Explaining Software as a Service - SaaS
Posted on: 02/01/2024
Category: For your business
The software-as-a-service (SaaS) model has become an increasingly popular method to sell IT products. It allows software businesses to use a single platform to offer multiple customers a service with cost saving benefits. This model also allows businesses and individuals to access and use software applications over the internet on a subscription basis paying monthly for their needs rather than being locked into contracts. Whilst SaaS offers numerous benefits, including flexibility and cost-effectiveness, it also raises important legal considerations regarding the protection of rights in the software.
Software is automatically protected by copyright law when it is created. Under English law, the Copyright, Designs and Patents Act 1988 governs the protection of software. This act grants the creator of the software, or their employer if it was created during the course of employment, certain exclusive rights, including the right to reproduce, distribute, and adapt the software. It lasts from 50 years from creation.
When software is sold as a service, it is essential to clarify the copyright ownership and licensing terms in the agreement and respect any licensing terms imposed on the licensor by the platform provider. Control over the use and exploitation of the copyright needs to be protected in a properly written contract.
Key areas to consider in the licence:
- Permitted use: Clearly define how users can access and use the software, including the number of users, devices, and any geographical restrictions.
- Restrictions: Detail any restrictions on the use of the software, such as limitations on reverse engineering, modification, or resale.
- Warranties and limitations of liability: Ringfence warranties and impose exclusions and limitations on liability.
- Fees: How and when paid per user and renewals
- Termination and remedies: Specify the circumstances under which the service can be terminated and the remedies available in case of a breach.
- Intellectual property rights: Make it clear that the software provider retains ownership of all intellectual property rights, and that the user is granted a limited, non-exclusive, non-transferable, revocable license.
- Data protection: Data protection is a crucial aspect of SaaS, as users often store sensitive information on remote servers. Software providers must comply with the GDPR regulations, ensuring that they protect users' data and respect their privacy and implement robust data security measures to prevent data breaches.
To ensure that software functions properly and meets the expectations of users, many SaaS providers offer service level agreements (SLAs). An SLA defines the level of service quality and availability that users can expect. These agreements are legally binding and provide recourse for users if the service does not meet agreed upon standards. They may be a stand-alone agreement or be built into the licence. Typical areas covered include:
- Uptime guarantees and penalties for downtime.
- Customer support and response times.
- Scope of service.
- Service credits.
- Data backup and disaster recovery procedures.
- Service credits or refunds in case of service failures.
Protecting rights in software sold as a service rather than as a product requires its own specialist licensing terms which will have the dual function of setting out the key commercial terms but also to preserve the intellectual property rights of the software.


Justine Lowe
If you have any questions or queries, please contact Justine Lowe on +44 1905 723561 or by email at justine.lowe@smesolicitors.co.uk.