SaaS Agreement

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What Is a SaaS Agreement?

A SaaS agreement, or a software as a service agreement, lays out terms and conditions of a software delivery model. In this type of model, software and data will be centrally hosted and users will access the software and data over the internet.

A SaaS agreement may include heavy service elements, or it may just give end users access to products that can alternatively be licensed in a traditional way. No additional software or hardware is needed in the SaaS model, as data is uploaded into a system and then saved in the cloud.

Is a SaaS Agreement Different From a Licensing Agreement?

A SaaS agreement differs from a licensing agreement.

Under a licensing agreement, a company will usually deliver the actual software for use, typically for a single or monthly fee. Software and relevant hardware must be physically installed.

In a SaaS agreement, on the other hand, customers get access to software and other technology through the cloud, but no physical goods are exchanged. A SaaS agreement will give end users access to the products involved online. As a result, the structure of a SaaS agreement focuses on permitting the use of a product instead of allowing product use as a service.

Important Clauses Found in a SaaS Agreement

An individual SaaS agreement will have unique needs and therefore different clauses. The specific clauses in an agreement will depend on the following relevant information:

  • Industries
  • Products
  • Services

However, all cloud service agreements will share certain terms and agreements. This includes:

  • Access right and users: Most SaaS agreements will have a metric to limit access to either a certain number of users or a certain amount of data. Your agreement should:
    • Detail that metric
    • Define what a user is
    • Establish penalties for abuse
  • Customer service and support: Provisions should establish:
    • How you will provide support for your services
    • Response time
    • Any additional guarantees in terms of expected service
  • Data ownership: This vital component of a cloud service agreement establishes who gets the rights to data that is entered into a platform or service.
  • Data security: This section is particularly important in consumer markets. The section should detail:
    • Encryption responsibilities
    • How often data will be backed up
    • Protections offered
    • Security of entered data
    • What happens to data in the event of:
      • A security breach
      • Bankruptcy
      • Termination of service use
    • Where data is stored.
  • License scope: You should define and limit the rights that you transfer to subscribers.
  • Limitation of liability: You should also make any damages available clear, and you can cap contractual liability.
  • Master agreement language: Most agreements will include language that makes this document the master document for all services you offer so you do not have to negotiate or sign a completely new contract every time a customer wants to renegotiate or change the services provided.
  • Performance objectives: Detail what end users should expect from your service. This should include:
    • Guarantees
    • Relevant results
    • What your service does not promise
  • Pricing: Pricing and when your company has the right to charge detailed costs should be established in the agreement. As SaaS agreements typically use a subscription model, you will usually get payment in one of the following ways:
    • Monthly
    • Quarterly
    • Yearly
  • Rights to a physical copy: Most SaaS agreements state that customers do not have a right to a physical copy of the software used.
  • SLA: A cloud service agreement typically also includes a Service Level Agreement, or SLA. The SLA sets a minimum performance standard for a SaaS. Performance standards are generally related to service availability. In this part of the agreement, you can set your service's uptime percentage for services that are critical to business operations.
  • Subscription plan and model: Provisions should specify exactly what the subscription plan includes, as well as how your services will be delivered.
  • Term, Termination, and Renewal: These three clauses should establish the agreement's term and the processes that should be followed to terminate or renew the service. Generally, a SaaS agreement will have evergreen renewal. This means the agreement will be renewed automatically for another term, unless a customer actively terminates their agreement before an established date.

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Types of Agreements SaaS Companies Need

If you have a software as a service company, you will need agreements at various levels. In addition to the SaaS agreement or terms of service/terms of use agreement for your customers, you may need a variety of other agreements.

Company-level agreements for SaaS companies can include:

  • Assignment of intellectual property, or IP transfer agreements
  • Confidentiality/non-disclosure agreements
  • Employment agreements
  • Shareholders agreements

Customer-facing agreements can include:

  • Master services agreements
  • Purchase and sales order agreements
  • Service level agreements
  • Terms of service/terms of use

Third-party agreements can include:

  • Advisor agreements
  • Affiliate or partner agreements
  • Contractor agreements

Public-facing policies can include:

  • Privacy policies
  • Security policies
  • Trademark policies

Image via Unsplash by arifriyanto

Terms of Use and Privacy Policies Needed for a SaaS

No matter how your SaaS functions, you should have a terms of use and privacy policy in place for users. These agreements serve different purposes.

Terms of Use Agreements for a SaaS

This type of agreement will act as a legally binding contract between your company and your customers. You can use your terms of use to set guidelines and rules that customers must follow if they want to have access to the services your SaaS provides.

You might hear this type of agreement referred to in the following ways:

  • Terms of use
  • Terms of service
  • Terms and conditions

Practically speaking, they're all the same thing.

Clauses to include in this agreement are:

  • Business contact information
  • Copyright and intellectual property rights
  • Details about what would happen if either party violated the terms of use
  • How customers can end the service contract, including penalties should they end a contract early
  • How your SaaS handles content generated by users
  • How you will notify users about changes to the terms of use
  • Laws that govern the contract
  • Licensing information
  • Limitations of liability and disclaimers of warranties
  • Payment term specifics
  • Restrictions and/or limitations of use

You should ensure that language you include in terms of use agreements are very clear. A judge may find an agreement is not clear enough to be upheld if you use too much legal or technical jargon for a user to reasonably understand.

Privacy Policies for a SaaS

If your SaaS service collects personal data, you must legally have a privacy policy. Many countries and regions have laws governing this, including:

  • California: The California Online Privacy Protection Act ( CCPA ).
  • Canada: The Personal Information Protection and Electronic Documents Act ( PIPEDA ).
  • European Union: General Data Protection Regulation ( GDPR ).

Almost all SaaS services will end up collecting at least one piece of information considered personal data: a user's email address. If you collect email addresses, that's enough to require that you have a privacy policy in place. Simply having a terms of use in place is not enough.

To be in compliance with most privacy directives, your privacy policy should include information about:

  • What personal data your service collects and uses
  • How your service collects and uses personal data
  • How your service stores personal data
  • Whether your service shares personal data with third parties
  • Information about cookies:
    • If cookies are used
    • Which cookies are used
    • Why cookies are used
  • How users can:
    • Limit the data that is collected and used
    • Withdraw consent to have their data collected and used
    • Request to have data deleted

SaaS agreements are integral parts of any software as a service company. Make sure you work with lawyers who know how these contracts work when crafting yours.

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