The Secret to SaaS Agreements

It is obvious to say that many startups are enabled by developments or innovations in technology and this in turn results in this technology being sold as software as a service (SaaS). Due to this trend, at Dragon Argent we are drafting and negotiating more and more SaaS agreements for clients to protect their intellectual property and commercial interests.

So today I thought I'd share some insight into what a SaaS agreement is, why it's important and where they can go wrong for any startup founders developing SaaS propositions. 

What is a SaaS Agreement? 

As mentioned, SaaS is the abbreviation for “software as a service” which means that software is being made available to a client in a commercial agreement through a web browser, negating the need for the client to have expensive and bespoke onsite IT infrastructure. With the shift to remote working driven by COVID-19, this is only becoming more prevalent as businesses and workforces become decentralised.

A SaaS agreement in turn is simply the name used for the agreement between a SaaS supplier and a SaaS customer which sets out the terms under which SaaS software may be accessed, including the maintenance, support and service obligations of the provider and duties of each party.

SaaS Agreements versus Licensing Agreements

SaaS agreements enable a developer to sell access to software to their clients in a uniform way that is more streamlined and efficient than using a licensing agreement. This is because a SaaS engagement requires no customisation or updates for individual clients. The software itself is not downloaded to or accessed through client IT infrastructure, but via a subscription to a cloud-based service which can be easily controlled and maintained for multiple clients. 

SaaS agreements are often also preferential for clients because it removes the obligation to buy and maintain expensive onsite hardware and any data management and compliance obligations – these remain with the SaaS provider under a SaaS agreement. 

In summary, under a SaaS agreement, no ownership of the SaaS software will be transferred to the customer and the customers right to use the software will end upon termination of the SaaS agreement. In return, the provider of the SaaS software will host both the software itself and the customer data on a server, providing customer support and maintenance services. However, it will often be the case that a licensing clause is included in a SaaS agreement to protect the provider’s intellectual property. 

  SaaS Agreement Criteria

As we’ve alluded to above, there are some key provisions a SaaS agreement should cover to ensure both parties interests are protected. These include the maintenance, updates and support obligations of the SaaS provider as well as use obligations and limitations for the client. More specifically:

• Service level agreements covering the induction and training for SaaS implementation and the availability and response times of support.
• The number of agreed users on the client side of the SaaS agreement and the kinds of data that can processed or uploaded to the providers server

Ensuring these provisions are drafted appropriately will reduce key risks including limiting the SaaS providers liability, ensuring realistic and appropriate service levels, confidentiality protections and legal use of the software.   

Where SaaS Agreements go Wrong

Too often, startups selling SaaS solutions may rush to enter into commercial agreements because they feel pressured to get to revenue generation. With an eye on cash flow, spending money on legal advice simply to onboard a client may not seem like a priority. However, our litigation department has seen countless examples where SaaS agreements have gone wrong, causing expensive, long-term headaches for founders.

So where do SaaS agreements go wrong:

• One party hasn’t understood what is being agreed sufficiently, either because an agreement has been poorly drafted, obligations and duties are left out or unclear or even because the agreement hasn’t been read properly before signing. All of which makes a SaaS agreement unfit for purpose.
• Parties are either not aware of notice and termination provisions, or these provisions have been drafted incorrectly or left out entirely. It is crucial that when there ceases to be a commercial benefit for either party, appropriate termination provisions have been included, reviewed, and understood before entering into a SaaS agreement. 
• A SaaS agreement should also limit the liability of either party in the event of a breach of the agreement and should clearly map out how intellectual property and data will be used and protected

 SaaS Fundamentals

Finally, there are some fundamental principles that should be applied before entering into a SaaS agreement to ensure both parties can realise the commercial benefit whilst clearly mapping out the value, length, risks and implications of the agreement.

• Understand your obligations and risk and the obligations and duties of the party you are entering into an agreement with
• Appreciate who has is drafted the SaaS agreement and therefore whose interests it favours? Consider whether the provisions within a SaaS agreement suit you and represent your commercial needs. 
• You should also consider the range of possible outcomes from entering into a SaaS agreement and ensure the terms are fair, reasonable and enforceable for both parties.

To achieve the above, it would be sensible to use a qualified and experienced professional to explain provisions in simple terms, protect your long-term interests and negotiate on your behalf. Whilst there will be an immediate cost to bear to do this, the ongoing benefits will far outweigh it. If you'd like support in this area - don't hesitate to get in touch with me directly.