Various startups and companies now provide their software products over the cloud through software as a service (SaaS) agreements. If you are a service provider, your SaaS agreement should protect your interests and manage your client’s expectations. This article will discuss six key clauses that suppliers should include in their SaaS agreement.

1. Licence and Payment

When entering into a SaaS agreement, you are commonly offering a small business two services, being:

  1. the licence to access the software as a service; and
  2. technical support from the service provider, although this may be an optional upgrade.

As the service provider, you have complete flexibility in how to offer your services. For example, you may allow unlimited access for each registered account or you may charge on a per use basis. Therefore, you should clearly communicate your payment terms in your SaaS agreement.

You additionally have the choice of offering support as either a complimentary service or a service accessible through additional fees. For example, you may offer a business who pays for your additional support services 20 hours of technical support per year. Therefore, you should clarify in your SaaS agreement whether or not the business’ payment will entitle them to receive support services.

2. Support and Service Levels

The support service levels are the promises you make to your clients should they require assistance with using your service. These support services may be as simple as a password reset or as critical as fixing software after a crash. Clients will have a certain degree of reliance on your software and will want an assurance that you can fix the problem promptly.

Therefore, you should take into account your resources and set practical support levels you can regularly achieve. This is crucial since failing to meet your support standards may be considered a breach of your SaaS agreement. Common support levels you may wish to specify in your SaaS agreement include:

  • hours of support. The benefit of your cloud-based software is that it can be accessed anywhere and anytime. As such, your set support hours should be made known to the client. However, standard operating hours may be unsuitable for international clients, in which case they may prefer larger service providers who can offer 24/7 on-call support; and
  • response time. You may set a standard response time for all enquiries or vary these in accordance with the severity of the issue. For example, will you provide the same response time for a password reset as for a software crash? While this may be possible with a small number of clients, you may struggle to keep this promise for a large number of clients.

3. Intellectual Property Rights

Your SaaS agreement should clarify that you are only licensing software and no intellectual property (IP) has been transferred. This is crucial since, if your SaaS agreement is vague, your client may assume they have the right to indefinitely access and redistribute your software.

You should also include a clause which affirms the protection of your IP even after the expiry of the SaaS agreement.

4. Privacy

You should be aware of your obligations under the Australian Privacy Principles (APPs). The APPs regulate how businesses collect, disclose, hold and use personal information.

Businesses which must comply with the APPs are known as APP entities. Generally, the main threshold for whether or not your business is an APP entity is whether your business has an annual turnover of at least $3 million. However, certain businesses, such as those which sell personal information or are healthcare services, must comply with these principles regardless.

If you are an APP entity as well as a SaaS supplier, you should ensure you have a privacy clause referencing how you comply with your obligations under the APPs. However, even if your business is not an APP entity, you should consider complying with the APPs anyway as you may have APP entity clients who will only use service providers that are APP compliant.

If the APPs apply to your business, you should also be aware of your obligations under the Notifiable Data Breaches (NDB) Scheme. If your business experiences a data breach, you will need to notify the Office of the Australian Information Commissioner and the people whose information was affected.

Consequently, it is also your responsibility to notify your clients of data breaches which may impact their business. Your client may also request to include a clause in your SaaS agreement obligating you to notify them of data breaches to assist with their own compliance requirements.

5. Dispute Resolution

You and your client will want to avoid court disputes whenever possible. An effective dispute resolution clause will provide mandatory steps before any party can initiate court proceedings. This should operate in conjunction with your support and service level clauses.

Common steps include entering into negotiations and alternative dispute resolution forums such as mediation or arbitration, thereby allowing you to resolve disputes more promptly and cheaply. Therefore, you may wish to include a dispute resolution clause in your SaaS agreement, since this may be useful in protecting your business reputation and avoiding expensive court costs.  

6. Indemnities and Liabilities

The Australian Consumer Law (ACL) creates guarantees for consumers and small businesses when purchasing services. These reflect certain consumer expectations, such as the good or service will work and do what you paid for. While you cannot contractually exclude these guarantees, you should clarify the extent of your liability for events outside the ACL. For example, common issues you should address as a SaaS provider include that:

  • you make no promises or representations about any third-party products you use in relation to the SaaS;
  • you are not responsible for any loss or corruption of information or data as a result of the client’s use of the SaaS; and
  • the client will not hold you responsible for any issues arising from the client’s actions or anything they did to breach the SaaS Agreement.

Key Takeaways

There are several legal considerations associated with being a SaaS provider. It is crucial you have a well-drafted SaaS agreement that protects your interests and manages your client’s expectations. As a minimum, some of the key clauses you should have are:

  1.    licence and payment;
  2.    support and service levels;
  3.    intellectual property rights;
  4.    privacy;
  5.    dispute resolution; and
  6.    indemnities and liabilities.

If you need assistance drafting or reviewing your SaaS agreement, get in touch with one of LegalVision’s IT lawyers today on 1300 544 755 or fill out the form on this page.

Justin Ocsan
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