In Short
A software licence agreement sets the rules for how customers can access and use your SaaS product. It defines licence rights, user restrictions, payment terms and liability limits, helping protect your intellectual property and manage risk. Clear licence terms also help prevent disputes and ensure customers understand their rights and obligations.
Tips for Businesses
Ensure your software licence agreement clearly defines the licence grant, authorised users and restrictions on use. Set out payment terms, renewal rules and termination rights to avoid uncertainty. You should also address liability limits and consider including an acceptable use policy to reduce the risk of misuse of your platform.
Summary
This article explains the key elements SaaS founders should include in a software licence agreement and how these provisions protect intellectual property and manage contractual risk. It is prepared by LegalVision’s business lawyers, and LegalVision, a commercial law firm, specialises in advising clients on technology contracts and SaaS agreements.
If you run a Software as a Service (SaaS) business, your intellectual property sits at the centre of your business model. A well-drafted software licence agreement sets clear rules for how users can access and use your software. This helps protect your intellectual property while also defining the commercial relationship between you and your customers.
This article explains the key provisions SaaS founders should include in a software licence agreement. It outlines how licence grants, user restrictions, payment terms and liability clauses help protect your intellectual property and manage legal risk.
What is a Software Licence Agreement?
A software licence agreement is a contract between your business and your users. It sets out the rights your users have to access and use your SaaS product, as well as any restrictions. For example, if you have founded a content creation SaaS platform, you may want to offer different service plans. The free plan may allow users to generate content for personal use only, whereas you might allow business customers on an enterprise plan to use the content for advertising and other commercial purposes.
You may choose to set out the software licence in your terms of service or have a separate agreement entirely. This typically depends on the number and complexity of your service offerings. If you are allowing your customers to host your software on their own servers, a separate software licence agreement may be more appropriate to set out the different limitations regarding downloading, implementing and using the software.
How Should Users Accept the Software Licence Agreement?
There are two main approaches:
Clipwrap Agreements:
If you provide a cloud-based SaaS platform, you may wish to publish your software licence agreement directly on your platform so that users can tick a box to accept the terms. This approach significantly reduces administrative burden and allows you to update your terms efficiently, provided you have included an appropriate variation clause in your agreement. For SaaS businesses with a high volume of users or a consumer-focused product, clickwrap agreements are typically the most practical option.
Signed Agreements
This agreement can be physically signed or executed through digital signature platforms like DocuSign. These agreements usually involve a more formal acceptance process. Therefore, this makes it easier to negotiate and adapt your software licence agreement to commercial arrangements. It is ideal if you are dealing with large enterprise clients that require bespoke arrangements regarding pricing, service levels, data handling or integration requirements.
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Licence Grant and Restrictions
The licence to your software should set out what rights and restrictions your users have. The licence should be non-exclusive so that you can offer your SaaS product to other customers. It should outline whether the customer can transfer or sublicence the software.
Sublicensing may be appropriate if you are providing your SaaS product to a company that forms part of a corporate group that will also be granted access. However, it is important to define clear limits on who your customers can share access with.
You should also define any restrictions on use, such as prohibiting reverse engineering or using the software for illegal purposes.
Authorised Users
If you are offering your SaaS product to companies, you can limit access to a specified number of users. Such as:
- how many authorised users your customer can have;
- whether they can all have access at the same time; and
- what happens if the customer exceeds the user limit.
If you are entering into a software licence agreement with a business customer, only the company itself will be contractually bound by the terms. You should require your business customer to ensure their users comply with the software licence agreement.
Fees and Payment Terms
Your agreement should clearly outline your pricing structure, payment terms and consequences of non-payment. Outlining this in your terms of services, ensures the cross-referencing of your agreements.
If you include fees in your software licence agreement, clearly state whether you charge monthly or annually. You can also specify whether you charge in advance or after the customer has used the software for that billing period.
Liability
Limiting your liability is important in maintaining a predictable and manageable level of financial risk exposure. Software founders often include a liability cap linked to the amount of fees paid for the licence. You should also exclude liability for certain types of indirect loss, such as loss of profits or consequential damages.
However, you cannot exclude certain types of liability. Under the Australian Consumer Law, consumer guarantees automatically apply to the supply of SaaS products. These laws may also apply to agreements with business customers, depending on the fees you charge.
If these guarantees apply, you can only limit your liability to resupplying the services or covering the cost of resupply.
Term and Termination
Your licence agreement should clearly outline the length of the license along with termination details. If you are offering a subscription, you should add renewal and cancellation policies as well.
If your customer integrates your software into their own products, they may require ongoing access to certain components. You should clearly state which software they can continue to use and which parts they lose access to when the software licence agreement ends.
Key Takeaways
A comprehensive software licence agreement is essential for protecting your SaaS business and establishing clear expectations with your users. The agreement should have your specific business model, whether you operate a high-volume consumer platform or focus on enterprise clients with bespoke requirements. As your business grows and evolves, you should regularly review and update your agreement to ensure it continues to meet your needs and reflects changes in your service offering, pricing structure or risk profile.
LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced IT lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 1300 544 755 or visit our membership page.
Frequently Asked Questions
Where you are providing your SaaS product to a business customer, you may want to limit the number of individual users who can access your product through their account. You can do this by setting a fixed limit on the total number of users or the amount of users who can access the software simultaneously. You may also decide to charge fees based on the number of users or make your services subject to fair usage.
You should have terms governing both free users and paying customers. These are normally in the same agreement with different provisions applying depending on the subscription or plan tier. Your agreement should clearly specify what features and support are available for the different tiers and what restrictions apply. You should also address whether users can upgrade or downgrade their tier and when this would take effect.
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