SAAS LICENSES - Key provisions for vendor agreements

Software continues to move to the cloud. This trend is not likely to abate for many years to come. When you decide to offer your software product as a Software as a Service (SaaS) offering, here are some key issues to consider when assembling your end user terms:


Click Accept v. Actual Signature:Whether your customers are willing to enter into an online “click accept” end user agreement or want to personally execute an agreement will often depend upon who your end users are, how expensive your service is and whether or not your service is mission critical. However, all things being equal, a vendor should prefer a “click accept” agreement because it is much less likely to be negotiated by the customer. Even if you expect a number of customers to want to negotiate your end user agreement, it’s still a good idea to allow a path for “click accept” – because you may be surprised which customers take that route, and also for those customers that want to negotiate the agreement, it allows them to start reviewing in advance which will shorten the negotiation period.

Affiliate License Scope: Make sure your agreement is clear as to the license scope, in particular whether affiliates can use the SaaS services. Under traditional software licenses, use can be limited to a single computer, server, location, etc., not so with SaaS services. The importance of this issue will be affected by how the service is priced. For instance, if the price increases based upon use or users then the more the merrier. However, if there is a flat fee, then you may lose potential revenue if affiliates are given access.

Availability Commitments: May customers will want to see a service level commitment in the form of an uptime commitment. It can also be good marketing to offer this upfront. Alternatively, you can have this clause separately available when you are asked for it. An advantage of offering it up front is that the vendor can frame the commitment and credits favorably, rather than facing a service level commitment proposed by the customer.

Privacy/Security: Privacy and security are hot topics for many SaaS end users. It’s good business these days to offer up front a privacy and security schedule. You can present this as “hard coded” and make it something you are comfortable with, rather than waiting for the customer to propose their version.

Confidentiality: Non-public elements of the SaaS service should be defined as confidential information of the vendor. Additionally, there should be restrictions on (i) competitors accessing the system, (ii) access for the purpose of creating a competitive product, and (iii) publishing the results of any benchmarking tests performed by the customer.

Suspension of Service: Since many SaaS offerings are mission critical, the agreement should be very clear under what circumstances the vendor may suspend service, like for non-payment.

User Content License: The agreement should provide that the customer grants the vendor a license to host all content provided by the customer, and the customer should warrant that it has the rights to provide such content and indemnify the vendor for third party claims relating to such content.

Bottom Line: The above suggestions apply to provisions that might require unique treatment and consideration for SaaS. However, other standard end user provisions, such as warranty disclaimers, liability limits, etc. will continue to need to be included in the agreement. Vendors need to carefully think through provisions that should be included in SaaS end user agreements.

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William Galkin manages GalkinLaw. Mr. Galkin has dedicated his legal practice to representing Internet, e-commerce, computer technology and new media businesses across the U.S. and around the world. He serves as a trusted adviser to both startup and multinational corporations on their core commercial transactions.


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