Intellectual Property in SaaS

Background and Overview

In the context of SaaS, capturing the correct intellectual property (“IP”) ownership is critical to ensuring that you protect your client’s interests and avoid ceding control over IP. Keep in mind that this section is focused on the ownership of IP and may have a section heading “Ownership” instead of “Intellectual Property,” or may also be phrased as a combination of the terms, “Intellectual Property Ownership.”

Why the emphasis on IP ownership over rights? Well, as to the relevant IP rights, those are already addressed in the section on License Grant. There are some SaaS Agreements that address the license and ownership of IP in one overarching section on IP. I disfavor that approach because I find that separating contractual concepts into individual sections, even when they're related, makes the SaaS Agreement easier to review and negotiate.

Drafting, reviewing, and negotiating the IP section in a SaaS Agreement can feel overwhelming if you’re not familiar with IP provisions or your familiarity is rooted in a different commercial context. In this article, we’ll review the IP rights important to the SaaS provider, the SaaS customer, and what to know and think about when working on this section.

SaaS Provider IP Ownership

As the purpose of the SaaS Agreement is governing the SaaS, it logically follows that the IP section is primarily focused on addressing the IP of the SaaS provider. Because we’re talking about IP ownership, the typical phrasing at the beginning of the section will be “[SaaS Provider] owns all rights, title, and interest in and to the [Product and Services].” What follows will typically be an “including but not limited to” list of specific examples that are relevant to providing the SaaS during the relationship with the customer. Let’s go to a best practice example to understand this.

Best Practice Example

X.??????????? Ownership.

X.1???????? Company IP.? Company exclusively owns all rights, title, and interest in and to the SaaS Solutions including, but not limited to, (i) De-Identified Data; (ii) associated intellectual property rights; (iii) all derivative works, improvements or modifications; (iv) all deliverables provided to Customer; (v) all feedback, suggestions, or ideas provided by Customer relating to the SaaS Solutions during the course of the business relationship; and (vi) Company’s know-how and Company Materials.? Except for the limited License rights explicitly set forth in the Agreement no right, title, or interest in or to the above list is granted or otherwise transferred to Customer.

The above reflects best practices because it does the following:

• Using “exclusively” not only provides the broadest protection but also cues your counterparty to raise any questions about exclusivity. Even when performing custom development on your SaaS product for a customer, you’ll want to retain ownership of any resulting IP. However, sometimes a trade-off is to offer an exclusivity period. When agreeing to such a compromise remember to address that in your License Grant section; your ownership of the IP must always be exclusive.
• It provides ownership over de-identified data. This is far better than a license to de-identified data, even when that license is perpetual. With ownership you avoid issues around a license terminating or being non-transferable, thus allowing your client to maximize its ability to use the data. However, if this isn’t something that’s relevant to your client or ever likely to be, then of course you do not need to include it. But, be sure to read next week's article focused on this topic to learn why this is a best practice to consider even if your SaaS provider client is not doing anything with de-identified today.
• It uses catch-all terms in romanettes (ii) and (iii) ?to ensure there’s no possibility for the counterparty to misunderstand what the SaaS provider owns.
• It provides for the SaaS provider's ownership in all deliverables, which is the default and correct position for SaaS deliverables as they are typically going to be common amongst customers.
• It addresses customer feedback, suggestions, and ideas and clarifies the SaaS provider will own them. The reason that is so important is because receiving customer feedback is critical to making the SaaS successful and that needs to be able to happen without encumbering the SaaS provider’s IP rights. If you represent the SaaS customer, please be realistic when negotiating this section and understand that your client’s feedback and ideas are not special, or at least are not special enough to cause the SaaS provider to agree to potentially encumber its IP ownership.
• It addresses the SaaS Provider’s know-how and Company Materials, which is a defined term used to capture the various documentation published by the SaaS provider. This is an inclusion to make the ownership of IP as clear and comprehensive as possible.

Customer IP Ownership

Customer’s IP Ownership is not always a primary concern in SaaS Agreements but typically there will be a need to address ownership of the customer’s data input into the SaaS (“Customer Data”). If the Customer has other IP that is relevant to the SaaS, then it’s fine to memorialize that. But simply noting the Customer has IP that it owns is not the purpose of this section.

I’ll focus on the best practice as to Customer Data which is almost always a concern in SaaS Agreements.

Best Practice Example

X.2???????? Customer Data.? Customer exclusively owns all rights, title, and interest in and to the Customer Data, including where contained or stored in the SaaS Solutions as provided to Company and subject to Company’s right to de-identify Customer Data.? Company may use Customer Data as necessary to fulfill its obligations under this Agreement and for any other lawful internal business purpose including in connection with developing or enhancing new or existing SaaS Solutions, subject to Section Y, Confidentiality.

The above reflects best practices because the phrasing makes it clear that the customer owns its data, while also distinguishing any de-identified data from customer data. I also like this because it addresses the need for the Customer Data to be used in connection with the SaaS and to be used internally by the SaaS provider to improve its products.

Some SaaS Agreements address Customer Data in a License Grant section by adding a license grant from the customer to their data. I disfavor this approach for two reasons. One is that a license has never seemed quite correct to me because (presumably) the customer has control over what data goes into their SaaS and maintains that control. The other is that I find addressing the use of Customer Data in the section where their ownership over the data is established makes it easier to negotiate the collateral issues around Customer Data, such as the right to de-identify the data.

Conclusion

The Intellectual Property Ownership section negotiation can be as straightforward or as complicated as the parties negotiating the SaaS Agreement choose to make it. If you follow best practices for the SaaS provider and understand why they need to be included, then you’ll be more likely to have a straightforward negotiation. Sometimes, especially with SaaS for enterprises, there can be complexity that does need to be addressed. In those cases, ensure you protect your client’s interests but are also reasonable and not overreaching unnecessarily.

Please come back next week for the next installment in Mastering SaaS Agreements where I’ll discuss de-identified data and its cousin that it's often mistaken for, anonymized data, in SaaS Agreements. It’s a tricky topic and worthy of its own article devoted to understanding it better.

Until then, stay SaaSy!