What is a Software as a Service Agreement (aka SaaS Contract)?

At Traverse Legal, our legal professionals specialize in a wide range of practice areas, including but not limited to Corporate Law, Contract Law, Business Law, Trademark Law, Copyright Law, Arbitration, and Litigation. Our lawyers take pride in our commitment to delivering high-quality, high-value, and efficient legal solutions for clients. Among the wide variety of software and technology companies we represent, many of our largest clients offer cloud-based Software as a Service (SaaS).  

As a business owner, it’s important to know whether or not your software is being licensed or offered as a service. If access to your software is granted through logging into your website and subscribers are paying a fee, there’s a good chance you’re offering software as a service (SaaS). If so, it’s crucial to have an experienced SaaS attorney draft a contract between you and your registered users. This contract, known as a SaaS agreement, will define the terms of the relationship between you and the users of your software platform.

Key components of a SaaS agreement include the user agreement, account access, rules and policies, terms, termination, dispute resolution, service level agreement, limitation of liability, and warranties. Having a clear and well-drafted SaaS agreement in place can help protect your business and ensure a smooth operation for both you and your subscribers.

What is a Software as a Service Agreement (aka SaaS Contract)?

Software as a service agreement is a legal contract between a service provider and end users who subscribe to the service built on a software platform and hosted in the cloud.  The subscribers to the software being offered service on a subscription basis often pay a monthly or annual fee to use the software. The advent of cloud-based computing allowed businesses to develop software and make it available without subscribers needing to download or install any software on their servers or computers. Instead of licensing software, cloud base companies allow end users to log in to their software.  There are huge advantages to cloud-based software services, including the fact that the software development company can make real-time changes and upgrades, which instantly become available to subscribers.  SaaS business models also brought an explosion of subscription-based models, which lowered the cost of software access and allowed technology businesses to spread costs across larger groups of users, thus lowering the cost of access. 

Examples of SaaS companies include Salesforce, Quickbooks Online, OpenSea, Hootsuite, and many others. Artificial intelligence companies such as ChatGPT are offering access to their AI on a SaaS model. This allows the AI company to preclude access to the source code, the algorithms, or the database driving the AI while allowing users to use machine learning functionality as a service. 

Do I Need a SaaS Agreement for My Internet Business?

• If your business has developed software that is being offered to subscribers for a fee, but access to the software occurs by logging into your website, there is a good chance you are offering software as a service. 
• Is my Software being licensed or offered as a service to subscribers?
• If you are offering service, you need an experienced Saas attorney to draft a Software as a Service contract between you and your registered users and subscribers to your service. 
• Your SaaS agreement will be the contract between you and the users of your software offered on your platform.  Key SaaS contract terms include user agreement, account access, rules, policies, term, termination, dispute resolution, service level agreement, limitation of liability, and warranties.

What is the Difference Between a SaaS Contract and a Software License Agreement?

• Think about a SaaS company as a software company that controls the source code on its servers (or servers controlled you your software company. (Amazon Cloud, Google Cloud, etc.).  Licensed software is provided to the user with an executable copy of the source code they install on their computer or smartphone. You license software that is downloaded by the end user. You offer subscribers a ‘service’ when you log in to users who interact with your software, but those users do not ever download the software. 
• The reason you license software users to get access through an executable file relates to copyright law. Software code is a ‘work’ subject to copyright.  When allowing someone to use, display, modify or create derivatives of your copyrighted works, you need to do so with a copyright license agreement. 
• Software businesses that never provide access to copyrighted works do not need to license those works.  Instead, they provide a service to users; that service is built upon software controlled by the business on its own servers. The distinction between licensed software and software offered as a service is mainly driven by the difference between copyright license contract drafting and other service contracts. 
• Because copyright licenses convey certain rights to the works to the licensee, a SaaS company typically wants to avoid any license language which suggests a transfer of rights in the software. 
• SaaS contracts add a variety of terms, conditions, warranties, disclaimers, and other terms of use that form the contract between the service provider and the end user.  SaaS companies also provide Service Level Agreements (SLAs), which address downtime, support, and maintenance issues so that subscribers are comfortable with the service being available when needed. 

Is There Such a Thing as a SaaS License Agreement?

Technically, no.  Some SaaS businesses provide copyrighted works in addition to the service offered through their software.  Those SaaS companies must address the service contract and the copyright license in the subscriber agreement. A SaaS lawyer who understands the difference between service contracts and copyright license agreements will know how to identify services and copyrighted works to cover both issues.