Many software-as-a-service (SaaS) contracts – including for Artificial Intelligence-as-a-Service (AIaaS) – grant what is described as a “license” to the vendor’s software. So do a lot of other cloud services agreements. But that may be a mistake, at least for U.S. SaaS copyright holders (and those in jurisdictions with similar copyright laws.[i])
Why?
As we explain below, “licenses” are used to authorize (among other things) reproduction of software. That’s the case for on-premise software (including downloaded apps). But customers can’t, and don’t, reproduce AIaaS, or other SaaS or cloud systems. So their contracts for that software don’t need “license” terms, which terms could come back to haunt the vendor.
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, your SaaS licenses might not ever come back to haunt you. But you can avoid the whole potential issue with a very easy fix. So why not avoid it in your contract terms?
Whichever side you represent, this article should provide you a clearer view of U.S. software IP.
SaaS Customers Need Permission To Use, Not A Copy of that Software
At the start of work on any software contract, ask yourself what the customer does with the software.
On-Premise?
If the customer puts a copy on a computer – if it’s on-premise software (including on-premise AI) – the contract needs a “license” to reproduce. U.S. copyright law gives the owner a monopoly on the right to reproduce the software, to copy it (among other monopoly rights, like to modify, distribute, publicly display, publicly perform). So the customer needs a specific grant of the rights it needs: a license.
SaaS?
In contrast, in a SaaS or other cloud services deal, 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, U.S. copyright plays no role in the promise of access to SaaS. So the customer doesn’t need a copyright “license.” (Do see section below about Combination Deals, such as for downloadable apps accompanying SaaS.) Instead, the SaaS customer needs a permission.
Sample SaaS Clauses
Here are some clause examples of this idea in practice, ranging from minimalist to more detailed:
[For SaaS]
During the Subscription Period, Customer may access and use the SaaS.
• • •
[For SaaS]
During the term of this Agreement, Customer may access and use Provider’s _______ service (the “SaaS”). Provider retains all right, title, and interest in and to the SaaS, including without limitation all software included in and used to provide the SaaS and all logos and trademarks reproduced through the SaaS. This Agreement does not grant Customer (a) any right to reproduce, modify, distribute, or publicly display or perform the software included in the SaaS or (b) any other right to the SaaS not specifically set forth herein.
• • •
[For PaaS, IaaS]
Customer may access and use the computer system described on Attachment __ (the “System”) from ________ until _________ (the “Subscription Period”). Provider retains all right, title, and interest in and to the System, including without limitation all computers, other hardware, and software incorporated into or used by the System. This Agreement does not grant Customer any right to reproduce, modify, distribute, or publicly display or perform the software included in the System or any other right to the System not specifically set forth herein.
• • •
This issue, and sample language, are discussed more in The Tech Contracts Handbook, Part I.D.1. (Sample clauses are available in our website’s Clause Archive here. Of course, consider carefully and customize sample language as necessary to fit your particular deals.)
Four Examples Of Potential Trouble For AIaaS And Other SaaS/Cloud Vendor U.S. Copyright Holders
Arguably, a “license” to SaaS just means permission to use it, not rights under U.S. copyright.
But if you’re the vendor, why risk the argument, since if you lose, your “license” could hurt you? We can think of four ways:
- Patent License: A SaaS license could arguably be interpreted as a U.S. patent license. The vendor probably doesn’t want that. (If it does, presumably it would want to chat with patent counsel about drafting, not license by accident.)
- Right to a Copy: In a dispute, a customer with a “license” could demand a copy of the software: the code behind the SaaS. Licensing language could arguably 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 a “license” could argue that they keep rights to the SaaS.
- Copyleft: SaaS may include copyleft code, licensed 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 SaaS vendors 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. Could a “license” create such a suggestion?
We’re not sure we’d call any of these outcomes likely. But vendors can avoid them painlessly by removing “license” from their grant of rights. Again, instead grant a right or a subscription to access and use the AIaaS, and other SaaS.
A Bit Of This, And A Bit of That? In Combination Deals, Be Specific What’s On-Premise (And So, Licensed) And What’s SaaS (And so, Just Accessed)
Of course, many SaaS vendors give customers some software to download and install (an on-premise app, for example), even though the main system resides in the cloud, on vendor computers.
Don’t let that combination confuse you.
That transaction does call for a software/copyright license – to reproduce something onto customers’ computers. But the license should be limited, to only apply to the piece of software that is downloaded/installed (like an on-premise app.)[ii]
The part of the deal that is the SaaS (which by its nature isn’t downloaded or reproduced), should be excluded from that “license” (for the reasons explained earlier.)
That’s a good reminder to, in combination deals (and, really, all tech contracts), be specific, and precise, in describing the customer’s rights.
We cover these topics in detail in The Tech Contracts Master Class™, particularly Course #1 (Prime Clauses). The four-course series is available on-demand, on your schedule. Please join us to learn more.
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THIS ARTICLE IS NOT LEGAL ADVICE. IT IS GENERAL IN NATURE AND MAY NOT BE SUFFICIENT FOR A SPECIFIC CONTRACTUAL, TECHNOLOGICAL, OR LEGAL PROBLEM OR DISPUTE, AND IT IS NOT PROVIDED WITH ANY GUARANTEE, WARRANTY, OR REPRESENTATION. LEGAL SITUATIONS VARY, SO BEFORE ACTING ON ANY SUGGESTION IN THIS ARTICLE, YOU SHOULD CONSULT A QUALIFIED ATTORNEY REGARDING YOUR SPECIFIC MATTER OR NEED.
[i] A bigger topic than we can dream of addressing in this short article, but briefly: U.S. copyright law does not include a monopoly on the right to merely use a work of authorship (contrary to common belief). So we don’t or at least shouldn’t grant what are called “licenses” simply to use software (as opposed to the monopoly rights to reproduce, modify, distribute, publicly display, publicly perform, where on-premise software is involved). Some other jurisdictions may give copyright holders a monopoly on the right to “use” software. In such countries, a SaaS copyright license to use may make sense. A reminder to research your jurisdiction.
[ii] See The Tech Contracts Handbook, Parts I.A and I.C for discussion of on-premise licenses, including scope restrictions, and sample clauses.