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Web based services in the form of SaaS applications, services, products and platforms have become increasingly popular in recent years, prompting many companies to switch from traditional software installations to software-as-a-service (SaaS).
SaaS has many advantages over traditional software as it has a low cost of installation, can be accessed across the globe, it is scalable, has automatic updates, great uptime performance and an enterprise contract will provide for maintenance.
Unfortunately, SaaS does not operate in a vacuum as a result you have to negotiate, create maintain, and manage contracts for the successful implementation of SaaS. Contracts are an integral in managing the relationship between the customer and the service provider. In this article, we discuss the importance of SaaS contracts and the need for an experienced SaaS Lawyer to guide you through the process.
Definition of SaaS Contracts
SaaS contracts are legal documents that define the terms and conditions of a SaaS product or service. It is this contract that helps to clarify how the web hosted software is delivered to the end user customer or licensee over the internet.
SaaS agreements outline the rights and obligations of all parties and address important issues like data security, intellectual property, warranties, and liability. By clarifying expectations and reducing misunderstandings, SaaS contracts help prevent legal issues and disputes. It may also be a vital piece in the conflict resolution by providing customer and software providers a blueprint for handling disagreement.
Importance of the SaaS Contract
A crucial aspect of SaaS contracts is that they protect the interests of both parties. There are many aspects of the services that may often be overlooked when a SaaS Contact is created haphazardly. However, leveraging the experience of a SaaS attorney can help you assess some risks and the types of legal hurdles that will have to be scaled in implementing the SaaS contract.
This helps to create clarity on issues such as how customer data will be handled, who owns the intellectual property, and what happens if the service provider goes out of business. Similarly, the contract should include provisions that protect the service provider’s interests, such as indemnification clauses and limitations on the customer’s use of the service.
Drafting a customized SaaS contract that complies with relevant laws and regulations like GDPR, CCPA, and HIPAA requires expertise in SaaS law and legal services. This is why it is important to have an experienced SaaS attorney on your team. They can assist in negotiating the terms with your customers, identifying potential risks, and advising on best practices for data security, privacy, and compliance. Some common legal issues that should be contained in SaaS contracts are:
- Application ownership
- Feature descriptions
- Length of the contract
- Value of the contract
- Total licenses
- Compliance with international and local laws
Some other clauses that are important in SaaS contracts are the following:
1. Service Level Agreement (SLA):
Clients may have concerns about the warranty of SaaS services or products for ensuring software performance. You can generate more audience and subscribers by providing them with a Service Level Agreement (SLA) that guarantees that the vendor’s SaaS application will be up and running 99.9% of the time.
In addition, the product’s warranty of quality or performance should follow a specific period after subscription. Likewise, SaaS policies must include the cancellation of warranty if any violation of rules and terms is seen.
In addition, what if a situation arises where a third party claims that the vendor’s application infringes upon their intellectual property rights and they file a lawsuit to stop the vendor from licensing its application?
If this happens there should be language in the agreement that says if the vendor cannot remediate the non-conforming software so the customer can use it without violating the third party’s intellectual property rights then the customer should have the right to terminate the agreement and receive a pro-rata refund for all fees paid through the end of the term.
2. Data Security/Customer Data:
If you are a SaaS customer you need to make sure there is language in the SaaS vendor agreement that says that the vendor shall maintain administrative, physical and technical safeguards designed for the protection, confidentiality and integrity of Customer Data.
If you are an enterprise customer you should demand that no more than once per year, the vendor shall prepare or have prepared, and Customer may submit a request for a copy of: (a) a final SSAE 18 (SOC 1) / ISAE 3402 Type II Report covering the vendor’s SaaS application.
Also, if similar third-party audits, standards and/or certifications become available in the future, you might ask the vendor to perform such an audit and/or certify to such established industry standards and that the vendor will make any resultant reports available to Customer upon request.
3. Limitation on Liability:
SaaS agreements usually limit the provider’s liabilities to addressing customer data loss. Loss of personal data can adversely impact the consumer as well as the reputation of the business itself, which is an inescapable issue.
If you are a SaaS customer you should demand an amount in damages to be paid by the vendor in the event your data is lost, stolen or subject to a cyberattack that is commensurate with the value of your loss.
The SaaS vendor at the very least if a third party makes a claim against either Customer or vendor that any information, design, specification, instruction, software, service, data, hardware, or material furnished by the vendor infringes the third party’s intellectual property rights, the vendor, at its sole cost and expense, will defend the customer against the claim and indemnify and hold harmless the customer, its affiliates, and its and their employees, officers, directors and agents and all of their successors and assigns from the damages, liabilities, costs and expenses awarded by the court to the third party claiming infringement or the settlement agreed to by the vendor.
The customer should indemnify, hold harmless and pay all damages incurred by the vendor in the event a third party brings a claim against the vendor to the effect that any data or information uploaded by the customer into the vendor’s application infringes the third party’s intellectual property rights.
5. Intellectual Property:
A SaaS provider offers online access to a customer while reserving all the intellectual property rights to the application. However, the customer has intellectual property rights through which it owns all the content it creates and uploads to the vendor’s SaaS application.
SaaS has revolutionized rapidly, attracting more and more audiences toward virtually cloud-based applications. This is the reason why there is such a demand for the services of a good SaaS attorney.
When choosing a SaaS lawyer, be sure that they understand the complex legal landscape and can effectively negotiate SaaS subscription agreements, service level agreements, and other relevant contracts.
You should select the right SaaS attorney, who must have experience working with SaaS companies, knowledge of relevant regulations, an understanding of SaaS business models, responsive communication, and transparent pricing.
Looking for expert assistance for your SaaS legal needs? Look no further than Andrew S. Bosin.