Limitation of Software Developer Liability: What Risks Can Be Addressed in an EULA

A user lost data after an application update, was unable to complete a payment due to a system failure, or relied on the software’s output when making a financial decision. Even if the EULA contains a comprehensive disclaimer of warranties and liability, this does not mean that the developer is protected against claims.

A license agreement allows the parties to allocate certain risks, describe the intended purpose of the product, and establish a limit on compensation. However, the outcome depends on the wording, distribution model, and applicable law. A provision stating that “the developer is not liable for anything” may be considered unfair or invalid, particularly in a consumer contract. An effective EULA establishes predictable limits of liability and connects them to how the software is actually used.

Limitation of Liability Does Not Eliminate the Developer’s Obligations

The developer remains responsible for its own contractual commitments, mandatory legal requirements, and harm that cannot be excluded by agreement. An EULA may affect the amount and types of contractual liability, but it does not release the company from all consequences of software defects.

Freedom of contract is more restricted in consumer relationships. A user may retain rights to have a defect remedied, obtain a price reduction, terminate the contract, or receive a refund regardless of the wording of the license. Unfair terms do not become binding merely because the user clicked an acceptance button.

For B2B products, the parties generally have greater flexibility in allocating risks. However, a corporate client often proposes its own agreement in which warranties, indemnity provisions, and liability limits differ significantly from the public EULA. In such a case, the order of precedence between the documents should be expressly established.

What Risks Can Be Allocated in an EULA

A single liability section does not address every issue. Each risk requires an appropriate contractual mechanism.

This allocation helps connect each risk to a specific provision. A general statement that the software is used at the user’s own risk does not explain what happens in the event of a subscription failure, data loss, or discontinuation of support.

How to Establish a Liability Cap

A liability cap determines the maximum amount that a user may claim under the agreement. The cap may be expressed as a fixed amount, payments made over a specified period, or the price of the license.

For a free application, limiting liability to the amount of fees paid effectively creates a zero cap. In a consumer contract, such a result may be treated as a complete exclusion of liability and may be unenforceable. It may be more appropriate to establish a separate fixed amount or specify the categories of claims to which the limitation applies.

For a paid subscription, the user’s payments over the previous 6 or 12 months are often used as the basis. For a one-time license, the price paid for the purchased version may serve as the reference point. The choice should take into account the price of the product and the potential harm. A EUR 10 cap for software that processes financial transactions is unlikely to appear proportionate.

Define the Basis of Calculation

The term “payments under the agreement” should clarify whether it includes subscription fees, in-app purchases, taxes, refunds, and platform commissions. If payment is processed through an app store, the developer and the user may interpret the amount considered received differently.

For a family or corporate license, it should be specified whether the cap is calculated per account, per individual user, or for the entire organization.

Choose the Period

For subscriptions, the cap may be linked to payments made during a specified period preceding the event giving rise to the claim. If the agreement remains in effect for several years, limiting liability by reference to all payments made throughout the entire term may result in liability that is disproportionate to the current value of the service. For a new user who has not yet made a full payment, a minimum cap should be considered. Otherwise, the calculation may again result in an effective exclusion of liability.

Distinguish Between a Single Event and Aggregate Claims

The agreement should specify whether the cap applies separately to each claim or to all claims arising during a specified period.

Several failures may result from a single technical cause, while one error may give rise to claims on several different grounds.

If an aggregate cap is used, its applicable period and the rules for grouping related events should be defined. Otherwise, the parties may dispute the amount of liability only after an incident has occurred.

Establish Exceptions to the Cap

Certain claims may be subject to a separate cap or excluded from the limitation altogether. In practice, intentional misconduct, gross negligence, death or personal injury, breaches of confidentiality, and intellectual property claims are often considered separately.

The scope of the exceptions depends on the applicable law and the product model. An EULA should not mechanically reproduce a B2B agreement in which the parties have agreed to broader indemnity obligations and a separate higher liability cap.

Align the Cap with Other Remedies

The liability cap should be reviewed together with refunds, service credits, warranties, and termination rights. If the user has already received a refund, the EULA should explain whether that amount is taken into account when calculating further compensation. The developer should also determine whether a particular remedy is exclusive. Such a provision is effective only to the extent permitted by law.

