Tech & Sourcing @ Morgan Lewis

Contract Corner

Software as a service (SaaS) is a distribution model where the software vendor hosts their software on their own servers, or the cloud, as opposed to the customer purchasing the software for use on their own on-premises servers. While the specific clauses that may be needed are dependent on the particular use case or industry, the following key components should universally be found in SaaS agreements:

  • Service Level Agreement (SLA): The SLA outlines the minimum performance standards of service from the provider. This includes uptime, response time for support, and availability. The SLA should also outline the consequences for failing to meet these service levels, such as penalties, credits, or refunds.
  • Data Security: SaaS vendors may store sensitive customer data, so the contract should include details about the vendor's data security measures. This includes encryption, data backups, and disaster recovery plans. The agreement should also outline the customer's responsibilities for securing their data, such as using strong passwords and limiting access to authorized personnel.
  • Limitation of Liability: The contract should include a limitation of liability clause that limits the vendor’s and customer’s liability in case of service failures, data breaches, or other conduct that causes damages. The limitation of liability should include a disclaimer of specified damages as well as an agreed upon general cap on the total amount of damages a party could be liable for under the agreement. Of course, depending on whether the party is the vendor or the customer will affect which provisions to carve out from the aggregate liability cap.
  • Pricing and Payment: The contract should outline the pricing structure for the service and any associated costs, such as setup fees or monthly charges. The contract should also specify the payment terms, such as payment due dates and accepted payment methods.
  • Intellectual Property Rights: SaaS contracts should include provisions outlining ownership and use of intellectual property rights. Importantly, it must be clearly set forth which party owns the data that is entered into the SaaS platform, any derivatives thereof, and ownership rights of any deliverable from the service. Intellectual property rights should also include copyright, trademarks, and patents to the extent they are involved in an engagement.
  • Termination and Renewal: The contract should specify the terms and conditions for termination and renewal of the service. This includes notice periods, cancellation fees, and renewal options.

In conclusion, a SaaS contract is a crucial agreement between a SaaS vendor and their customer. It outlines the terms and conditions for using the service and ensures that both parties are aware of their responsibilities and obligations. By including these key components, SaaS contracts provide clarity and protection for both the SaaS vendor and the customer.