Guide to Software as a Service (SaaS) Agreements

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Guide to SaaS Agreements

Every Software as a Service product is unique and so are the agreements to use them

As technology evolves, more and more businesses are switching to a Software as a Service (SaaS) model for their products. This isn’t surprising considering the wide range of benefits of the model, as has been highlighted by the likes of IBM and Forbes. This innovative way to deliver products, however, does come with complications when detailing the relationship, rights and responsibilities between service providers and customers. In order to regulate these factors, it is vital for SaaS providers to have in place a SaaS Agreement.

What makes SaaS Agreements different to traditional Software Agreements, is that a user is subscribing to a license to access the software stored on the cloud, rather than a one-off purchase to gain outright usage of the software. The ongoing nature of the relationship requires more stringent legal terms to ensure clear understanding of the provider’s responsibilities to grant access as well as obligations and restrictions on the user.

The following “Guide to SaaS Agreements” will give you an overview of what to consider when launching your SaaS product and developing a SaaS Agreement.

Guide to SaaS Agreements – Initial considerations

Is your product B2B, B2C or both, and does it need an end user licence agreement?

Is your product B2B, B2C or both, and does it need an end user licence agreement?

Before you begin the process of drafting a SaaS Agreement, it is important to consider what service your software offers and how it will be delivered. This should then be clearly outlined in the beginning of your agreement to prevent disputes arising.

Furthermore, there are different factors to examine dependent on whether your service is Business-to-Business (B2B) or Business-to-Consumer (B2C).

For example, for B2B SaaS products that deal with enterprise clients, your clients may require more tailored agreements to their project specifications and measurable standards they need met. Ensuring you have an agreement that can be easily altered will make you more adaptable to your clients’ needs.

Another example is where your SaaS product is B2C. For a B2C product you may need to create a SaaS Agreement that is structured more as Terms of Use, which your consumers can easily agree to upon when signing-up to use your product. This different format will be needed as, unlike a traditional contract, the Agreement is not signed by both parties.

With that said, this Guide to SaaS Agreements acknowledges there are a number of circumstances where a Software as a Service product will have both B2B and B2C agreements. Such circumstances arise where the head agreement is formed between a large organisation and the software provider and Terms of Use need to be agreed between the individual users (usually employees) of the client organisation. We consider the terms relating to end users below.

End User License Agreement

An important factor to consider, particularly for B2B SaaS products, is whether the purchaser of the service is in fact the end user of the service. Where this is the case, the end user may not be bound by the terms of the SaaS Agreement. You may wish to consider, firstly, whether you grant your customers the right to share usage of the software. Secondly, where your product can produce this divergence of customer and end user, you may wish to consider incorporating an End User License Agreement to bind the user to your terms.

Terms of Use for the end user, or an End User Licence Agreement is particularly important where the end users are not employees of the main client. Where an employee causes damage to your system or breaches an agreement, their employer may be vicariously liable for their actions. Which means you may have a case against the client.

If the end user is a customer of your client or other third party, then having an end user licence agreement is required to ensure you have imposed contractual obligations on the end user.

Even where the end user is an employee you may also choose to have them agree to your terms. There are numerous examples of when that is appropriate.

Guide to SaaS Agreements – Australian Consumer Law

Staying legally compliant is essential to good corporate governance

Where you are selling to Australian consumers, it is vital to consider the Australian Consumer Law (ACL) and how it applies to your business. The ACL is part of the Competition and Consumer Act 2010 (Cth) and is a national law which is intended to protect consumers and ensure fair trading. The ACL stipulates certain guarantees which all Australian consumers are entitled to. It is enforced by courts and tribunals across Australia. There are significant penalties to be incurred by businesses which fail to comply with the law.

It is illegal for businesses to try to revoke or alter the fundamental guarantees in the ACL and it is therefore important to ensure that any terms within your SaaS Agreement comply with the legislation.

Similarly, where the SaaS product is being provided to many consumers the Terms of Use will likely be considered a standard form contract. The laws relating to unfair contract terms need to be considered where providing a standard form contract.

Common Terms applicable to SaaS Agreements

Consider some of the common terms of Software as a Service Agreements

Service and Access

As discussed above, it is vital to include in your SaaS Agreement, exact terms as to what service you are providing.

Included here are terms relating to how customers and authorised parties can access your software, whether by creating an account, downloading an app and/or visiting a website. Furthermore, if you are intending to implement geo-blocking, you should list the banned locations where users cannot access your software.

User Responsibilities

Clearly outlining what your users’ responsibilities and obligations are is an important aspect of a SaaS Agreement.

Common terms relate to:

  • how the customer uses the software;
  • safe storage of passwords and account details;
  • providing true and accurate information;
  • outlining any prohibited uses of the service;
  • prohibiting any alterations to the software; and
  • prohibiting any resale of the software.