Can Indirect Damages and Loss of Profits Be Excluded

EULAs often exclude indirect, incidental, special, and consequential damages, as well as loss of profits, revenue, data, and business opportunities. Transferring this English-language formula into an agreement governed by another legal system does not guarantee the expected result.

Different legal systems distinguish between direct and indirect losses differently. Loss of profits may be considered a remote consequence in one situation and a direct result of the breach in another. A simple list of terms is therefore not sufficient.

It is useful to identify specific categories of losses in the agreement and connect them to foreseeable scenarios. For example, the developer may exclude liability for a decision made by a user on the basis of an automatically generated report if the product is expressly not intended to provide professional financial, medical, or legal advice.

Such a limitation must be consistent with the product’s marketing. If the website promises accurate investment recommendations, the EULA cannot convincingly characterize the same product as an informational tool whose outputs should not be relied upon.

How to Allocate Liability for Data Loss

A statement that “the developer is not responsible for user data” is too broad if the software itself stores, synchronizes, or backs up information. The EULA may specify which data is stored locally, which is transferred to the cloud, and how long backups remain available. The user may be required to independently export critical materials if such functionality actually exists and is easy to locate.

The developer may limit liability for data loss caused by the user’s actions, malfunction of the user’s device, or a third-party service. However, such a provision does not eliminate liability for the developer’s own synchronization errors, promised backup functionality, or inadequate infrastructure security. Obligations under the GDPR and other personal data legislation cannot be excluded by an agreement with the user. The EULA governs contractual claims, while a supervisory authority may impose regulatory measures regardless of the liability cap.

Failures of Third-Party Services and Integrations

An application may depend on a payment system, maps, cloud storage, an operating system, or an external API. The developer does not control the operation of these services, so the EULA may warn users about their independent nature and possible changes.

However, a complete exclusion of liability is not always appropriate. If the developer selected the provider, integrated it into the product, and sells the related functionality as part of the application, the user expects the entire chain to work. A distinction should be made between a failure of the external service itself and an integration error for which the developer is responsible.

The agreement should also address discontinuation of support for a third-party API. The developer may need the right to modify or remove dependent functionality, but for a paid product such changes must be assessed together with mandatory user rights and the original product description.

What Can Be Addressed Through Usage Warnings

Warnings are particularly important for products whose outputs may affect health, finances, safety, or professional decisions. The EULA should describe the intended purpose of the software, reasonable limitations on accuracy, and situations in which human verification is required.

The phrase “for informational purposes only” is useful if it reflects the actual product. It will not protect a medical application that effectively diagnoses a condition or a financial service that provides personalized investment decisions. Users may be prohibited from using ordinary software in critical systems, vehicle control, or other environments for which the product has not been tested. Such a restriction should be clearly visible and consistent with the application description.

Which Provisions May Not Be Enforceable

A complete exclusion of liability raises the greatest concerns in a consumer contract. A provision should be clear, available before the agreement is concluded, and should not create a significant imbalance to the detriment of the user.

Choosing the law of another country also does not always deprive a European consumer of protection. If the company directs its activities to the consumer’s country of residence, the Rome I Regulation preserves the protection of mandatory rules that would apply in the absence of the choice of foreign law.

The updated EU product liability framework is also relevant. Directive 2024/2853 expressly includes software within the definition of a product, regardless of how it is supplied or used. Liability to an injured person under this framework cannot be eliminated through an ordinary contractual disclaimer.

Limitations also do not protect the developer against claims arising from lack of rights to the code, misleading product descriptions, intentional misconduct, or obligations toward regulators. The precise exceptions depend on the jurisdiction, so a single unchanged formula is rarely suitable for an international application across all markets.

How to Align the EULA with the Product Architecture

The liability section should be prepared after analyzing the product’s functionality, data, and dependencies. Legal counsel needs to know whether the application stores user files, uses external APIs, generates recommendations, and allows users to export their information.

The next level of review concerns the promises made to users. The app store description, subscription screen, help center, and marketing materials should be consistent with the EULA. A promise of continuous access in advertising combined with a disclaimer of any availability in the agreement creates a direct contradiction.

For a cloud-based product, the Terms of Use, Privacy Policy, DPA, and SLA should also be reviewed. If these documents establish different retention periods, availability levels, and compensation rules, a liability cap will not resolve the conflict.