What's in a Standard Form Contract? An Empirical Analysis of Software License Agreements

Abstract

The vast majority of commercial transactions are governed by standard form contracts, but little is known about their actual content and the determinants of that content. This article provides a comprehensive empirical analysis of an important class of modern standard form contracts—software license agreements. In a sample of 647 licenses for software from various markets, I document the prevalence of terms relating to license acceptance, license scope, limitations on transfer, warranties, limitations on liability, maintenance and support, and conflict resolution. I find that almost all licenses display a net bias, relative to relevant default rules, in favor of the software company (the contract writer). I also investigate firm‐ and buyer‐type determinants of the net bias. Larger and (controlling for size) younger firms offer more one‐sided terms. Firms offer similar terms to both business buyers and members of the general public. In addition to providing new insight about the nature of standard form contracts, the results may inform efforts to draft new default rules to govern software transactions.