SaaS agreements are legal contracts made between application developers and their users. The agreement outlines the company’s terms and conditions that lay out how the application can be accessed and when it can be used. The contract will usually include a subscription license agreement, reseller agreement if you are working with a Var or Systems Integrator, and generally a service-level agreement (SLA) as an attachment to the Subscription Agreement. A SaaS agreement defines what level of customer service the user can expect from the SaaS vendor and vice versa. The agreement outlines how these expectations can be monitored and whether there are any potential remedies in the event the expected service levels are not met.

When entering into a Software-as-a-Service (SaaS) agreement, it is necessary to develop a contract that allows all parties a mutual understanding of how the product can be used. In some instances you may want the SaaS provider to include other related operational support like data backup-up, or disaster recovery support services; when those related services are included the Agreement is generally viewed as a managed services agreement. In order to achieve this, it is important to understand key clauses that could be used to strengthen the Software-as-a-Service agreement.

A Brief Explanation of a SaaS Contract

SaaS contracts are legal agreements set between vendors/publishers/service-providers and their buyers, which lay out the terms and conditions on how end-users can access the use of the software, including the management of payments and subscriptions.

A SaaS agreement can come into play when a business makes the decision to license its software as opposed to purchasing it. In an agreement, the SaaS vendor will provide access to the software and/or other technologies over a private, public, or even a hybrid cloud. This is contrary to traditional approaches, where the software was sold in its entirety to a corporation or enterprise and was then installed across intended servers. This typically allows a SaaS provider to get the Customer’s installation up muck quicker then conventional in-house software installations; it often relieves the Customer of related operational support, when offered as a Managed Service. Some side benefits for the Customer is it becomes easier to remain current with new versions of the SaaS as they are introduced, and SaaS providers help offer Customers quick and cost effective option to grow  to meet unforseen spikes in volume.

For the most part, a SaaS agreement is set to construct clear expectations and obligations between the intended parties, however, the specific services, obligations, and SLA’s could vary based on the service, product, or technology being offered.

The Importance of a Well-Developed SaaS Agreement

According to Gartner.com, cloud-based services were expected to grow over 23% in 2021, totaling more than $330 billion. Despite this, SaaS has earned a reputation of being very difficult to manage, track, and/or measure when it comes to compliance with its contractual commitments and SLA’s. With these challenges, many businesses are often affected by a lack of compliance; therefore, it is unequivocally important to understand what is needed to build a better SaaS agreement.

SaaS agreements serve as a bridge between what vendors have control over and what companies can expect. A strong agreement can be difficult to develop, negotiate, manage as well as maintain. For this reason, companies must consider working with appropriate finance and IT departments in order to ensure their contract meets their business goals.

A well-established SaaS agreement will play an important role in ensuring what parties can expect from each other. The contract will make sure both parties are held legally accountable for meeting their obligations. On a surface level, Software-as-a-Service agreements can appear generic, but beneath the surface, these contracts are multi-layered and every layer requires an in-depth understanding and contemplation.

Important Clauses to Consider in a SaaS Agreement

When drafting or negotiating important clauses in a SaaS Agreement, many parties fail to consider clauses that may be critical for them in the practical world. As previously mentioned, in order to ensure the agreement has the best opportunity at being successful, it is important that key clauses are not only considered but are also deeply understood.

The following are just a few terms and conditions every cloud serve agreement should consider.

1. The Scope of the License

The agreement’s “authorized use provisions” will usually include most, if not all of the following:

• A clear indication of what the authorized technologies and facilities are and how the services can be accessed and used
• The extent of access achievable by the license and recognized services that could be used
• How many authorized users are allowed to access the software
• Whether the SaaS vendor will provide the services at an exclusive level, or if the vendor will offer various customers access to the service under a multi-tenant model of software service distribution
• Whether the provider restricts the field of use in the license, such as limiting the use to a specific business actor, industry, or market

2. Security Data and Ownership

While the software is being used, the provider along with licensed users will generate a great amount of data. The SaaS agreement should identify the party that owns the data that is entered into the platform. It is important to clearly outline the ownership of this data since service providers are responsible for hosting the data and the ownership of the data can oftentimes be uncertain.

It is generally recommended that parties inquire how information is or will be stored and/or transmitted. Likewise, it is important to understand whether there are security restrictions when attempting to access stored information. Additionally, the SaaS agreement will need to include a policy for the privacy of the collected data, which should detail how the service provider intends to use the data and whether the data will be shared with outside parties. Under this clause, data encryption is often discussed, including how the data is secured and what the service provider’s role is in case the data is breached or there is some other form of security issue.

3. The Limitation of Liability Clause

This clause essentially shields SaaS vendors from legal risks by legally binding end-users from being able to file claims against them for damages. For instance, when software is not working properly and the customer suffers losses, the clause will restrict the company’s opportunity to recover damages.

How this clause is drafted will usually depend on the risks associated with the unique product or service offered by the SaaS vendor. The issue with this clause is that it tends to disproportionately favor SaaS vendors. Generally, the clause will set a limitation on the total amount of compensation a vendor could be held responsible for.

4. Appropriate Data Privacy Obligations

The SaaS providers will need assurance that you have appropriate rights and consents to process the Customer Data provided. You need to remain compliant with GDPR, CCPA, CRA and a host of other emerging privacy laws and regulation. What regulations apply and what duties and obligations are relevant depends on the data collected and the specific data flows, where the data comes from, where its transferred, who work on that data to help provide that SaaS Service, like sub-processors. In addition to data privacy its important o consider the impact of this SaaS Agreement with respect to the Customer’s compliance program

An Effective SaaS Agreement Requires an Experienced Tech Attorney

At first glance, Software-as-a-Service agreements may seem generic. In reality, these contracts should be tailored to the service being offered and the parties involved. If you are contemplating entering into a SaaS agreement, you should consider speaking to a well-versed tech attorney who can guide you through the elements required to specifically make your agreement successful.

Over the years, Attorney John P. O’Brien has garnered a reputation for developing strong SaaS agreements for small, independent companies along with large, multi-million corporations. Whether you seek to enter a SaaS agreement as a service provider or a customer, consider obtaining the proficient legal support of Attorney O’Brien. Attorney John P. O’Brien will assist you in managing your contract, leverage negotiated clauses, monitor for compliance, and also review the contract for potential amendments or renewals. Schedule a complimentary case evaluation today by calling (732) 219-6641 or complete the online contact form here.