SaaS Agreements 101: IP Rights & License Provisions in SaaS (Part 5)

By Joanne Hue, published: 2023-03-23

Intellectual Property Rights SaaS Agreement_Licence Provisions in Saas_Difference between Perpetual license and SaaS license

A SaaS agreement is a legally binding contract between a company that provides software as a service and its client. These services mostly concern cloud-based applications that a client may subscribe to. After the subscription, the client can access these internet-based services in exchange for a recurring fee. The content of the SaaS agreement varies vastly based on the parties entering the contract. 

Companies that provide software as a service preserve the intellectual property rights ownership over their products. They can be used by subscribers through the methods of licensing. Arrangements concerning the licence provisions are clarified within the SaaS agreement.  A well-drafted SaaS agreement is essential to preserve the intellectual property rights of the vendor and prevent unlicensed or unauthorized usage of the application. If you’re looking for templates to draft an efficient SaaS agreement for your business, you can create SaaS agreements through Zegal’s templates

Intellectual Property Rights in a SaaS Agreement

B2B or business-to-business and B2C or business-to-consumer SaaS products are delivered through SaaS agreements. These agreements, are generally comparable to other tech agreements and outline the services that will be made available through the producer’s SaaS service. SaaS agreements often contain numerous negotiable clauses, including but not limited to clauses on intellectual property rights, liability restrictions, data privacy, disclaimers of warranties, and dispute resolution methods.

There are several different kinds of intellectual property. It consists of patents, copyrights, and trademarks. A trademark serves to identify and differentiate the source of the products and services of one owner from the goods and services of others. It might be a word, phrase, symbol, slogan, or design. Similarly, copyright safeguards unique creative or literary works that have been permanently imprinted on a physical medium of expression. Books, images, music, works of art, videos, films, recordings, and even architecture may fall under this category. SaaS software is also seen as being under this category. A so-called “utility” patent defends innovative and practical methods, devices, and compositions, whereas a distinct style of patent defends the designs.

By clearly indicating which intellectual property rights are being licensed and whether or not a client is allowed to transfer any of their licensed rights, a provider of SaaS services can reduce the risk involved with the licensing. A well-drafted SaaS service plays a crucial role in preserving intellectual property rights that a provider may have over their source. 

A clause stating that the client accepts that the SaaS vendor will retain ownership of the intellectual property rights in the service, software, and systems to be given is commonly included in SaaS agreements. This recognition is included in form of a clause that states that the provider retains exclusive ownership of the software, documentation and other intellectual property that is provided as part of the service. The licensing is done to allow the subscribers to use the services over which the provider holds intellectual property rights. The SaaS agreement should clearly mention restrictions on the license’s usage and specify that using intellectual property outside of those restrictions is against the terms of the agreement.

Licence Provisions in Saas

SaaS licence management can often come off as confusing. For customers with a team responsible for running large stacks of SaaS applications, tracking the licensing arrangement for each SaaS service can also be overwhelming. Since SaaS are vastly different from on-premise software, SaaS is not a copy of software placed on the server to use. As it exists in the cloud, SaaS services are more similar to subscriptions than licensed usage. It also resembles the end-user license agreement or the EULA. SaaS licences are a part of SaaS agreements. There are two types of standard licensing agreements: 

  • Per-user licensing: Per-user licensing is a subscription software license model that is also known as per-seat or seat licensing. In the per-user licensing model, the customer pays an upfront cost for licensing each user. These are frequently offered in tiers- with prices ranging from complete business access to only a few end users.
  • Usage-based licensing: Usage-based licensing is a license arrangement based on the user’s consumption. This pricing strategy may be dependent on the number of transactions, reports, and data consumed over a time frame.
    Other than the standard licensing arrangements, SaaS companies have started offering more variations for the standard licence management. Tiered pricing, pricing per feature, pricing per active user, open-source pricing and monthly subscription are some of the other licensing arrangements.

Difference between Perpetual license and SaaS license

Some software companies like Microsoft, offer perpetual licensing. A perpetual license provides the user indefinite access to use the software. A SaaS license is different to the perpetual licensing system. Saas Licences are being provided through the agreement. While the agreement can be renewed, the licence to use the software is not for an indefinite period. The licence expires with the termination of the SaaS agreement. 


Saas agreements allow vendors to provide their services to subscribers. It is legally binding and creates obligations for the parties involved. Customers of companies that provide Software as a Service require a license to use their products. The application is licensed to prevent unauthorised usage of the software. The unique features of software like the logo and the source code are owned by the vendors. This ownership is known as intellectual property and its usage requires a licence. 

Per-user licensing and usage-based licensing are the standard methods of licensing used by SaaS companies. Alternative licensing methods can also be used. However, SaaS agreements do not permit perpetual licensing.

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