SaaS (Software-as-a-Service) or Cloud Services agreement
A SaaS (Softwares-as-a-Service) or Cloud Services agreement is a contract between a software vendor and a customer and outlines terms and conditions that control the software purchase, usage, billing and renewal. Some commonly known Softwares-as-a-Service providers are Salesforce, Workday, and Twillio. Traditionally, software was bundled with hardware.
That required companies to create the product in both a virtual and physical form. That made being a software provider more cumbersome. In the early 1980’s the first few on premise application suites were being installed into personal computers. This still required some physical downloadable copy of the software which was commonly expensive. The beginning of the SaaS era started in the early 2000’s with the worldwide web, but the SaaS boom (as we see it now) began 2005 with Salesforce.
Think of SaaS agreement as a master document with all the “rules” integrated into it. There are many different terms used for each clause. For example, “Fees” could always be called “Pricing”. Although intuitive, it is important to understand each aspect of an agreement and the services being provided when consulting with an attorney.
The following is a non-exhaustive list of what are the minimum “required Elements” within a SaaS contract. Each of these Required Elements may have subfactors not listed for the sake of brevity of this article. These factors vary between company to company and software to software. These agreements can vary widely depending on the industry and specific software services being offered- therefore the best thing to do is consult an attorney regarding your particular service and situation. SaaS agreements are numbered clauses in a two-column page set-up with sub clauses listed like 12.3 (clause 12, sub clause 3).
This sets the stage for the SaaS agreement to encapsulate the purpose of the agreement. It should be a clear and concise statement of the parties involved and the software/service provided.
a. Example: "This Agreement establishes the terms and conditions applicable to Customer's use of the _X Company_software-as-a-service offering of _ list services in its entirety_."
This clause should clarify all potentially confusing or unknown terms.
a. Example include: "Authorized users", "host", "provider", "customer". etc. Each agreement will have definitions that are specific to the industry or the type of services being offered.
b. Include any definition into this clause if you receive a SaaS agreement and are unfamiliar with the term.
"Term" Start and end date
Make sure to clearly define in your agreement how long the service will last. It’s important to clearly define behaviors that will immediately revoke their software privileges. For example, X Company’s access to Y Service could be revoked before the expiration date for any breach of the Terms of Service.
a. Additionally, add a notification subsection. Notification is the period the consumer must notify the provider of plans to renew the service or terminate. Typically, 30 or 60 days is advised.
Every SaaS agreement MUST include a license clause that outlines what users may do. This clause states a general term for access and use of the service. There can be a “full access” license where the SaaS customer can use all possible features of the service. However, it may be a “limited access” which is more favorable to the provider. Limited access license set forth the breadth of features the customer may use and the number of units delivered. More so, it will clearly define what the unit looks like (I.E. X computer).
“License” is an excellent clause to state “a breach may void vendor of contractual duties.” If the client falls outside of the agreed upon access, then breach is warranty and termination may result.
As you could imagine, there is a significant chance for contention. Proceed cautiously but remember the extent of your liability is defined here. This clause should clearly set out the uses of the services allowed by the customer.
a. Always clearly identify the total number of units delivered to "authorized users" if relevant to your service.
b. Language you MUST add: Customers are granted a non-exclusive, worldwide, revocable license to use and copy the product.This means that the client is not the only customer allowed to use the SaaS, the product can be used world-wide (an excellent point to conceded in negotiations), and nobody can redistribute the copied SaaS.
c. If there is a chance you may sell the data gathered on your platform, you MUST define that within the license agreement clause. More so, you may or may not want to grant complete access to the clients for the data retrieved. This will likely be argued and is advised to tread lightly.
d. The license clause will vary from client to client so DO NOT assume it is one size fits all.
It is recommended to have this clause immediately following your license agreement. Restrictions set out all the rules set by you, on the end user. It’s strongly recommended to add “no resale”, “no third-party users”, “no reverse-engineering”, and “no alterations or deleting of any intellectual property in place by the vendor.”
a. Production value
b. Internal usage
Terms of Service (“TOS”)
There are similarities in language between the SaaS agreement and the TOS. Having a detailed understanding of each element creates consistency that is necessary. SaaS agreements are typically executed, but you will want additional terms to be updated online and provide clients notice of the changes.
a. Your SaaS agreement may briefly introduce the TOS and provide a link for further details. Typically the terms of service have language that is industry and service specific. However, if you are not carefully reading it, there may be language unfavorable to your services. It is crucial that your service agreement represents your company and the services it offers. This agreement can provide a framework for terminating or restricting access when the agreed-upon contract has been violated. Typically, a TOS contains items related to third-party websites, content ownership, copyright notices, and additional information. There are other essential elements for a complete TOS.
