This article is written by Himanshi Malhotra, pursuing a Diploma in Advanced Contract Drafting, Negotiation and Dispute Resolution from LawSikho.
Table of Contents
Introduction
SAAS, is an abbreviation used for Software as a service Agreement, it is also called as rentware and subcribeware. It is an Agreement through which a software is licenced and the same is licenced on a subscription basis. It was earlier known as “Software plus service” by Microsoft.[1]
A SAAS Agreement is an agreement between a client and the supplier wherein terms and conditions are being stated in an agreement, which enables the supplier or the Developer to provide access to the Client in exchange of the consideration. The client can access the “software” through a SAAS Agreement.[2]
In SAAS Agreement, software and data shall be central hosted and the end user or the Client shall access the software and data over the internet. The Agreement may also include heavy service elements or it might give the clients access to the software which can be licenced conventionally through agreement. SAAS model doesn’t require any additional software or hardware, the data is uploaded and saved in the cloud.[3]
It is important to understand the distinction between the SAAS agreements and the standard software license Agreement.
Both the Agreement are different in the following ways:
- That the software under licence agreement shall be delivered in the client for usage in exchange of the consideration as mutually agreed by the parties to the Agreement, the software and relevant hardware are physically installed in the computers/devices of the client as per terms of the Agreement, whereas, in SAAS Agreement, the software is not physically installed in the computers/ devices of the Client but the access is granted to the Client through internet and data is uploaded in the cloud, the SAAS Agreement focuses upon the the permission the use the software rather than allowing the software to be used as a Service.
- No ownership of the software shall be transferred to the Client/customer in a SAAS Agreement unlike software licence Agreement.
- SAAS is a more advanced way to make a software available to the end users/ client unlike Software Licence Agreement, wherein access to the software is being given through conventional mode in accordance to the terms and conditions as stated in the Agreement.
Terms of service
The terms of service of SAAS software/ application is different from the conventional terms of service as the access of the software is granted through the internet.
- Grant of Licence: In this clause, the client shall be granted subscription to the software and the term of the subscription shall be mentioned in the clause along with the rights that are being granted to the Client and the restrictions shall also be mentioned in this clause.
- Usage: This clause will deal with the description of usage of the Software/application, the limitations and restrictions which are put upon the Client to use the Software, it shall also include the type of access that has been granted to the client.
- Licence type: This clause shall include the type of licence which has been granted to the users and it shall also include the numbers of users subscribed for the usage of the Software.
- Authorised User: This clause shall include the definition of the Authorised User i.e. the person who is authorised to use the licence as being permitted by the Agreement. It shall also include that the Authorised user shall also abide by the confidentiality clause.
- Customer Licence Grant: This clause will state whether the licence which has been granted is exclusive or not, whether it’s loyalty free or not.
- Fees: The client shall be obligated to pay an amount as mutually agreed by the parties to the Agreement. It shall further state within how many days the fee shall be paid and through which mode. It shall also include internet on payment, in case if the payment is delayed by the client. This is a payment related clause which shall include account details of the Supplier/Developer, date on which the payment shall be made and the details of the tax levied on the payment.
- Hosting Clause: It shall include the details of the Service Availability and it’s support service for the application/support.
- Ownership Clause: In the ownership clause, the ownership of the software which has been permitted shall be defined, it shall define the rights, title and interest in the software/application.
It shall also include the rights of third parties and the Intellectual Property rights related to the software/ application.
- Confidential information Clause: This clause shall include the definition of the term “Confidential Information” which shall include what all information falls within the purview of the confidential information.
It shall have a sub clause which shall state when the parties to the agreement don’t have to abide by the confidentiality clause, such as when the confidential information is sought by the government authority or it is already in public domain etc.
The confidentiality clause shall also have an ownership clause wherein it will be mentioned that the no party to the agreement shall be owner of the confidential information under the present Agreement.
It shall also have a non-disclosure clause wherein, it shall be stated that no party to the agreement shall disclose the confidential information unless the circumstances as mentioned in the exceptions clause arise.
If any party to the agreement fails to abide by the confidentiality clause, then the other party can seek relief from the Court against the party in default and disclosure of the information shall lead to termination of the Agreement.
- Representations and Warranty by the parties: in this clause, the parties shall state their legal status and shall also state that the subject matter is free from any encumbrances and the warranties by the parties.
- Indemnity clause: It shall include situations wherein one party suffers losses due to the mistake and default of the other party, wherein the default party shall be made liable for the losses and shall indemnify the other party.
- Limitation on liability: This clause is in connection with the Indemnity Clause which shall put an upper limit on amount paid by the default party to the party which has suffered losses which shall include attorney fee, litigation and other expenses.
- Term and Termination: This clause shall have the term of subscription of the software. It shall also include situations and circumstances which shall lead to termination of the Agreement. It shall include effects of Termination of the Agreement.
- The other clause will be the boiler clauses such as Force majeure, Jurisdiction, governing laws, assignability, severability and other misc clauses.
Confidentiality clause
The confidential information constitutes the part of the confidentiality clause, which can include the confidential information stored in the cloud in respect of the software, operating systems, products, trade secrets etc.
The client and the supplier both undertakes that they should abide by the Confidentiality and shall not disclose any information shared between the parties which comes under the purview of Confidential Information.
The main issue arises with the Confidential Information in SAAS Agreement is that the data is stored in cloud and the same be hacked, the information uploaded shall be secured with high security in the software.
Confidential information clause is applicable to both the parties and the parties are under obligation to abide by the same and if any party violates the terms set forth in the Agreement, it shall lead to termination of the Agreement and the other party shall reserve the right to take appropriate action in accordance to the Agreement.
Case laws
In Design Systems (India) (P) Ltd. vs. Deputy Commissioner of Income Tax[4] SaaS Agreements were defined by the Hon’ble Tribunal as “Saas is effectively a software application delivery model in which the clients pay to access and use software functionally or a network through a hosted web native platform operated by the software vendor, either independently or through third-party. According to him, “Saas” model means only ‘software as a service’ and not development of software.”
Conclusion
It can be concluded from the preceding paragraphs that SAAS Agreements are agreements wherein the supplier/Developer provides access or subscription to its customers or clients. The access to the software or application is given over the Internet and doesn’t require physical installation in the devices unlike the traditional software licence Agreement. It is important to incorporate confidentiality and privacy policy in the SAAS Agreement in order to secure the data of the consumers, the confidentiality clause is binding upon both the parties to the Agreement and the defaulting party shall be made liable for such default. The defaulting party shall indemnify the other party for the losses incurred to them due to defaulting party’s negligence or default. It is important to form a term and termination clause which shall state the subscription period of the software access and shall also enlist the situation and circumstances in which the Agreement can be terminated. Saas Agreements can be summed up as Agreements which provide access to the software to its end user over the Internet and it is centrally hosted.
References
[1] Microsoft describes software plus services”. InfoWorld. 26 July 2007. Retrieved 7 February 2017
[2] https://www.bodlelaw.com/saas/saas-agreements-faqs-what-is-saas
[3] https://www.contractscounsel.com/t/us/saas-agreement
[4] 2018)194TTJ(Delhi)9
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