The Importance of retaining an experienced SaaS attorney to represent you in a SaaS negotiation.
We have seen a rapid shift among most software providers to embrace the SaaS compute model. It certainly makes sense, the time and cost of standing up a virtual environment is much more effective; most SaaS providers can create a separate instance of a software application on their host platform with their dedicated application software running your custom environment within the matter of a few weeks. When you compare that to the prospect of expanding your in-house server and storage platform, the real estate for the server, the cost of the administrative necessary to implement, operate and support that investment, and the extensive up-front large capital investment required, you can see why a SaaS option is attractive to many customers.
However many of the protections that you may have become accustomed to seeing in your End User License Agreement (EULA) are significantly altered or sometimes eliminated under from your SaaS Subscription License. In addition some the remedies provided or the duties and responsibilities of each party are different within the SaaS world. Terms like software acceptance, software warranty, your IP Infringement indemnification, or even the insurance terms are different. The role of a Service Level Agreement (SLA).
From the customer’s perspective, the SaaS model blurs the lines found in the older Server + EULA license model. The focus within SaaS computing is directly upon the customer’s timely ability to: (i) logon to vendor’s host remotely and immediately start to use the application; (ii) gain the ongoing support updates as part of that SaaS deliverable; and (iii) ensuring they have access to, exclusive control over their data during the full term of the SaaS Subscription. The SaaS customer also needs to address their right to gain control over that data upon termination or expiration of the SaaS project, and ensure that they have appropriate confidentiality protections in place for that data. If that data includes regulated Personal Identifiable Information (PII), the Confidentiality provisions should also include an obligation to (i) promptly notify you of known or suspected breaches; (ii) a duty to assist in mitigating the impact of that breach, and (iii) it may include a remedy like credit monitoring or indemnification from fines or the cost of notifying data subject of the breach and perhaps paying for providing 6-12 months of credit monitoring service as a remedy. As a SaaS provider you may be willing to offer these terms as long as you can stipulate that the remedies sated are the exclusive remedy. In addition to these duties, you may need to include security provisions assuring you the SaaS Vendor will implement adequate technological and organizational measures to protect the PII. If that is the case you will most likely also need to reserve an Audit right a right to receive a copy of their outside security audit report, as evidence within your PII compliance program.
There are a lot of issues that need to be considered within a SaaS Subscription Agreement and just like the technology supporting the Service those lines can start to blur. It is extremely important that your secure all of the necessary and appropriate rights necessary to implement and support the service, but also secure the necessary rights to remain compliant with all the applicable regulations.
An experienced SaaS attorney can assist you in properly identifying the range of issues that apply to your specific SaaS environment and assist you in leading a discussion on how best to address those issues and concerns. Your counsel can provide a calming voice when these and other issues present themselves. So in the world of SaaS computing your counsel’s familiarity with the specific issues themselves such as acceptance, warranty, IP infringement etc is certainly important, but it is even more important for your counsel to have a solid working understanding and familiarity with how these issues intersect and the various trade off-offs that are frequently made. Your SaaS counsel must reflect proper context within the negotiation in order to be truly effective. In addition to the classical legal and contractual concerns, it is important for counsel to also be familiar with GAP revenue recognition regulations so that you can properly consider what may or may not be possible during your negotiation. SaaS Vendor typically recognize the revenue on the annual license at the beginning of each license year. The SaaS Agreement is generally non terminable and the SaaS vendor’s value, as well as the performance of their management, is focused on the maximizing Annual Contract Value (ACV) and minimizing churn within the customer base. These are the SaaS vendor’s “must haves”. As with any negotiation, it is vital for you to accurately understand what the other party needs from that negotiation.
There are a wide variety of other issues that may need to also be considered, perhaps the use of licensed Third Party Data within the processing; Security representations and warranties that one party needs to flow down to the other party. Terms that address the transition of the data and the processing back to the customer at the end of the license term.
If you are considering SaaS for your needs, or are a provider, you may want to consider being advised of the specific rights and responsibilities pertaining to your situation. An experience attorney who deals with Saas and technology licensing can shed light on aspects unforeseeable to you and protect your interests or the interests of your business. John P. O’Brien provides free initial consultations and has helped clients with SaaS agreements and other technology licensing agreements. You can learn more about John here on his website: click here.