Optimization of business processes and daily life of modern people almost are impossible to imagine without the use of «cloud» services. Google Drive, Microsoft OneDrive, iCloud and many other tools help to provide flexibility for business operations regardless of size and specialization.
In this article, we will try to break through the clouds of uncertainty around the legal, namely the contractual design of the use of «cloud» technologies and especially the model Software-as-a-service (SaaS) as being one of the most controversial.
And, as always, we’ll start with the nuts and bolts. What is SaaS?
Software as a service (SaaS) is a model of software distribution, in which the provider makes the programs accessible to users via web browser or application, placing the programs on the so-called «cloud». «Cloud», or cloud data storage is a way of storing data on numerous servers provided to customers. Unlike the data storage model on proprietary servers purchased or leased specifically for this purpose, the number or internal structure of servers is unknown to the user. Data is stored and processed in a «cloud» which, from the user’s point of view, is one virtual server.
Users do not load and upgrade back-end on their device (computer, smartphone, tablet), cannot copy and distribute it, and for that reason only use the software functionality online. Users work with front-end and can customize settings related to access to such service.
This is how we use e-mail services daily, logging into the system, and create files on Google Docs. The supplier, in turn, manages all software, including security, accessibility, data storage, performance.
At first glance, it seems clear: the provider places and technically support the software, the user uses its functions. However, since, under the WIPO Copyright Treaty, the software is an object of copyright (a type of intellectual property right) and is protected as a literary work, the question arises as to which contractual structure to chose to regulate relations in SaaS. In practice, there are many options – service, rental, licensing contracts, or mixed contracts. In fact, most SaaS contracts are concluded as licensing contracts and provide for a license to use the supplier’s software. This approach has the right to life but, given the legal nature of SaaS, it does not seem to be fully justified.
Why is that? Let’s figure out.
License agreement VS Service contract
In Ukrainian legislation, we refer to Art. 1109 of the Ukrainian Civil Code. It determines that under a licensing contract one party (licensor) grants the other party (licensee) permission to use the object of the intellectual property right (license) on conditions determined by mutual agreement of the parties, taking into account the requirements of the Civil Code and other law. According to Art. 433 of the Ukrainian Civil Code software is a copyright object and is protected as a literary work, so in this case it is also necessary to be guided by the provisions of the special Law of Ukraine «On Copyright and Related Rights».
The most important provisions of a software licensing contract are: 1) provision on the manner in which the software is used – notice, uses not defined in the licensing contract are deemed not to be granted to the licensee; 2) type of license – exclusive or non-exclusive. An exclusive license is granted to only one licensee and precludes the licensor from using the software and from granting licenses to others to use the object in an area restricted by the license. A non-exclusive license does not preclude the licensor from using software in an area restricted by the license and from granting licenses to other persons to use the facility in that area; 3) the duration of the contract; 4) area of operation; 5) remuneration for use; 6) procedure for handing over the object; 7) right to grant sub-licenses and so on.
Most uses of copyright objects under a licensing contract (for example, the right to distribute software, recycle, adapt) require a copy of the work, such as a digital copy of the software, which is stored on the user’s device.
In the SaaS model, all software is located on the supplier’s «cloud» infrastructure, and the user receives only permission to access it in order to use the functionality without the possibility to download or copy the software.
In other words, the user receives the service as a result of access to an online softwaree-mail transfer, document creation, editing, and preservation, etc.), rather than software as a copyrighted object. Software is only used by the supplier to provide a certain service.
Quality is an important characteristic of any service. Imagine, your company employees have corporate mail in the mail service, and one day instead of important messages they see «error 404» and can not enter the account. Business stopped, messages are not sent, and documents saved on the «cloud» are not available. What to do in such a situation?
The actions of the supplier in case of defects or irregularities, the speed of their elimination and the hours in which technical support is available, as well as the security measures should be stipulated by the Service Level Agreement (SLA) which defines the limits of responsibility. In case of problems with the service, the SLA obliges the supplier to eliminate bugs within the terms of the contract, and the user will have the right to claim the performance of this obligation and possibly, if the contract so provides, compensation. In practice, however, SLA is often not concluded as a stand-alone contract and a service-level clause is included in a service contract.
Therefore, the best contractual design for regulating relations in SaaS is a contract for providing online access services that corresponds to the essence, the nature of the relationship and the scope of the rights and obligations of the supplier and the user.
Of course, every «cloudy» solution requires an individual approach. Remember only Microsoft’s philosophy – Software plus Services. In essence, it involves the simultaneous use of software under license with the device and the use of cloud services.
The Vigolex team is ready to take over all the complex legal issues related to the regulation of relations in SaaS and save your time for creativity and art.