SaaS Agreements – The primary obligation of a provider, or licensor, under a Software as a Service agreement (SaaS) is to construct an accessible software to the client, or purchaser, via the Internet as a service. Through a SaaS agreement, purchasers are granted permission and freedom to the use of said software, but are otherwise subject to restrictions and/or prohibitions that are explicit to each individual case.

A SaaS agreement is a broad term that can be used in a wide variety of service provider contracts and agreements. Some of the most common involve Infrastructure as a Service, back-up as a service, and Platform as a Service.

These contracts refer to cloud-based processing models, in which specific services are remotely hosted and/or delivered through the Internet from the developer’s server. Here, the service itself is provided to a remote customer, whereby substantial operational and financial benefits could include: 

I. In terms of speed – Access to the service is essentially immediate. On the contrary, a customer who has bought a similar product and is looking to install the system to host the program will usually endure unnecessary expenditures involving HVAC costs and other electric services. 

II. Cost-effectiveness – Any costs associated with administrative support for the environment are the sole responsibility of the SaaS provider.

Moreover, conversions from noteworthy and long-term capital spending on a purchaser’s balance sheets are allocated over the life of the purchased system; in addition to operational expenses, reports on income and expense sheets can have a momentous impact on an overall company’s financial reporting.

III. Product flexibility – The ability to transition or upgrade the system and/or the ability to add new solutions could be negotiated in as little as one year. On the contrary, other programs can lead to extensive waiting periods.

These, among other reasons, are pivotal reasons behind the ever-growing transition to the SaaS model.

SaaS Agreement Attorney John P. O’Brien Explores the SaaS Model

Undoubtedly, the SaaS model is a service-based model that has continuously demonstrated noteworthy support on the amenities provided. Among its many benefits, SaaS models seek to provide Service Level Agreements, or SLAs, which are routinely used to categorize service support concerns based on urgency.

A SaaS cloud-based computer system will offer: quick processing; minimally required advance payments; it serves to eliminate the need for supplementary support staff; and it also has the remarkable flexibility to meet future customer needs, as these are subject to change.

From the perspective of a SaaS provider, SaaS allows potential purchasers the opportunity to quickly and easily use the product and services. SaaS providers can easily showcase the product and allow purchasing clients the opportunity to use SaaS servicing prior to making the decision of purchase. From the client perspective, there is no need to have additional equipment and a team of support staff. SaaS providers are notoriously recognized for creating virtual support for the SaaS service. The entire process can be set up and ready for the purchasing client within a few days, whereas other products and services can take upwards of several months to install.

As a legal agreement, SaaS contracts impact matters similar to those of an end-user license agreement, or EULA:

I. Acceptance is critical in any tech-contract. Under this clause, payment obligations are usually set. Acceptance, however, is a clause that can be difficult to negotiate.

A specific way to approach the clause is to recognize that the service is accepted as soon as delivery and access to credentials has been received. This approach is excellent for parties where there is minimum configuration needed in order to complete a transaction. A licensor can argue that acceptance should be immediate, as it is in their interest to collect revenue for acknowledgement purposes. Nonetheless, agreeing that a SaaS is regarded as being accepted immediately after receiving the necessary credentials is not always in the best interest of the purchaser. In situations where configuring an application can be a complex and lengthy matter before the client can even access and use the software will not be ideal.

There are alternatives to accepting SaaS immediately upon receipt of credentials. One of the most common ways around this is to agree to a limited-time trial. This could be either a paid service or free of charge, depending on what the licensor has established. For the most part, free-trials are limited in duration, allow for a limited amount of users, and are usually for testing purposes only. Licensors can still benefit from a free trial since it can charge for the configuration as a professional service fee.

Since an acceptance clause can be a complex matter, some SaaS agreements often omit the terms from the contract language altogether. In such situations, it could be useful to add a brief acceptance term; in which acceptance will be automatic once certain conditions are met.

II. Warranty & SLAs are for the most part, separate clauses. As a general provision, a warranty states the specifications promised by the licensor with regard to the product during a certain time frame and for specified outcomes or remedies.  Warranty specs can be either detailed or provided as a general provision. Under certain situations, a client may recuperate a refund if there was a warranty breach.

Additionally, a warranty clause can also include language that distinguishes when and under what circumstances the warranty will be applicable. Under the provision, a warranty may not be granted under certain situations.

Warranties are generally provided without additional fees.

SLAs are detailed agreements with regard to the upkeep of the product. It will also include support services to be performed by the licensor, which will be defined as a level of service, outlining the responsibilities of all parties, and the response time and service of warranty.

A warranty and SLA defined in a SaaS agreement are multifaceted and can sometimes overlap. Understanding how these clauses can affect the product use and licensor service is essential in a successful SaaS agreement.

III. Indemnity is a clause that demands careful consideration. An indemnity provision serves as a contractual promise by one member to defend the other from liabilities or losses, the risk of harm, or to provide compensation. For many purchasers, an indemnity clause is could sound like an insurance contract. It is worth noting, however, that there are certain elements that do not allow parties to indemnify. Every state will have different regulations regarding what can or cannot be indemnified.

IV. Data Security and Management are imperative terms on all SaaS agreements. A purchaser’s sensitive data will reside on the licensor’s server, rather than his or her own computer systems and storing sensitive information on a cloud server can be risky. Clear indications of what should be expected when it comes to data security and its management is vital. A well-established agreement will include a clause on how data privacy is stored, managed, and protected.

More on SaaS Agreements 

From the Developer’s Perspective: There are a multitude of reasons why a software developer client will favor the SaaS model, but the two most important reasons include: swift implementations and short-term operating expenditures.

The benefits to a developer’s business is very simple – SaaS is a definite comprehensive product with a singular sales cycle; of which implementation variables will be under the control of a SaaS provider. SaaS agreements are on the rise and are currently superseding on-site software licensing in IT. Licensors provide the format, application, hosting services, and software maintenance as a recurring subscription fee.

The popularity of SaaS agreements is attributed to the benefits in keeping applications in the cloud: cost effectiveness and operational advantages.

From the Consumer’s Perspective: A significant benefit of a SaaS agreement is that the purchaser does not own the perpetual license to the copy of the software. In fact, the consumer does not own the server nor has access to the server. Subscribers simply access the URL with provided login credentials for software that is hosted and maintained by the licensor. Licensing fees are routinely calculated contingent on the number of users, the amount of transactions, and other metrics associated with the identified term of subscription.

Attorney John P. O’Brien – SaaS Agreement Attorney

When it comes to SaaS agreements, negotiation is key. Issues arise, however, when in order to negotiate terms, the agreement drafter must have an understanding of the implications of the legal terms within the agreement.

Addressing terms and clauses in a SaaS agreement could be difficult. In order to embark on a successful subscription, licensors and purchasers alike are encouraged to seek the legal advice of a skilled attorney who has experience in negotiating agreements, drafting contracts, and reviewing SaaS agreements. With the help of a proficient attorney, clients will ensure that final contracts meet the needs and expectations of all parties involved.

John. O’Brien, Saas Contract and Agreement Attorney, has many years of dedicated experience in working within the tech industry, including complex SaaS agreements. His experience involved working with large manufacturing companies and software developers alike. The tech industry demands constant change and adaptation on all levels; Attorney John O’Brien is prepared to represent your interests in an ever-evolving industry.