Software as a Service (SaaS) contracts: How to protect the intellectual property of tech companies under new regulations

The technology sector in the Kingdom is experiencing unprecedented rapid growth, with most companies shifting from the traditional on-premise software license model to the cloud-based Software as a Service (SaaS) model with recurring subscriptions. While this shift offers high operational flexibility, it has created complex legal challenges related to the protection of intellectual property and data—challenges that "off-the-shelf contracts" cannot address.

Given my academic specialization in "Information Technology Law and Intellectual Property", and my practical experience in technical contract engineering, I find that many emerging technology companies and developers fall into the trap of using traditional contracts that do not differentiate between "selling a copy" and "providing access," thus putting their most important assets (source code and data) at risk.

First: "Access" does not mean "ownership".

In SaaS contracts, the client does not purchase the software itself, but rather the "right to access and use the service" for a specified period. A common drafting error is the use of terms like "sale" or "perpetual license," which can inadvertently grant the client rights to the source code that the developer does not intend. The contract must explicitly state that all intellectual property rights to the platform, its updates, and any future developments remain the sole property of the vendor, and that the client's right is limited to "use" only, subject to the specified terms.

Second: The dilemma of "customization"

When a client requests the addition of special features to their system, a dispute arises: who owns the source code for these features? The client who paid for their development? Or the technology company that programmed them? If the contract doesn't resolve this point, the technology company may find itself unable to sell these features to other clients in the future. The optimal legal solution is to stipulate that the company owns any new source code that is developed, while granting the client a license to use these features for the duration of their subscription.

Third: Data sovereignty and compliance with the PDPL system

With the issuance of the new Personal Data Protection Law in the Kingdom, the "data" clause in SaaS contracts has become a ticking time bomb. The contract must clearly define: Who owns the entered data? Where is it hosted (data residency)? And who is legally responsible in the event of a data breach? Smart contracts protect the service provider from liability for data entered by the customer if it violates regulations, and they establish clear boundaries for cybersecurity obligations.

Fourth: Service Level Agreement (SLA) as a legal obligation

Some treat the Service Level Agreement (SLA) as a marginal technical appendix, when in fact it is the "heartbeat" of the contract. Failure to precisely draft "uptime" clauses and "service credits" compensation mechanisms can open the door to enormous financial claims exceeding the contract value itself. The legal engineering here requires transforming technical standards into measurable and capped contractual obligations.