Software as a Service (SaaS): Legal Nature and Contractual Obligations in Greece

What is Software as a Service (SaaS)?

Software as a Service (SaaS) is a cloud-based software licensing and distribution model which allows users to access applications through the internet, without having to buy or install the software on their devices. The software is developed and hosted by the service provider on central servers, usually on cloud, making the software available to its customers through the internet on a pay as-you-go basis, meaning that users pay a subscription fee in order to use it. The service provider is the one who handles the infrastructure, maintenance, security and updates, allowing users to focus solely on using the software.

Which is the legal nature of Software as a Service (SaaS)?

SaaS represents a modern software delivery method that integrates both technological and legal advancement. Unlike traditional software distribution models, SaaS does not entail the transfer of software ownership from the provider to the user. Instead, it focuses on granting access to software hosted on remote servers. This fundamental distinction creates significant legal implications, which must be thoroughly understood in order to effectively manage the legal relationships that develop in the context of SaaS.

Provision of Services Vs Sale of Products

The primary distinction of SaaS lies in its classification as a provision of service rather than a product itself. Users do not obtain ownership rights on the software. Instead they acquire the right to use the software for a defined period of time and under specific terms and conditions. Ownership of the software remain with the provider, and access to it is governed by contracts which clearly delineate the rights and obligations of the parties therein.

SaaS Agreements

SaaS services are typically governed by Service Level Agreements (SLAs), which include provisions regulating the details of the service, the standards the provider must adhere to, the metrics to measure the performance of the services, as well the rights and obligations of each party. These agreements ensure that customers can expect a certain level or standard of services and specific remedies or fee deductions if said service standards are not met.

Which is the Data Protection and GDPR Compliance in SaaS?

One of the most important legal issues that arise with regard to the SaaS model concerns the protection of personal data. SaaS providers often process and store substantial volumes of user data, which necessitates strict adherence to the General Data Protection Regulation (GDPR) in the EU. SaaS agreements must incorporate explicit terms regarding the processing, storage, and protection of personal data, as well as provisions that enable or facilitate users to exercise their rights under the GDPR.

International Legal Challenges

Given that SaaS operates through the use of the internet, service providers often provide their services to customers located across various jurisdictions. This international dimension introduces challenges related to jurisdictional authority and competence, taxation, and compliance with the local legislation. SaaS agreements must unambiguously define the applicable jurisdiction and governing law in the event of legal disputes, as well as ensure compliance with the regulatory requirements of each jurisdiction where services are offered.

Distinction from Royalties according to the Greek legal framework

SaaS differs from royalty arrangements mainly in the nature of the payments and the rights granted. In a traditional royalty model, payments are made for the use of the intellectual property, such as patents, trademarks, or copyrighted material, often calculated as a percentage of revenue or a fixed fee based on the usage. These royalties typically pertain to the licensing of intellectual property where the licensee is granted certain rights to use or exploit the intellectual property of the licensor. In contrast, SaaS is a subscription-based model where users pay for access to software services without acquiring any ownership or long-term usage rights to the underlying software. The SaaS provider retains ownership and control of the software and the intellectual property rights connected to it, merely granting its customer the right to access and use the service under specific terms, rather than a right to exploit the intellectual property itself. This fundamental difference emphasizes the service-oriented nature of SaaS compared to the product or intellectual property licensing focus inherent in royalty agreements. Determining whether we have a SaaS case or a royalty arrangement is important in practice for multiple reasons, one of the most prominent being the tax treatment of the agreement concluded between the involved parties. More specifically, royalties are generally subject to withholding tax, while SaaS income, being classified as a service, are typically subject to VAT.

Intellectual Property and Licensing

Although SaaS does not confer ownership rights to users, intellectual property considerations remain paramount. SaaS providers must secure all necessary rights to the software they offer, which includes obtaining appropriate licenses from third parties. Additionally, providers must protect their own intellectual property through well-drafted contractual clauses that safeguard their rights. Licensing in the SaaS model differs significantly from traditional software licensing arrangements. In conventional software licensing, users typically purchase a perpetual license, which grants them indefinite rights to install and use the software on their own systems. This license often includes certain restrictions on the number of users or devices, but fundamentally, it transfers a broad range of usage rights to the licensee. In contrast, SaaS operates on a subscription-based licensing model, where users are granted a limited, non-exclusive, and non-transferable right to access and use the software hosted by the provider on a remote server. This access is typically time-bound, aligning with the duration of the subscription, and is subject to specific terms and conditions outlined in the Service Level Agreement (SLA) or other contractual documents. The flexibility and scalability of SaaS licensing make it an attractive option for businesses, allowing them to adjust their usage and associated costs according to their needs without committing to a large upfront investment. However, the reliance on continuous access to the provider’s infrastructure introduces additional legal considerations, such as ensuring ongoing service availability, data security, and compliance with evolving regulations.

Conclusion

Navigating the legal intricacies of SaaS requires a deep understanding of its distinct licensing model, which differs markedly from traditional software and royalty arrangements. At Nexus Law Firm, we specialize in guiding clients through the complex legal landscape of SaaS, both in Greece and worldwide, drawing on our extensive experience in technology law, intellectual property, and contract negotiation. Whether representing providers or users, we ensure that our clients’ interests are protected through well-crafted agreements that address key issues such as service level commitments, data protection, and licensing rights. Our firm has successfully handled a variety of cases involving SaaS providers, from startups to established enterprises, helping them secure their intellectual property and comply with international regulations.

Disclaimer: The purpose of this article is solely informational and it is not intended to impart legal advice. Readers are advised to seek independent legal advice prior to acting on any statements contained herein. Under no circumstances does the information contained herein constitute a substitute for the relevant legal provisions and legislation.