Essential Clauses for Terms and Conditions in Business Software

In Short

• Limit your liability with clear caps, exclusions for consequential losses, and disclaimers for third-party services.
• Protect your software and data rights through intellectual property clauses and customer data usage terms.
• Define service levels, response times, and termination processes to reduce disputes and support smooth customer exits.

Tips for Businesses

Strong terms and conditions are essential to protect your software, manage risk, and avoid disputes. Do not rely on generic templates. Instead, tailor clauses to suit your business, including your liability, IP, service standards, and exit process. Legal advice can help ensure your terms meet Australian requirements and safeguard your interests.

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Table of Contents

• 1. Liability Clause
• 2.  Intellectual Property and Data Usage Clause
• 3. Service Levels and Service Credits
• 4. Termination Clauses
• Key Takeaways
• Frequently Asked Questions

You have developed software and are ready to make a significant impact in the market. However, without properly drafted terms and conditions, your business can face additional liabilities, intellectual property disputes, unclear service obligations, and costly termination conflicts that can threaten business viability. The consequences of inadequate agreement can include substantial damages claims, loss of proprietary rights, regulatory compliance issues, and expensive litigation that could have been prevented with clear terms and conditions for your software. 

This article will outline the four essential clauses that every software business should include in its terms and conditions to minimise legal risk and protect its commercial interests.

1. Liability Clause

You should place a financial cap on your liability to avoid unlimited financial exposure, typically limiting damages to 12 months’ worth of fees paid or similar. Note that not having a financial cap on liability does not mean that you will be liable for an indefinite amount – a customer would still need to prove their losses. This type of clause will also help you when you request insurance from an insurer.

You should also exclude consequential losses, such as lost profits, business interruption, reputation damage, and data corruption, as these losses can quickly mount up and lead to high liability. Also, well-drafted agreements reduce your responsibility when customers contribute to problems, for example, when customers fail to back up data as instructed or ignore security protocols you have put in place. You should exclude liability for integrated third-party products like payment processors, cloud storage services, or API connections, since you cannot control these external systems.

2.  Intellectual Property and Data Usage Clause

When you run a business with unique software, intellectual property protection is crucial. You must clearly establish that you own your software, source code, algorithms, and platform features, while granting customers only a licence to use these assets. You should retain ownership of general software updates and improvements. If you want to use your customer’s data to improve your services, you should consider obtaining the right or a licence to that customer data. The intellectual property clause can give you the right and licence to access, store, analyse, and use customer data, including creating anonymised analytics for business insights and platform improvements.

3. Service Levels and Service Credits

Depending on the nature of the software, you may decide to provide your services to customers in accordance with certain service levels. You may choose to offer service levels that promise specific software availability or guaranteed response times from you when the customer experiences technical issues. 

If you are providing a service level on availability targets, you should ensure that you address the following: 

• target availability (for example, 99% uptime); 
• downtime (clearly setting out when the service will be unavailable);
• excluded events (for example, a failure that you do not cause, trial or beta testing, planned downtime/maintenance or events out of your reasonable control); and
• any applicable service credits provided to the customer. 

If you are providing service levels on response times, you should consider addressing the following: 

• clear definitions of incidents and response times; 
• details on after-hours support; 
• service level priorities (if applicable); and
• any applicable service credits. 

4. Termination Clauses

You should design termination clauses that protect your business while maintaining fair exit processes for customers. You can consider including reasonable notice periods for cancellations, ensuring customers pay all fees during their notice period and cannot terminate immediately to avoid payment obligations. Also, you should include the right for you to terminate or suspend the customer’s access to your software if they do not pay their fees on time or breach the terms and conditions. 

It is essential to define post-termination software access rights and clear data retention timeframes after which you can delete customer data without ongoing storage costs or legal obligations. You may offer data transition services to help customers migrate their information. Well-structured termination clauses create certainty for both parties and reduce the risk of costly disputes arising from unclear exit procedures.

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Key Takeaways

Protecting your software business requires essential contractual clauses that address the most common legal and financial risks. Remember to implement the following clauses:

• liability limitations that cap your financial exposure and exclude consequential damages;
• intellectual property and data usage provisions that clearly establish ownership of your software assets while granting and securing necessary rights to customer data for service improvements;
• service level agreements that include specific targets, clear exclusions, and defined credit mechanisms to manage customer expectations and limit disputes; and
• termination clauses with reasonable notice periods, clear payment obligations during notice periods, defined post-termination access rights, and structured data retention policies that protect both parties while ensuring clean exit procedures. 

If you need help with drafting or reviewing terms and conditions, our experienced contract lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 1300 544 755 or visit our membership page.

Frequently Asked Questions