger system, your company may be included in any resulting lawsuits.  Be sure you are not exposed to such dangers.

5. Forum selection clauses

Hope that nothing bad happens. But you have to think ahead. If a case is filed by either party, it should be at a venue that will not be prohibitive to show up. 

This is what a forum selection clause does. It binds the parties involved to an agreed venue in case of litigation.  Any legal dispute arising from the contract will be heard and resolved by this specific court that was both agreed upon by the contracting parties. It also effectively waives the right of the parties to seek a hearing in any other forum.   

A forum selection clause goes like this:

“Any dispute arising from this contractual relationship shall be governed by the laws of the State of California, and shall be decided solely and exclusively by State or Federal courts located in Los Angeles, California.”

So make sure that the forum selection clause is fair for both you and the other party. 

Neglecting to insert or negotiate on a legal forum to settle any future dispute will cause you one cracking headache. 

If you are provided a contract, the forum selection clause will state the default jurisdiction. 

Not only because this contract is furnished to thousands of customers. But the more ominous reason is to make the forum so inconvenient and costly to the other party that the last thing you will think about is a legal case. 

The cost of litigation is only one of the problems. You will also spend a lot of your time and energy going to the venue. You will be forced to get an attorney that may not be familiar with your business. And the jurisdiction may not be particularly favorable to your legal position.  

6. Foreign laws

Quickly following the subject of the forum selection clause is the governing laws of a specific country. 

Never assume that a contract will be guided by the laws of the country you are in. This is especially true for software subscription services where the provider may be located in another country. 

In case of trouble, you will quickly learn to appreciate the rights that you have as a citizen of your home country. 

Check, check, and double-check. The only reason you want to be traveling to another country is for business or pleasure, not litigation. 

Conclusion

It’s a busy world that we live in. It’s hard to find the resolve to read through oceans of legal jargon in size eight fonts. 

But at the very least learn to spot these tricky clauses. 

Scan the headings and learn to press the print screen on your PC or screenshot on your smartphone. Send them out to friends to get their opinion. 

The Internet is also a vast ocean of information that you can take advantage of. There is probably information that can give you more insight.  

Knowing where these legal blackholes lie in wait is the first step to avoiding them.

Go for legal advice on provisions or clauses favorable to your business that should be inserted in every contract that you enter into. 

You want the terms of payment clearly stated, for example. 

Another is the right forum for any litigation. Have these clauses drafted, on file, and ready for insertion in contracts provided by your suppliers. 

Of course, you should discuss these clauses with the other party.

Remember, anything that you sign, will be considered a legally binding contract. This is the same for software subscription services where you check the agree button. Avoid future problems by dealing with them now.

Read your EULAs.