Key Takeaways:

  • A SaaS license agreement defines the terms for accessing and using a software-as-a-service product, often differing from traditional software EULAs.
  • EULAs grant a license to use installed software, while SaaS terms of service (ToS) and service level agreements (SLAs) regulate online service access, performance, and responsibilities.
  • In many SaaS models, a traditional EULA is unnecessary unless the product involves downloadable components like mobile or desktop apps.
  • An SLA focuses on performance metrics, uptime guarantees, and remedies, while a ToS governs user conduct, payment terms, and acceptable use.
  • SaaS license terms should address subscription scope, usage limits, intellectual property rights, termination conditions, and data handling practices.

A SaaS end user license agreement, or EULA, is a legal contract that grants a license, so users can use and install software on their local computer. With SaaS applications, you need a terms and conditions clause, but you might not necessarily need a EULA all the time.

Difference Between EULAs and Terms and Conditions of SaaS Agreements

When you purchase a software program, EULAs are included so you can install it on your own laptop or computer. This is a license that includes limited use of a company's intellectual property (the software program). The agreement includes the approved usage terms and what any restrictions are, often such as:

  • You cannot transfer or sell the license.
  • You cannot rent, lease, or sublease the software license.
  • No modifying, use of the code to create a derivative work, or reverse engineering.

Terms of service, or terms and conditions, are a different type of legal agreement that contains verbiage that users have to agree to before using a service, app, website, etc. There are common clauses you'll see in terms and conditions:

  • Termination clause
  • Governing law clause
  • Disclaimer of warranties
  • Subscription and payment details
  • Prohibited activities and actions via software usage
  • Any other terms a user needs to know about using the service or application.

An end-user license agreement essentially says the user can use the software, provided he or she adheres to the agreement, and it provides the license to start using it. Terms and conditions say the user can use the service, provided he or she adheres to the agreement, and here are the applicable terms for your subscription to access the service.

In most cases, you won't need a EULA, as SaaS applications do not give a copy of the software to users. If you offer a mobile app for download that accompanies the SaaS application, then you will need to grant some type of license agreement. If you plan to use an end-user license agreement, then have a section in the terms and conditions that refers back to the EULA. Moreover, have the EULA provide coverage only for the mobile app.

Key Clauses in a SaaS License Agreement

A well-drafted SaaS license agreement should clearly define the scope of user rights and the obligations of both parties. Common clauses include:

  • Grant of Rights – Specify the type of license (e.g., non-exclusive, non-transferable), its duration, and whether it is revocable.
  • Usage Restrictions – Prohibit actions such as reselling, reverse engineering, or exceeding agreed usage limits.
  • Subscription and Payment Terms – Outline pricing, billing cycles, renewal processes, and consequences of late payment.
  • Intellectual Property Rights – Affirm that the provider retains ownership of the software and related content.
  • Data Security and Privacy – Address how user data is collected, processed, stored, and protected, including compliance with laws like GDPR or CCPA.
  • Termination – Define when and how either party can end the agreement and the impact on access to the service and data retrieval.
  • Liability and Disclaimers – Limit the provider’s liability and disclaim certain warranties.

These clauses ensure clarity and protect both the provider’s IP rights and the customer’s ability to use the service effectively.

Choosing Between EULA, SLA, or ToS

SaaS is becoming more common and the new norm for many vendors. Unfortunately, many people are still confused by the agreements needed for SaaS apps. To figure out which agreement you need, start by identifying whether the software is being downloaded to the customer's machine or local server, or is the customer only using the application through the internet.

An EULA is a licensing contract made between you and the person who purchases your software. As mentioned previously, EULAs give the buyer a right to use the software as long as the usage falls within the terms of the license you've set forth.

In comparing EULAs with terms of service (ToS), a ToS typically discusses the expected behavior of the user and defines the rules for usage. A ToS doesn't typically give users any rights to make copies for their own usage. Instead, it sets forth how the user can utilize the service being provided to him or her.

There is one more type of agreement to consider with your SaaS application. This is known as a service level agreement or SLA. This is the legal contract between a customer and a service provider, which details the provisions of the service itself instead of the relationship between all parties. An SLA typically covers service-related topics, such as:

  • Quality levels
  • Scope of service
  • Uptime targets and performance
  • Technical problems

If you're going to be providing a SaaS product, you don't want to offer licensing to buyers, since you're providing a service only. This means an EULA is less desirable; otherwise, you're giving the buyer a licensed copy of your software.

Service level agreements and terms of service are more utilized in SaaS apps. The obvious reason is that you aren't licensing your software. These agreements detail:

  • How the service will operate.
  • What the expectations are for its use.
  • Focus more on the vendor and buyer as they relate to the service.

A big benefit of SLAs is that they detail the service levels and performance expectations for the application. It's a good reminder to the customer that this is a service, not a piece of software.

Terms of service agreements can include some of these clauses, but they won't go into the same level of detail as an SLA. Some businesses opt to use both an SLA and a ToS, provided no clauses contradict each other.

When to Use a SaaS License Agreement vs. Other Contracts

Determining whether to use a SaaS license agreement, a ToS, or an SLA depends on how the software is delivered and the nature of the customer relationship:

  • Use a SaaS License Agreement when you grant defined rights to access and use your hosted software. This is common for enterprise SaaS platforms with subscription-based access.
  • Use a Terms of Service Agreement when your primary goal is to set conduct rules, payment details, and limitations of liability for users accessing your platform.
  • Use a Service Level Agreement when you want to set measurable performance commitments, such as uptime guarantees and support response times.

In many cases, SaaS providers integrate elements of all three documents. For instance, the ToS may contain licensing language, while the SLA is incorporated by reference to detail service performance.

For hybrid solutions that include both cloud access and downloadable components (like companion mobile apps), combining a SaaS license agreement with a limited EULA for the downloadable parts ensures full legal coverage.

Frequently Asked Questions

1. Do all SaaS providers need a license agreement? No. Many rely on terms of service instead. However, a license agreement is beneficial if you want explicit control over how customers use your hosted software or if your service includes downloadable components.

2. How is a SaaS license agreement different from a traditional software license? Traditional licenses grant rights to install and run software locally, while SaaS licenses grant rights to access and use software hosted online.

3. Can an SLA replace a SaaS license agreement? No. An SLA focuses on performance and service metrics, while a license agreement governs usage rights and legal terms.

4. Should data protection be in a SaaS license agreement? Yes. Data privacy and security provisions are essential to comply with regulations and reassure customers about how their information is handled.

5. Can a SaaS license be perpetual? Typically, SaaS licenses are subscription-based. A perpetual license is rare because SaaS relies on ongoing hosting and maintenance.

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