When a customer pays for your digital product, whether that is a software tool, a design template, an e-book, a course, a font, or a plugin, they are almost certainly not buying it. They are buying a license to use it. That distinction is not a technicality. It determines what the customer can do with your product, whether they can resell it, what happens when the license is terminated, and how you handle refunds.
Most digital product sellers either have no license agreement at all, or have buried a few sentences about licensing in a general terms of service that most customers will never read. Neither approach gives you the legal protection you need when a customer violates the terms of use, resells your product without authorization, or demands a refund for a digital download they have already consumed.
This article covers what your digital product license agreement needs to say, and why the specific language you use matters when disputes arise.
1. Make Clear What You Are Selling: A License, Not Ownership
The most important thing your digital product license agreement must state clearly is that the customer is purchasing a license to use the product, not ownership of the product or any intellectual property in it. Copyright in a digital product remains with the creator unless explicitly transferred in writing. A purchase does not transfer copyright.
Under the US Copyright Act, the first sale doctrine allows someone who lawfully purchases a physical copy of a work to resell that copy. Courts have been split on whether this doctrine applies to digital downloads, but several rulings have found that digital product sales are licenses, not first-sale transfers, which means your customers generally cannot resell your digital products without your authorization. Your license agreement should state this explicitly rather than relying on implied legal interpretation.
State in plain language: the customer is purchasing a license to use the product under the terms of this agreement; they are not purchasing any intellectual property rights, copyright, or ownership interest in the product.
2. Define Permitted and Prohibited Uses
Your digital product license agreement must specify exactly what the customer is and is not permitted to do with the product. Vague language about “personal use” or “commercial use” creates disputes because customers interpret those terms differently than sellers do.
Common permitted use distinctions that need explicit definition include: whether a single user may install the product on multiple devices, whether a business license covers one seat or multiple users, whether the product can be used in work delivered to clients, whether the product can be included in products resold to third parties, and whether physical or digital products derived from the licensed asset are covered.
The prohibited use section should cover redistribution, sublicensing, resale, unauthorized sharing, removal of copyright notices, and reverse engineering. If your product is software, also address decompiling and modification. Define each prohibition specifically. A clause that says “commercial use prohibited” invites argument about what constitutes commercial use. A clause that says “the product may not be used in products or services sold to third parties” is clearer and easier to enforce.
If you sell different license tiers at different price points, such as a personal license and a commercial license, the agreement must define exactly what each tier permits. Customers frequently purchase a personal license and then use the product commercially, and your agreement needs language that makes clear this is a breach.
3. Attribution Requirements
If your license requires attribution, define exactly what attribution looks like. Require attribution? Specify the format: “Credit: [Creator Name], [URL]” or similar. Specify where attribution must appear. Specify whether attribution is required for both online and print use.
If attribution is optional or only required at certain license tiers, state that clearly. A well-drafted attribution clause removes ambiguity about what the customer must do and gives you a basis to enforce when attribution is omitted.
4. Refund and Delivery Terms
Digital product refunds are one of the most contested areas in e-commerce law. Under the EU Consumer Rights Directive, consumers who purchase digital content may waive their right to a 14-day cooling-off period if they acknowledge in writing that delivery begins immediately. In the US, there is no federal equivalent, but many state consumer protection laws impose disclosure requirements on digital product sellers.
Your license agreement should state your refund policy explicitly, including whether refunds are available after the product is downloaded or delivered, how refund requests must be submitted, and the timeframe within which requests will be honored. If you offer no refunds on digital products, state this clearly at the point of purchase and in the agreement. Courts and payment processors look more favorably on no-refund policies that are conspicuously disclosed than on policies buried in fine print.
The delivery section should specify how the product will be delivered, what format it will be delivered in, and what happens if delivery fails due to a technical issue.
5. Warranty Disclaimer and Liability Limitation
Digital product license agreements should include an explicit disclaimer of warranties for fitness for a particular purpose and merchantability. Customers occasionally purchase digital products expecting them to perform specific functions that the seller never promised. A warranty disclaimer combined with a detailed description of what the product does and does not do limits your exposure for those claims.
Your limitation of liability clause should cap your exposure to the amount the customer paid for the license. Courts generally enforce clear limitation of liability provisions in commercial agreements, but the clause must be prominent and unambiguous. Liability limits buried in dense legal boilerplate are sometimes found unenforceable on the grounds that the customer could not have reasonably been aware of them.
Review your existing digital product terms and conditions to confirm these protections are in place. If your current terms were assembled from a template, there is a good chance the warranty disclaimer and liability cap are not properly calibrated to your actual product.
6. License Termination
Your agreement should specify under what conditions you can terminate the license. Termination rights typically include: breach of the permitted use restrictions, nonpayment for subscription licenses, fraudulent purchase, and violation of applicable law. Include a provision stating that on termination the customer must cease using the product and destroy all copies.
For subscription-based digital products, include terms covering what access the customer loses on termination, what happens to content they have created using the product, and what notice period you will provide before terminating for breach.
If you contact Hansen Tong at TOSLawyer.com, he can draft or review your digital product license agreement to make sure your termination provisions, permitted use definitions, and liability protections actually cover the scenarios your business faces.
Frequently Asked Questions
What is the difference between a digital product license and a sale?
A sale transfers ownership. A license grants permission to use something the seller still owns. When you sell a digital product, you are almost always licensing it: the customer gets the right to use it under specific conditions, but you retain the copyright and can enforce the terms of use.
Can customers resell a digital product they purchased?
Not without your permission. The first sale doctrine that allows resale of physical goods does not apply cleanly to digital products in the US, and your license agreement should explicitly prohibit redistribution and resale unless you offer that as a specific license tier.
Do I need a separate license agreement or can I put it in my terms and conditions?
You can include license terms within your general terms and conditions, but the licensing provisions need to be specific enough to cover all the uses and restrictions relevant to your products. Generic terms of service templates rarely include the level of detail needed for digital products. A standalone license agreement or a dedicated licensing section is preferable for digital product sellers.
What should my refund policy say for digital products?
Your refund policy should state whether refunds are available, under what circumstances, and the process for requesting one. If you do not offer refunds after delivery, that restriction must be clearly disclosed before purchase. Depending on where your customers are located, certain consumer protection laws may impose minimum refund rights that cannot be waived.
How do I enforce my license agreement against customers who violate it?
Enforcement starts with having a clearly written agreement that specifies what constitutes a breach and what remedies you have. For individual violations, DMCA takedown notices can address unauthorized distribution. For commercial-scale violations, breach of contract claims based on your license agreement terms are the primary remedy. A technology lawyer can advise on enforcement options specific to the type of violation you are dealing with.