SaaS Contracts

SaaS Contracts

The growth of the SaaS business model reflects modern consumer demands for more accessible, flexible, and secured applications available at the touch of a fingertip. Given the increasing use of SaaS applications, not only is it crucial for your contract to be articulated with regards to the rights and obligations of the supplier and the user but, more importantly, it needs to be bespoke to the type of services you are providing.

 

What is a SaaS contract?

A SaaS contract is the term used to describe the agreement between a supplier and a user. The SaaS contract will outline the terms and conditions under which the SaaS application may be used. It will also contain the rights and obligations of both the supplier and the user.

How is a SaaS contract different to a software licensing agreement?

Where consumers are copying the software onto their own computers, a software licensing agreement will be required under Copyright laws because they legally need a license to be able to lawfully make their own copy of the software. This is where SaaS applications are unique because rather than the supplier providing a copy of the software to the user to install, the supplier is instead granting the user access to its service via the Internet. As there is no copying of software when using SaaS applications, a software licensing agreement is not required.

Fundamental Elements of SaaS Contracts

The unique nature of SaaS contracts reinforces the importance of ensuring that both the rights of the supplier and the user are protected under the terms and conditions of the contract. While there will be several considerations that you will need to take into account when drafting your SaaS contract, it is essential that you are aware of the following key elements:

  • Intellectual Property

Your software is your most valuable asset and as the supplier, you must ensure that there is a provision which allows you to retain all intellectual property rights in and associated with the software and services that you provide to the users.

Depending on the type of service you provide, it can be common for users to modify your software to suit their own needs. To protect yourself as the supplier of the software, it is important to account for these circumstances from the beginning by including a clause which deals with the modification of software by users. For most of our clients, we recommend for this clause to require your explicit permission.

  • Jurisdiction

As SaaS applications have the ability to reach a global audience, you need to carefully consider which jurisdiction of laws will be applicable to the interpretation of your contract. The jurisdiction that you select will ultimately determine where disputes arising from your SaaS contract will be resolved.  

For most people reading this, your first choice of jurisdiction may be the Australian jurisdiction. However, factors such as convenience, enforcement, and user demographics need to be closely examined before making your final decision. For example, if your user demographic is primarily based in China then having an Australian jurisdiction would be less effective as opposed to having a Chinese jurisdiction.

If you are considering using an overseas jurisdiction for your SaaS contract, please contact us for further advice. It is not as easy as writing down ‘China’ in the jurisdiction clause.

  • Language

For Suppliers who offer their SaaS applications in multiple languages, you will also need to provide the SaaS contract in the same languages. This makes it essential for you to include a language clause which specifies which language prevails in the event that there is an inconsistency in the interpretation of the SaaS contract.

 

  • User-Generated Content and Data

A common feature in SaaS applications is users’ abilities to create their own content and to upload their own data. In most SaaS contracts, the user will generally retain full ownership of any data or content generated on your service. However, if your service is involved in the processing of users’ data and content, it will be necessary to include a protection clause, preventing you from becoming liable for any infringement on their rights.

  • Security

As with most services provided online, you will need to ensure that you have adequate protections in place against data theft, unlawful disclosure of confidential information, and/or the accidental loss or destruction of user data and content.

If you do not plan on hosting your service on your own servers, you should also consider including an additional clause regarding the backup of user data and content. As you will not be able to control the safety and reliability of the third-party server host, you need to protect your business in the event that user content and data is compromised by the server host. In these cases, it is preferable to place the responsibility of backing up data onto the user.

  • Liability

Similar to most commercial contracts, limiting your liability is a section of the SaaS contract which will require extra consideration. In most contracts, liability is generally excluded for indirect, economic, and consequential losses. Therefore, if there are any additional scenarios in which you would like liability to be excluded, you will need to make an explicit term relating to this.

You will also need to consider the maximum amount to which you are liable for. For example, will you liable for claims up to a certain amount or for claims that equal the amount of two months of the subscription fees. Depending on the type of service you are providing, this amount will vary.

 

It should also be noted that as with any service, the Australian Consumer Protection laws will apply. These cannot be contracted out of and therefore, you will need to be aware of the Australian Consumer Protection laws when drafting your SaaS contract.

Understanding the fundamentals of a SaaS contract is only the first step in this process. Tailoring the terms and conditions of your SaaS contract to the service that you are providing can be a difficult task. That’s where an experienced solicitor can guide you in the right direction and assist you in creating a bespoke contract for your SaaS application.