SaaS Agreement Drafting Tips

1.            Don’t grant any “licenses,” don’t title it EULA. Avoid using the word “license” because it implies certain rights to your software, such as the right to copy it. However, if your software is in the cloud, you’re only giving users the right to subscribe to the service. So, don’t call your agreement EULA, a more appropriate title is SaaS Subscription Agreement. A good clause to include may go something like this:

2.            Consider keeping the Maintenance clause and the Service Level Agreement (SLA) simple. When you update the software on your system and fix the bugs, all users automatically benefit from it in a SaaS arrangement. So, it’s usually enough to have Maintenance encompass 99.(xxx)% uptime warranty, various performance standards, system administration, system management, and system monitoring. SLA would normally address different time frames for fixing problems.

3.            Intellectual Property. User keeps its own data, provider keeps IP ownership of the software. If any third party technology must be used with the SaaS provided, it’s a good idea to include a statement that usage of such third party technology  is governed by the terms of the third party technology license agreement and not under this SaaS Agreement.

4.            Confidentiality. You host and monitor users’ proprietary business information and other sensitive data. It’ll give them some peace of mind knowing that you’re bound by the confidentiality clause not to disclose or use that information. If you use subcontractors, the Confidentiality must state that you will bind those subs to at least the same level of confidentiality as the present SaaS Agreement.

5.            Warranty and Limitation of Liability. SaaS deal is a source of great potential liability since you’re undertaking to maintain large amounts of others’ important data. Therefore, consider including a disclaimer encouraging users to back up their data and to acknowledge that this SaaS is provided “as is” to be used at own risk with no warranty of any kind, no liability for lost profits or other special damages. It’s a fairly standard practice to disclaim all warranties due to the high potential liability involved in a SaaS deal.

6.            Subscriber Reference is a good clause to include:

  

7.            Independent Contractor clause ensures that parties to the contract are not liable for each other’s mistakes (as they would be in a partnership or a joint venture deal).

8.            Auditclause gives you the right to inspect user’s business to ensure that your program is not used on unauthorized (unpaid) computers/locations. Even if you know you’ll never bother auditing any user, it’s still good to have an audit clause because its very presence in the SaaS contract will deter many users from trying to cheat you.

9.            Governing Law is an important clause to have, especially if you’re hosting data in a very remote jurisdiction and you don’t want to have to go to court there. This clause ensures that all disputes are to be resolved in your home jurisdiction and not anywhere far away. Same goes for a Late Fee provision for overdue balances – even if you don’t bother enforcing it, people tend to pay faster knowing that some extra charges might be forthcoming.

10.          Arbitration clause ensures that, instead of going to expensive, confusing public court, your disputes will be resolved relatively inexpensively, confidentially close to you by a private arbitrator (or a panel) with a business background from a reputable arbitration organization, such as the American Arbitration Association (for US disputes). Arbitration is more informal, so you don’t necessarily need a lawyer to represent you, although it’s still a good idea to consult one.

11.         Third Party Services.  “The Customer acknowledges that the Services may enable or assist it to access third party services and that Customer does so solely at its own risk.  The Company makes no representation or commitment and shall have no liability or obligation whatsoever in relation to the content or use of, or correspondence with, any such third-party service, or any transactions completed, and any contract entered into by the Customer, with any such third party.  Any contract entered into and any transaction completed via any third-party service is between the Customer and the relevant third party, and not the Company.  The Company recommends that the Customer refers to the third party’s terms and conditions and privacy policy prior to using the relevant third-party service.  The Company does not endorse or approve any third-party service nor its content made available via the Services.”

12.          No Third Party Rights. This is to prevent people who did not sign the agreement from suing SaaS owner for problems with the Service. “This Agreement does not confer any rights on any person or party (other than the parties to this Agreement)”

13.           Force Majeure. “The Company shall have no liability to the Customer under this Agreement if it is prevented from or delayed in performing its obligations under this agreement, or from carrying on its business, by acts, events, omissions or accidents beyond its reasonable control, including, without limitation, strikes, lock-outs or other industrial disputes (whether involving the workforce of the Company or any other party), failure of a utility service or transport or telecommunications network, act of God, war, riot, civil commotion, malicious damage, compliance with any law or governmental order, rule, regulation or direction, accident, breakdown of plant or machinery, fire, flood, storm or default of Company’s or sub-contractors, provided that the Customer is notified of such an event and its expected duration.”