The last decade has seen a significant global increase in standard software licensing. Previously, software was custom-made according to specific requests from entities and was sold directly by software companies to end users through specific agreements.

Recently, many types of custom-made software have been created for various purposes and the use of software has increased simultaneously. Consequently, the software industry has begun to licence much of the software that until now has been custom-made. When demand for software increased to the point where a large number of corporate employees required the same software, manufacture developed into mass production and standard software licensing began to flourish.

The software industry was compelled to introduce a new contractual form for software licensing. Custom-made software is expensive, since agreements must be drafted for each transaction. The standard software's licence price, however, could not support the costs involved in the creation of an agreement for each licence. In addition, as software is licensed and not merely sold, a licence agreement is necessary for every transaction. The industry considered adhesion contracts to be the most appropriate, aimed at copyright protection and clarification of consumers' rights.

An adhesion contract is a legally binding agreement between two parties, in which one has the bargaining power of writing the contract according to its standard ways of operation and submitting it for the other's approval. Such agreements are most commonly found in standardized contract form and offer goods or services to consumers in non-negotiable terms.

Signing the adhesion contract is the act that represents the 'manifestation of will' to enter the agreement and, according to Brazilian law, is one of the requirements for a contract to be deemed valid and enforceable. As standard software is sold in sealed packages through specialist stores, it was necessary for software companies to create a contractual form which need not be signed, but binds the end user before he or she uses the software.

The North American software industry presented a solution to this problem, namely shrink-wrap agreements. The main characteristics of shrink-wrap licences are as follows:

  • they are not signed by the end-user;
  • they are presented in the software packaging or on a document inside it;
  • the end user has no opportunity to negotiate their provisions;
  • the end user's rights are limited as to use of the software;
  • they seek to create a contractually binding situation between the end user and software creator; and
  • they bind the parties from the moment that the software package is opened or the software is installed in the computer.

Such agreements have the following advantages for the software industry:

  • they reduce the legal and economic risks to which software companies are subject by setting forth warranty terms and limitation of liability;
  • they establish general licence terms;
  • they establish developer's software ownership;
  • they limit possibilities for multiple users; and
  • finally, they constitute additional protection for the software companies, other than those established by law.

Although shrink-wrap licences are accepted in many countries, controversy rages as to whether they are legally binding agreements. In Brazil, the validity of shrink-wrap agreements has not yet been questioned before the courts and there is no legal disposition ruling this subject. However, provided that the licences fulfil certain legal requirements, they should be fully enforceable in Brazil.

Shrink-wrap licences must comply with the requirements of the Brazilian Civil Code concerning the legitimacy of the contracting parties and the form provided for or not prohibited by law. Article 104 states that the objective of the contract must be lawful, possible, defined or determinable.

Under Article 1079 contracts are deemed valid only where there is unequivocal, precise and complete manifestation of will from the parties. Thus, end users must be aware of the consequences of their actions when executing shrink-wrap licences. Where there is any doubt as to the opening of the package or the installation of the software, acceptance of the licence terms should not be enforceable.

Furthermore, such agreements must comply with the Brazilian Consumer Protection Code, Article 46 of which states that a contract which regulates consumer transactions is binding only if the consumer is fully aware of its contents before agreeing with it. This requirement is fulfilled if the content of a shrink-wrap agreement is available to the end user before using the software.

Under the new Civil Code, which is yet to be enacted, any provisions renouncing end users' rights will be deemed invalid if they are thought to be unreasonable due to the nature of the agreement.

Any potential pitfalls concerning the validity and enforceability of shrink-wrap licences in Brazil can be minimized by clarifying end users' manifestation of will as much as possible and providing end-users with the opportunity of acknowledging the licence terms before using the software.

For further information on this topic please contact Guilherme Carboni at Tozzini, Freire, Teixeira e Silva Advogados by telephone (+55 11 232 2100) or by fax (+55 11 232 3100) or by email ([email protected]).