The software licence to be included in a SaaS agreement is very different from the standard software licence found in non-SaaS agreements for the following reasons.
Access to the software is provided together with support and maintenance services. Without support and maintenance there can be no licence and vice versa. This is because the customer has no copy (physical or intangible) of the source code or object code. The software is installed on the supplier’s server and accessed by the customer via the Internet.
The customer therefore does not own any software licence. The customer simply has the right to access the software and the services together for the term of the SaaS agreement. Unlike a standard software licence, no perpetual licence is granted. The term of the licence is the same as the term of the support and maintenance services and both cease to exist when the SaaS agreement is terminated or expires.
NB/It is possible to have perpetual licence in a more complicated SaaS agreement but this is the exception rather than the norm, and is not dealt with here.
Use of the Software
The software should only be used for the specific purposes set out in the SaaS agreement. Issues such as territory, number of users, who the users are (i.e. the customer, the customer’s users, the customer’s subsidiaries and identified third parties). No right to copy, distribute, resell or lease the software should be granted to the customer.
Intellectual Property Rights – IPR
The customer needs to be granted the right to use the software for the term, however no rights in the software, source code or support and maintenance services should be transferred to the customer. No rights in any developed or customised software should , or can be transferred to the customer – as there will be no developed or customised software created in a standard SaaS agreement.
No right to copy, decompile or create derivative works from the software should be granted to the customer. However, under the Copyright, Designs and Patents Act 1988 the customer has a mandatory right to decompile the software in limited circumstances, which should be referred to in the SaaS agreement, as such rights cannot be contractually excluded.
If you are providing business critical software to customers (i.e. online banking) it is usual to offer customers the possibility of entering into an escrow agreement to hold the source code, or data in escrow. However, if the software is not business critical (to your customers) this should be an optional clause that can be added to the SaaS agreement later at the request of the customer, as most customers will not want to incur the additional cost of an escrow agent.
For assistance with any software licence matters, in particular SaaS, ASP, software on demand contracts or any other IT legal issues contact me at:
To register for my newsletter click here
Other related articles:
- SaaS Agreements – Essential Elements
- SaaS Agreements – Essential Elements – SLAs Explained
- SaaS Agreements – FAQs – What is SaaS?
- SaaS Agreements – FAQs – What is a SLA?
- SaaS Agreements – FAQs – Prism
- SaaS Agreements – FAQs – Security
- SaaS Agreements – FAQs – Source Code
- SaaS Agreements – FAQs – Escrow
- SaaS Agreements – FAQs – IPR and Intellectual Property
- SaaS Agreements – FAQs – Confidential Information
- SaaS Agreements – FAQs – Data Protection
- SaaS Agreements – FAQs – Applicable Law and Jurisdiction
- SaaS Agreements – SaaS, Software on Demand, Confused?
- SaaS Agreements – Cloud Computing and the Legal Cloud
- SaaS Agreements – Cloud based Technology and Services