Many software-as-a-service (SaaS) contracts grant a “license” to the vendor’s software. So do a lot of other cloud services agreements – on offerings like PaaS and AIaaS (artificial intelligence as-a-service). That’s a mistake, at least in the U.S. and jurisdictions with similar copyright laws. Licenses authorize reproduction of on-premise software (generally). Customers don’t reproduce SaaS or other cloud systems, so they don’t need licenses.
If you’re the customer, you shouldn’t lose any sleep over this issue. It’s the vendor’s problem. If you’re the vendor … I’m still not sure you should lose any sleep. Your SaaS licenses might not ever come back to haunt you. But you can avoid the whole problem with a very easy fix. So why not avoid it?
Whichever side you represent, this issue offers a clearer view of software IP.
SaaS customers don’t copy software
At the start of work on any software contract, ask yourself what the customer does with the software. If the customer puts a copy on a computer – if it’s on-premise software – the contract needs a license. Copyright law gives the owner a monopoly on the right to reproduce the software, to copy it, so the customer needs a grant of that right: a license.
In a SaaS or other cloud services deal, on the other hand, the customer does not put software on a computer – or copy it at all. The software sits on the vendor’s computers, and the customer just accesses it online. With no copies, copyright plays no role in the promise of SaaS. So the customer doesn’t need a copyright license.
Instead, the customer needs a simple permission. For instance:
During the Subscription Period, Customer may access and use the SaaS.
Simple. (For more sample language, see The Tech Contracts Handbook, Chap. I.E.1, as well as the examples in our clauses archive.)
Trouble for Americans and our ilk
I call this a U.S. concern because American copyright law does not include a monopoly on the right to use a work of authorship (contrary to common belief). So we don’t or at least shouldn’t grant licenses to use software. We license the right to reproduce (as well as the connected monopoly rights: modify, distribute, publicly display, and publicly perform). Customers don’t reproduce SaaS or other cloud services (and so of course they don’t modify, distribute, etc.).
Some jurisdictions (e.g., Germany) do give copyright holders a monopoly on the right to “use” software. In those countries, a SaaS license makes more sense, as a copyright license to use SaaS.
Trouble for SaaS, AIaaS, and other cloud vendors
Arguably, a “license” to SaaS just means permission to use it and so does not grant rights under copyright. Arguably. But if you’re the vendor, why risk the argument, since if you lose, your “license” could hurt you in any of four ways?
- Patent License: Your SaaS license could be interpreted as a patent license, and you probably don’t want that. (And if you do intend a patent license, you want to think it through and chat with patent counsel, not license by accident.)
- Right to a Copy: In a dispute, a customer with “license” could demand a copy of the software: the code behind the SaaS. Licensing language could support that argument.
- Bankruptcy Rights: IP licenses generally continue even after the vendor goes into bankruptcy. So if the vendor goes through reorganization, customers with “license” could argue that they keep rights to the SaaS.
- Copyleft: Your SaaS may include copyleft code, licensed to you on the condition that any redistribution goes under a copyleft open source license. Generally, copyleft conditions don’t restrict SaaS vendors (with the exception of the “Affero” licenses) because they don’t give customers copies of their software. But any suggestion that customers have a right to copies could support an argument that copyleft applies. A “license” creates such a suggestion.
I’m not sure I’d call any of these outcomes likely. But you can avoid them easily (effortlessly) by removing “license” from your grant of rights. Again, just grant a right or a subscription to access and use the software.
Combination Deals
Of course, many SaaS/cloud vendors give customers some software to download and install, even though the main system resides in the cloud, on vendor computers. Don’t let that confuse you. That transaction does call for a software/copyright license – to reproduce onto customers computers – but it should only apply to that one downloaded/installed on-premise app.
The rest of the SaaS isn’t downloaded or reproduced, so it should not be “licensed.”
We cover this topic in detail in The Tech Contracts Master Class™, particularly Course 1 (Prime Clauses), so please check it it if you’d like to learn more.