- Define what a TOS agreement is and state that signing the SaaS agreement agrees to all the terms and conditions set forth in the TOS.
- Clearly define the application being offered. Name, parties, allowed users, even units repeated.
- State the application or software services. A similar subsection to responsibilities later in the SaaS agreement.
- Clearly define the rules for using the service.
- Include another acknowledgement stating agreement to the TOS is agreement to abide by the rules required to access the service.
- Set a date when the TOS agreement is required.
- Include ALL possible disclaimers and liabilities.
- State who owns the intellectual property (copyrights and trademarks).
- State the consequences of not agreeing or abiding by the agreement.
“Responsibilities”, “Services”, or “Authorization”
There are many different ways this clause is titled. It’s important to make it as detailed as possible. A SaaS agreement provides the four corners, but “Responsibilities” define those four corners. This clause provides the user/customer with a detailed explanation of what services your software will provide. It should include when and how maintenance will be performed, how software will get delivered, and reasonable assurances that solutions will be timely.
a. Make sure to have a client and customer subsection. Clearly defining the responsibilities of each party allows no room for confusion later.
b. Add the handling of customers data in a subsection. Meaning, if the customer decides to cut ties (within the correct notice period) then they can retrieve all data from your software in a virtual format. Not only is this an excellent hand out that will smooth negotiations, but it protects your company from any liability.
State in definite terms the cost for each subscription. This clause is a great opportunity to state that “after (__) period of time, X Company reserves the right to raise the price by Y amount.”
a. Clearly identify the payment periods. For example, payment is due on the first of the month, paid to X. Offers are usually monthly, semi-annual, or annual.
Every SaaS agreement should have a warranty clause. A warranty states that an agreement is true and will be performed or will happen. It may also state, CLEARLY, the software is delivered “as is”.
This clause is where you state the work, intellectual property, and by-products of the software are strictly confidential and for use of the client only. Anytime a third-party is granted access, contractual duties may be terminated. The first sub clause should state what is considered “sharing” of confidential information, and the second should clearly identify all exceptions. An example term is “is known publicly at the time of the disclosure or becomes known publicly after disclosure through no fault of the receiving party.”
Simply a promise by one party to another to cover the losses if they do something that causes harm or third-party to sue.
Clearly identify what is the governing body of law.
Using the state that you are headquartered in provides value in potential suits. This could come as a subsection to “Indemnification” or an entirely new clause (“Venue”). Either way, we recommend one follows the other.
a. When dealing with international clients, they will want to ensure any possible lawsuit will not result in the SaaS provider getting “home court advantage”. Common venues which stay partisan to international corporations is the most common location for American business to Delaware. You will also want to state the governing body of law is your principal place of business (“PPB”). Your PPB is the state where your executive management meets and works from, typically headquarters. Clearly define the state so there is not an issue later.
This clause limited the indemnification stated in the previous section. A clear and concise disclosure that you, as the provider, are not liable for any damages as a result of outage, virus, data breach, or any other potential issues that MAY cause financial hardship on the part of the end user. Make sure this clause is clear, and initialed.
a. Talk to an attorney to determine which potential issues should be indemnified and which should be waived under “liability”.
b. A potential issue unrepresented in the agreement may cause avoidable liability.
c. When providing a SaaS service, you are not on the premises. Cap liability at fees paid for the preceding 12 months (industry standard), and unlimited liability in all relevant data. You do not want a breach in their data resulting in a lawsuit against your company.
Clearly state the agreement hereby is final, total and complete. More so, no other communicated language outside of the agreement is binding unless stated here within. The ultimate goal is to prevent any verbal or written agreements outside of the contract to bind over a signed and agreed upon term.
Including uptime, service, and usage. Unlimited usage allows the client to take the software wherever and whenever. This clause also defines when the product will be serviced. For example, “X Company will use reasonable efforts to limit Scheduled Maintenance to four (2) times per year for up to eight (4) hours each, and to notify by way of e-mail with a notice period of at least five (5) calendar days.”
There are a few clauses that may be added to benefit each party. When building a startup, partnerships in marketing and press releases may add significant value to the brand. It’s valuable to add a press release clause that allows either party to publicize the name and use of each other's services.