Have you heard the old saw about software eating the world? It was initially written by a legendary software developer and venture capitalist in reference to the explosion of software and the pressures of companies to reorient their products to focus on the advantages of in-depth software development. If you haven’t, that’s ok, and there’s a more current version you are probably familiar with: “there’s an app for that.”
The two statements highlight the current environment in that many aspects of your business, if not all, can be run through software programs. From your customer relations to product development to billing and accounting. All are run on software and with the increase in cloud computing, all are probably SaaS products.
What is SaaS?
SaaS, or software-as-a-service, is a subscription business model for providing software services through the internet. SaaS differs from traditional on-premise software in that the software is hosted on servers owned or licensed by a vendor, and the customer is provided access to that software through a web browser. SaaS products do away with CDs and other physical means of acquiring software.
I think of SaaS as an umbrella term and there are now many different -aaS models including PaaS (Platform), BPaaS (Busines Processes), and IaaS (Infrastructure). The model continues to grow and develop as entrepreneurs bring new products and technologies to market, so you can look forward to new acronyms in the coming years.
If you decided that a SaaS product is best for your company, you will need to enter into an agreement with your chosen provider. When engaging with a vendor the devil is always in the details, but there are a few prominent contractual terms that you will want to keep in mind on your SaaS journey.
Grant of Access
This is commonly the first or second section of a SaaS agreement, and it is one of the most important provisions to consider. This section will grant you, the customer, access to the product (usually defined as a “Service.” It is software as a service, after all!) that you’re purchasing and should accurately define what that service is. Sometimes a description of what you’re buying is captured on a schedule attached to the agreement. That is acceptable but you will want to make sure the schedule is referenced in this section and that service is properly defined in the schedule.
Often included in the grant of access is the term length that you will have access to the service, but it is equally at home as its own section of the agreement. This should be a length of time that you are comfortable committing to as a business and it often tends to be in year-long increments. A vendor may offer discounted pricing for multi-year commitments, but we recommend that you balance your business’ need for agility with any long-term financial obligation.
At the end of the initial term, SaaS agreements tend to automatically renew for additional terms of one year or more. In the daily pressures of trying to generate revenue and support clients, a business can lose track of the timing contractual commitments. Continuity of service is important but so is avoiding unexpected costs. If your SaaS agreement contains an auto-renewal clause, you should consider the impacts its effects may have on your business.
Intellectual Property Rights
The SaaS business model is based on providing a license to customers for a fixed term. As such, the agreement should state that the ownership and intellectual property rights of the product, including rights in the source code, remains with the vendor and any of the vendors licensors. As the customer, you may be asked to provide a license to your intellectual property, and you should weigh the benefits of doing so with your attorney.
Confidential and Personal Information
By definition and design, a SaaS product exists outside of your business infrastructure. Depending on the product, you may send confidential information and even personal information to the vendor. If this is the case, the SaaS agreement should address the protection of both categories of information.
The protection of personal information is an evolving body of law. If the scope of the agreement is outside of the US, you and the vendor should understand whether each party is acting as a controller or processor of any personal information because the obligations vary based on the designation.
The agreement should also address the return or destruction of such information at the termination of the relationship. If the parties agree to the return of the information, it may be practical to specify the format of the returned data.
SaaS products, like all software, are not perfect. Companies work hard to ensure that the products they provide to their customers are error-free and secure, but to err is human. Patches and bug fixes are commonplace to correct an overlooked issue and accessing the service through the internet provides an added layer of potential disruption.
To account for these concerns is the Service Level Agreement, or SLA. This document could include:
- who to contact if there are issues and how to contact them – e-mail, phone number, web portal;
- commitments from the vendor that the product will be accessible for a certain period of time (uptime);
- that errors will be responded to and corrected within a certain time period; and
- disaster recovery and business continuity procedures that are designed to maintain and recover access to the product during an outage.
Depending on the criticality of the SaaS product you are purchasing, special attention should be paid to this part of a SaaS agreement because without access or a proper working product your business could be negatively impacted.
SaaS agreements are complex beasts. They can be quite lengthy, and this list is by no means comprehensive. Pages can be, and have been, written on the terms of SaaS agreements, and the methods of allocating the risk between the customer and the vendor are evolving. We encourage our clients to consider the impacts of these clauses and discuss the interoperation of all of the terms of any agreement before signing up for that new software solution.
Matt is a founding partner at Peak Corporate Counsel. He focuses his practice on outsourcing and tech licensing, corporate governance, and commercial agreements. When not in the office Matt enjoys spending time outdoors, paddling on the ocean and hiking in the White Mountains, or on walks with his wife and small pug.
This article is for informational purposes only, and may not be considered legal advice.