Consider a SaaS company with 50 paying customers. They have a terms of service. They have a privacy policy. They have an MSA template they pulled from a legal marketplace two years ago. What they do not have: a software license agreement that defines exactly what customers can and cannot do with the product. Here is why that gap matters.
Two Documents. Two Completely Different Jobs.
Your terms of service governs the relationship between your company and your users. It covers acceptable use, account termination, disclaimers, dispute resolution. It is a behavioral contract.
A software license agreement does something different. It defines the scope of the intellectual property rights you are granting. Specifically: what the customer can do with your code, your API, your underlying technology. It answers questions your terms of service was never designed to answer.
Without it, you have not actually defined what you sold. You have described how the relationship works, but not what the customer received.
That distinction becomes expensive when something goes wrong.
The Three Provisions Most SaaS Companies Omit
Modification rights. Can your customer modify the software? Can they build on top of it? If a customer integrates your product into their internal systems and modifies the behavior, who owns those modifications? Without an explicit provision, this is genuinely unclear under copyright law. The customer may have a reasonable argument that their derivative work is theirs. Your terms of service almost certainly does not address this.
Sublicensing restrictions. Can your customer share access with affiliates, subsidiaries, or third-party contractors? Enterprise customers routinely extend software access across their organizations. If your license is silent on sublicensing, you have limited ability to control how broadly your product is deployed. You may be licensing to one company and inadvertently serving ten.
API usage limits. If you offer API access, your software license agreement should define permitted use cases, rate limits, and restrictions on building competing products using your API. Founders often treat API terms as a technical policy question. It is actually an IP ownership question. A customer who builds a competing product using your API, in the absence of a clear prohibition, may have a contractual argument that you permitted it.
These three gaps are common. They are also preventable.
What This Means When You Go to Sell
Acquirers conduct IP due diligence. They want to know exactly what rights you have granted to customers and whether those grants are clean, consistent, and controlled.
A missing software license agreement signals three things to a buyer’s legal team: the IP ownership boundaries are unclear, the customer base may hold broader rights than the company intended to grant, and the risk of a dispute over IP scope is real.
That assessment does not kill deals outright. But it does create leverage for price reduction, escrow requirements, or extended representations and warranties. Founders who have built to $5M or $10M ARR and are entering acquisition conversations often discover this problem for the first time during due diligence. At that point, retroactively cleaning up 50 or 500 customer agreements is a significant undertaking.
The better time to address it is now, before those conversations start.
Where Elliott and Ruy Come In
This is a document that sits at the intersection of IP law and contract structure. Elliott Alderman spent decades at the U.S. Copyright Office and has worked on technology licensing for software companies, content platforms, and businesses building in emerging digital environments. Ruy Garcia-Zamor brings the contract architecture that makes those IP protections enforceable in real business relationships.
Most fractional legal providers handle contracts or IP. Reviewing and drafting software license agreements requires both.
For Premium tier clients, Garcia-Zamor reviews and drafts software license agreements as part of ongoing counsel. If you have a SaaS product with paying customers and no formal license agreement governing what they can do with your technology, that is a gap worth closing.
If you are a SaaS founder who has wondered whether your terms of service is doing enough work on the IP side, I would be glad to hear what your current documents cover and where you think the gaps might be. Drop a comment or follow for more on software IP and licensing strategy.
About Garcia-Zamor: We’re the fractional general counsel for innovators – protecting both your business operations and your intellectual property. Ruy Garcia-Zamor leads business growth strategy, Elliott Alderman (former Copyright Office attorney, 40+ years IP expertise) handles intellectual property, and Claudia Castillo specializes in employment law. Contact us at garcia-zamor.com or (410) 531-9853.
