Justin R. Muehlmeyer
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Key to the success of a Software as a Service (SaaS) company is its agreements. There are a number of key relationships that need to be carefully formalized with well-thought-out agreements, some of which should have certain “magic” language that if left out, could be fatal to the company’s assets or success.
These key relationships include:
- Distributors/Resellers, who have a particularly complex relationship with the company in that they grant end user access to the SaaS platform and may have co-branding rights or be involved in customization and co-development;
- End-Users, if the SaaS company is itself selling access to the SaaS platform, who have concerns over data and access; and
- Internal Relationships, including software developers, who should be assigning all their copyrights in what they develop to the company, especially if they are independent contractors who own what they create unless they assign in writing.
In agreements with distributors, resellers and end-users, a great amount of attention should be paid to the following by the business team:
- Product Details: This represents the core of any contract, covering access, pricing, and payment. Details include recurring subscription terms (e.g. quarterly, annually), taxes, and any free or trial period that may apply.
- Add-On Details: Variable costs, including flat fees (such as setup), quantity-based recurring and one-time fees, and metered fees – such as those for a mobile data plan.
- Promotions and Coupons: Extras or incentives, including discounts. Elements to consider are whether promotions can be combined and if there are limitations or expiration dates.
- Uptime: How much “uptime” can you guarantee? How much “downtime” will you need to perform maintenance and what kind of notice for “down-time” will you promise to give.
- Termination/Cancellation of Service: When can the end-user end its subscription? How much commitment do you need from an end-user, distributor, reseller before they can terminate? This requires you to know or predict the cost of onboarding that entity or end-user.
The above are some of the business terms we lawyers will help you work out, with the SaaS company’s close input. There are a number of legal terms that us lawyers pay a lot of attention to and often are make-or-break in negotiation, for example:
- Risk shifting: Who bears the risk of intellectual property infringement, data problems, malfunctions, or damages or injuries from use of the SaaS or lawsuits generally? This is dealt with through provisions regarding indemnification and limits on liability.
- Intellectual Property: Us lawyers need to make sure the SaaS company maintains its ownership of what it has developed, and that the ownership of any co-developments or customizations is clear, whether jointly owned or owned solely by the company.
- Branding: Whether distributors/resellers are authorized and/or required to use the SaaS company’s trademarks, and under what circumstances.
SaaS by definition is a service and therefore never resides on a client’s computer or server. In this way, SaaS agreements are often not “licenses” but subscriptions to access software controlled by the SaaS company. This does have certain ramifications in the way SaaS agreements are drafted that are different from software that is downloaded to the end user’s computers. That being said, licenses are often employed if a distributor/reseller wants a copy on their servers, and that transfer might involve complexities such as holding the software in escrow.
SaaS companies should also be diligent internally. The key to ensuring control over its assets is to have agreements addressing: employment, including nondisclosure agreements, shareholder responsibilities, and IP assignment and transfer provisions for products created by employees and independent contractors for the company.
Peacock Law works with SaaS clients to negotiate, draft and execute agreements that will establish long-lasting and beneficial relationships. Find out more about the legal issues that are relevant to software companies here.