5 Minute FAQ: License Agreements vs. SaaS Agreements

Photo Courtesy NASA

Q: Computing used to be based on the model of the end user running another party’s software on its local computer through a client-server or fat client architecture. Now the business model is moving increasingly towards cloud computing and software as a service. If the end-user no longer has someone else’s software on his computer, does that mean the license agreements are no longer necessary?

First, let’s start off with some definitions. Cloud computing means computing where data is input and stored on a remote third party’s computer, on the Internet or “cloud.” Think Facebook. Software as a service or “SaaS” is a subset of cloud computing where not just data is stored, but also processed via a specific application in the cloud, which is often being used concurrently by many other users. Think Salesforce.com and Google Apps. The end user of SaaS pays a fee over the time of usage, using a subscription or utility model, in contrast to local software where the cost is usually paid all upfront. Also, since the SaaS user does not possess SaaS intellectual property, but accesses it remotely through a Web browser, it pays for access to, rather than use of, the IP.

Q: Well, that was my question. If there is no license of third-party IP, then is a license agreement even necessary?

I was not ignoring your question. You are correct– although there is technically no license involved in an SaaS business model, a user agreement most definitely is necessary, call it what you will. At the end of the day, the difference between an SaaS agreement and a typical end user software license agreement is more a matter of degree than kind. The meta-theme of a software end user license agreement is, “We allow you to use our intellectual property as long as ____ .” The meta-theme of an SaaS agreement is, “We allow you to access our service as long as ____ .” Despite the difference business models, large chunks of both kinds of agreements are interchangeable, because the software licensor and the SaaS service offeror are addressing many of the same business risks. Also, note that some SaaS offerings require installation of software on the local client in combination with access through a web browser, in which case the agreement would be a hybrid even closer to a traditional software end user license agreement.

Q: In what ways is an SaaS agreement different from an EULA?

Obviously, the SaaS agreement would not contain license grant language, except if it were a hybrid, as noted above. Also, an SaaS agreement needs to address business risks that are specific to a cloud environment, such as:

  • Performance and uptime guarantees and/or SLA’s
  • Data privacy and security
  • Data backups and disaster contingency
  • Data portability, especially in case of nonrenewal of the SaaS agreement
  • Term, termination, and renewal provisions, given the periodic nature of the SaaS subscription model

Besides the license grant provision, a typical SaaS agreement also often omits common EULA provisions relating to maintenance, support, and updates, because it is usually done behind the scenes by the service offeror, on a multi-user basis.

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