Payment

There are a number of payment models and options you can utilise for your SaaS product. It is important these are clearly outline them in your SaaS Agreement. Whether you run on a weekly, monthly or yearly subscription should be stipulated, along with any upfront costs associated with signing-up. You may also choose to have different tiers of services at different prices. Furthermore, you should include what methods of payment are accepted and that payment must be made in full for continued use of the software. Lastly, you will need to include provisions on what happens where payment fails.

The Guide to SaaS agreements acknowledges some terms, such as those relating to payment and services may be either explicit in the agreement or by reference to product descriptions and payment options on a related website.

Intellectual Property Rights

A well-drafted SaaS Agreement should include terms outlining the rights and responsibilities of all parties as it relates to each party’s Intellectual Property (IP).

Firstly, where customers can create their own content on the software, then ownership of any IP generated needs to be considered and clearly assigned or licensed.

Secondly, it is important to protect your own IP, ensuring that the license does not modify your rights and that the software is protected from reselling, reverse engineering and unlicensed modification. Intellectual Property Protection extends beyond the scope of these agreements.

Termination

Protecting your profits is important.

It is important to include in your SaaS Agreement terms that consider what happens when:

  • a customer wishes to cancel the service;
  • a customer fails to pay the fees;
  • a customer breaches their user obligations;
  • a payment fails due to an error in the payment platform;
  • there is a failure in the product and the service cannot be provided;
  • either party becomes insolvent; and
  • an act of force majeure occurs.

All of these instances can cause a disruption to your profits and therefore must be carefully considered in the Terms of Use. Furthermore, clearly outlining how and when an agreement can be terminated ensures best practice in dispute management.

Software Updates and Support

Within your SaaS Agreement you may also want to consider what obligations you undertake to ensure adequate access to your customers and any support services you provide. You should include in any support or feedback mechanisms that are available to your customers.

Additionally, your software will inevitably need to be updated and it is important to stipulate what kind of notice will be given for any disruptions to services and timeframes for it. It is also important to ensure that the SaaS Agreement is renewed with each new iteration of your software.

Also consider what, if any, service level agreements you will offer.

Limitation of Liability

There are tangible commercial risks associated with providing a SaaS product and it is important to consider to what extent you are legally allowed to limit your liability and the extent to which that should be limited.

This is particularly important for B2B software where businesses rely on your product for their commercial endeavours. As discussed above, when seeking to limit your liability it is also important to consider any legislative guarantees you are required to uphold.

Dispute Resolution

Software as a Service products are commonly used and sold across jurisdictions. As such, it is important for your SaaS Agreement to clearly stipulate how disputes are to be resolved and within what jurisdiction any disputes are considered in and what law applies.

Your agreement may also outline a set procedural mechanism in which disputes are processed and a resolution can be sought.

Third party contracts

Particularly relevant for online market places

A consideration for some SaaS product, particular those that create a marketplace for users to interact with one another, is stipulating in a SaaS Agreement what kind of legal relationships are created between users.

Where users can trade or sell goods and services, it may be pertinent to provide standard documentation on your platform so that all parties are aware of their rights and responsibilities, as well as limiting any liability you may hold.

Can I just use an online or free SaaS Agreement template?

Free and online templates are never advisable nor do they look professional.

A number of online services currently provide simple templates. Although such services may be tempting, businesses should be wary in utilising them when considering how varied SaaS products are. SaaS products exist to sell real estate, operate a marketplace between consumers, allow you to stream movies or manage your company accounts. There are an almost infinite number of other examples. Finding a suitable generic free or online SaaS Agreement template is highly unlikely. In fact, when we draft these sorts of agreements, we draw on a significant library of clauses. Every agreement is tailored to the software and business model.

Furthermore, as discussed above, when it comes to enterprise B2B software, your customers may wish to licence your product, however, may then have a legal team who are unwilling to accept your templated legal document and require something more tailored. Remember people will look at the quality of your agreements and are likely to consider them a reflection of the quality of your product and business.

Guide to SaaS Agreements – Key Takeaways

Don't hesitate to contact us.

As you can see, there are many factors to consider when drafting a SaaS Agreement. Every SaaS product is unique, and that’s why it's important to receive sound legal advice. Why not contact a technology lawyer at IT Lawyers Brisbane. With over 20 years' experience in tech, we can provide you with a SaaS Agreement that is perfectly tailored to your needs and protects your interests.

Furthermore, there are further legal considerations you should have in mind when launching your SaaS business. You can check out our advice on Structuring a SaaS Business and Guide to Privacy Policies for SaaS Businesses to become familiar with a few other elements to keep in mind!

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