SaaS Agreements – Software Licence – Open Source Issues

The use of open source software (OSS) by SaaS suppliers is becoming increasingly common. If you use, or plan to use OSS as part of your SaaS software, it is essential that you check the specific terms of any OSS licence, as you will need to comply with these terms and ensure that they are incorporated or reflected in your SaaS agreement.

What is Open Source Software?

OSS is software which is provided subject to a licence, which makes the source code available to everyone. Anyone is permitted to see how the source code works, change it or make it work differently. Closed source/proprietary software is the opposite of OSS and specifically prohibits such rights.

Restrictions on Use

Under the terms of an OSS licence a user is generally permitted to access, copy, modify and distribute the underlying source code, provided that no additional restrictions are placed on use of the source code when it is passed on. This clearly creates a problem for SaaS suppliers who have their own terms and conditions, which usually prevent customers from copying, modifying and distributing their source code.

Types of OSS Licences

There are a number of different OSS licences used by the open source community when making OSS available, and their terms vary considerably.

The GNU General Public Licence (GPL version 3) – includes a restriction that any copies of the OSS must be passed on free of patent licence charges.

The BSD – includes a template copyright notice and disclaimer, which must be displayed when using the OSS.

Advantages and Disadvantages of OSS

The main advantages of OSS:

  • It is free;
  • It has been extensively tested by a wide user-base, so should not contain serious bugs or defects; and
  • It is continuously being updated and improved.

However the above advantages have to be weighed against the following disadvantages:

  • There is no comprehensive support or maintenance provided for OSS;
  • You may have to disclose the source code of your proprietary SaaS software if you include OSS in your software application;
  • The limitation of liability and lack of indemnities given in OSS licences.

Liabilities and Indemnities

OSS licences only contain limited warranties about the quality and functionality of the OSS being provided. They often state that the OSS is provided „as is“. In addition no indemnities are given to protect SaaS suppliers against claims made by third parties that the OSS breaches their intellectual property rights (i.e. patents or copyrights).

This creates a serious problem for SaaS suppliers using OSS. Due to the number of people involved in developing the OSS, it is virtually impossible to verify the source and originality of the OSS. However, SaaS customers will expect the supplier to be liable for and indemnify them against breaches of any intellectual property rights of third parties.

Minimising the Risks

Selling software is core to the SaaS business model. If you use or plan to use OSS, it is essential that you carry out a technical and legal due diligence of the OSS and maintain a system thereafter to monitor the use of OSS within your organisation.

You should also clearly state in your SaaS agreement that the OSS, or components of your SaaS software, which incorporate OSS, are licenced to customers subject to the terms of the applicable open source licence.

Also, do not forget when outsourcing any SaaS software services, to ensure that you include a term in the outsourcing agreement, preventing the supplier from using OSS without your prior consent.


Irene Bodle is an IT lawyer specialising in SaaS agreements with over 10 years experience in the IT sector. If you require assistance with any SaaS, ASP, software on demand contracts or any other IT legal issues contact me:

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