Licence vs SaaS vs assignment — which do you need?
These three structures get confused constantly, and the wrong one creates real problems: a "licence" that accidentally reads like an assignment, or a SaaS contract wrapped around software the customer actually installs. The distinction is simple — a licence is a right to use while the owner keeps the IP, SaaS is access to a hosted service, and an assignment transfers ownership outright (with a statutory formality attached).
| Structure | What the customer gets | Who owns the IP | Formalities |
|---|---|---|---|
| Software licence | Permission to install and use the software on defined terms | Licensor keeps the copyright | No statutory formality — click-acceptance is enforceable under ECTA s 22 |
| SaaS subscription | Access to software hosted by the provider — no copy is installed | Provider keeps everything | Ordinary contract — signed or accepted online |
| Assignment | Ownership of the copyright itself transfers to the buyer | The assignee becomes the owner | Must be in writing and signed by the assignor (Copyright Act s 22(3)) |
If the software runs on your customer’s servers, you need a licence. If it runs on yours and the customer logs in over the internet, you need a SaaS agreement. And if a buyer wants to own the code outright, that is an assignment — invalid unless it is in writing and signed by the assignor under section 22(3) of the Copyright Act.
The eight clauses that matter
Grant + licence metric
The core permission: non-exclusive, non-transferable, for a defined number of named users, concurrent users, sites, servers or CPU cores. The metric must mirror how the software is actually deployed — a mismatch here is the single biggest source of audit disputes.
Scope + restrictions
What the licensee may not do: copy beyond a backup, sublicense, rent out, modify, reverse engineer or decompile the software, or use it outside the licensed environment. In SA these restrictions are best dealt with expressly in the contract rather than left to copyright defaults.
Term + perpetuity
"Perpetual" means the right to use does not expire — it does not mean irrevocable, and it does not include updates forever. Subscription licences need clear initial terms, renewal mechanics and price-escalation caps.
Fees + true-up audits
Upfront fee versus annual subscription, maintenance priced as a percentage of licence fees, and a true-up mechanism: if an audit shows usage above the licensed metric, the licensee buys the shortfall — define at what price, and from when.
Updates, upgrades + support
Splits what maintenance includes (patches, minor releases) from what costs extra (major versions, new modules), and separates support obligations into their own schedule with defined response times.
Warranties + limitation of liability
Conformance to documentation for a defined warranty period, a no-malware warranty, and a liability cap. Where the licensee is a natural-person consumer, the CPA limits how far liability can be excluded.
IP ownership confirmation + no assignment
An express confirmation that copyright stays with the licensor and that nothing in the agreement operates as an assignment — plus a restriction on the licensee transferring the licence without consent.
Termination + consequences
Breach and insolvency triggers, what happens to the right to use, certified destruction or return of all copies, export of the licensee's data, and a transition window for business continuity.
Common SA pitfalls
- Using US templates wholesale — Delaware governing law, UCC warranty disclaimers and export-control boilerplate that SA courts won't apply, with no CPA, ECTA or POPIA mapping.
- Consumer-facing licences that ignore the CPA — section 48 polices unfair, unreasonable and unjust terms, and section 22 requires plain, understandable language. A licence drafted only for B2B enterprise fails both when sold to individuals.
- Licence metrics that don't match deployment reality — named-user licences in businesses with shared logins, or per-CPU metrics in virtualised environments, manufacture audit exposure from day one.
- Audit clauses with no limits — no notice period, no frequency cap, no confidentiality over findings and no materiality threshold before back-fees become payable.
- Cross-border licences priced without withholding tax — royalties paid to a foreign licensor may attract the 15% withholding tax under sections 49A–49G of the Income Tax Act; pure service fees don't, so how fees are characterised matters.
Frequently asked
What is a software licence agreement?
It is the contract that gives a customer permission to install and use software that the licensor owns. Copyright in the software stays with the licensor — under the Copyright Act 98 of 1978, computer programs are protected as their own category of work (section 2(1)(i)), and only the copyright owner can authorise copying and use. The agreement defines the grant (who may use it, where and how much), the restrictions, the fees, the support arrangements, and what happens on termination. It is the classic structure for on-premise and enterprise software, as opposed to hosted SaaS.
What is the difference between a software licence and a SaaS agreement?
A software licence covers software the customer installs and runs on its own infrastructure — the customer holds a copy, so the contract revolves around copyright permission, usage metrics and audits. A SaaS agreement covers software hosted by the provider and accessed over the internet — no copy changes hands, so the contract revolves around service availability, SLAs, data hosting and POPIA operator terms. Many vendors need both: a licence for the on-premise edition and a subscription agreement for the cloud edition. If you're unsure which you need, the deciding question is: who runs the software?
Does a software licence transfer ownership of the software?
No. A licence is permission to use — the licensor keeps the copyright. Transferring ownership is an assignment, and under section 22(3) of the Copyright Act an assignment is only valid if it is in writing and signed by the assignor. It is also worth knowing who owns the program in the first place: the author of a computer program is the person who exercised control over its making (section 1(1)), as the SCA confirmed in Haupt v Brewers Marketing Intelligence 2006 (4) SA 458 (SCA) — which is not always the person who wrote the code.
Are perpetual software licences still common?
Yes — less common than a decade ago, but far from dead. Vendors have pushed hard toward subscription pricing, but perpetual licences persist in enterprise and government procurement, in regulated industries that want software running inside their own environment, and in air-gapped or data-sovereignty-sensitive deployments. The usual structure is a perpetual right to use the licensed version, paired with an annual maintenance and support contract (typically 15–22% of the licence fee) that can lapse without killing the licence itself. Drafted properly, the perpetual grant survives termination of the support agreement — that distinction must be explicit.
What licence metrics exist and which should I use?
The common metrics: named user (each individual needs a licence), concurrent user (a ceiling on simultaneous use), site licence (anyone at a defined location), server / CPU / core (priced on the hardware it runs on), and usage- or revenue-based metrics. Choose the one that mirrors how the software is actually deployed and can actually be measured. Named-user metrics fail in businesses with shared logins; CPU metrics get contentious in virtualised and cloud environments. The metric also drives the audit clause — if usage can't be measured cleanly, every audit becomes an argument.
Can a software licensor audit my usage?
Only if the contract says so — there is no general right to audit. Most enterprise licences include an audit clause, and as a licensee you should negotiate its limits: reasonable written notice (10–30 business days), a cap on frequency (once per 12 months), business-hours access that doesn't disrupt operations, confidentiality over everything the auditor sees, and a materiality threshold before back-fees apply. As a licensor, an audit clause without these limits looks aggressive and slows deals; with them, it is a fair true-up mechanism rather than a weapon.
What happens when a software licence terminates?
The right to use ends, and the agreement should say exactly what follows: the licensee stops using the software, uninstalls it, and destroys or returns all copies — usually confirmed by a written certificate of destruction signed by a director. Well-drafted agreements add a transition window so the licensee's business doesn't hit a wall, a right to export its own data in a usable format, and survival of confidentiality and accrued payment obligations. Note the distinction for perpetual licences: termination of the support contract should not terminate the perpetual right to use — unless the licence says it does.
How much does a software licence agreement cost in South Africa?
Bespoke drafting starts from R12,000 for a single licence agreement tailored to your product, deployment model and licence metric. Enterprise licence frameworks — a master licence with ordering schedules, multi-metric pricing and maintenance terms — typically run R15,000–R25,000. Reviewing and negotiating a vendor's licence on your behalf as the licensee usually costs R7,500–R12,500 depending on length and how heavily it is negotiated. Fixed fees are quoted upfront, and the engagement usually includes one round of revisions.