Software as a Service (‘SaaS’) is kind of a software and a delivery model which is licensed on a subscription basis. In SaaS, a third party provider hosts application and makes them available for the customers over the internet. Let us understand SaaS agreement as explained by Anubhav Pandey.

SaaS lessens the burden of the organizations and simplifies the task by installing and running application of the organizations in their explicit data centers. Thereby eliminating the expenses on maintenance, licensing, installation, etc.

How to draft the Software as a Service (SaaS) clauses. Few precautions

It is important to define precisely the services which you are providing. How the services are to be accessed, technical requirements which the user must meet, etc. 

Defining the scope of the service

Including a detailed and accurate description of the services is important. As these are the services, you are or will be agreeing to provide to users and will form part of your obligations under the agreement.

Requirement to access the software

The manner in which the customers will be able to access the software must be included in the agreement in detail. The following points should be covered in detail in the SaaS agreement.

• The nature of the subscription. Will it be free or paid?
• Do the customers have to apply for using the software?
• Will it be mandatory for the customers to create an online account or profile?
• What should be the hardware or the software requirements for running the software?

Now let us take a look at some clauses which every SaaS agreement must have.

Definition clause

Definition clause is the opening clause and is one of the most important section as it defines the scope of the terms used in the agreement. Whenever there is a conflict, the court takes into notice the terms defined in the definition. Therefore, the definition clause must be carefully defined in the SaaS agreement.

Few definitions which every SaaS contract must have are, “Intellectual Property Rights, SaaS, License term, Software.”

Delivery clause

This clause specifies the mode in which the software will be delivered from the licensor to the licensee. Mode of delivery includes any enhancements, upgrades or updates through  Microsite, CRM, and mobile application.

Term and Termination clause

The term from which the SaaS agreement will commence and the time, mode of termination as well. This can be better understood by using examples. Hence, a software company providing sufficient software support to another company might include the following in their, “Term and termination clause.”

• The Licensor may terminate the Agreement without cause with a written notice of thirty days.
• The Licensee shall not be entitled to a refund of any payment made to the Licensor if this Agreement is terminated by the Licensee for any reason.

License

The license clause contains provisions of, “grant of a license, scope of license, maintenance and support, updates, obligation of Licensee and more.”

Grant of license, it states that the licensor grants Licensee a non-exclusive, non-transferable, revocable license. It is the licensee who shall be liable for the misuse of the software in any manner whatsoever.  The scope of license, the manner in which the registration of the software is to be done by the licensee. Also, how will the licensee access the software. Maintenance and support,  Licensor shall provide maintenance and support for the Service from time to time. Update/Upgrades, the customers shall be eligible to get hold of the updates or upgrades from time to time.

Clause on the obligation of the licensee

• The licensee is responsible for all activities that occur under Licensee’s usernames and passwords. The licensee shall be responsible for ensuring the security and confidentiality of such usernames and passwords if any.
• Licensee shall report to Licensor immediately and stop immediately any copying or distribution of the Service that is known or suspected by Licensee
• Licensee undertakes to prevent unauthorized access to, or use of, the Service and shall notify Licensor immediately of any such unauthorized use or other known breaches of security.
• Licensee shall be solely responsible for providing all relevant data required for the proper operation of the Service. Licensee shall be solely responsibility for the accuracy, quality, integrity, reliability, appropriateness, and intellectual property ownership or right to use such data.

Payment clause

The clause specifically mentions the consideration of the service provided by the licensor. The amount which is to be paid, the mode in which the amount is to be paid, when the payment is to be made, and other terms and conditions as required in the payment mode.

Payment clause also addresses the taxation on the SaaS software and the duty of the licensee regarding payment of the taxes. Also, the clause specifies that non-payment of subscription charges might lead to termination.

Confidentiality clause

• It shall be the duty of the licensee to keep all the information including, the services provided by the software company, documentation, methods, processes, data, and shall not share any of the above information with third-party.
• The licensee shall not use the Service for any purpose not expressly permitted by this agreement.
• Disclosing of the services to any person other than the employees of the licensee whose access to service is necessary shall be avoided.

Intellectual Property Rights

• Protecting your IPRs in the SaaS agreement is important. A SaaS supplier must make provisions for the protection of IP in the agreement. The agreement should grant the customer the license to use the intellectual property subject to certain terms and conditions.
• One important thing to take into notice is that the clause should explicitly state that the source code remains owned by the supplier.
• Any and all rights to the Service, its contents, and any Documentation provided therewith, including title, ownership rights and Intellectual Property Rights therein shall remain the sole and exclusive property of the Licensor and/or its suppliers or its licensors.
• The Licensee shall not use the Intellectual Property Rights of the Licensor without the prior written consent of the Licensor. Contravention of this provision shall be construed as a material breach of this Agreement.

Indemnity clause

The clause states the situation where the licensee has to indemnify the licensor on happening of certain events. These situations can be,

• misuse of the Service
• breach of terms of the Agreement
• breach of applicable laws
• breach of Licensor’s Privacy Policy.

Limitation of liability

Licensor shall not, in any manner be held liable to the licensee or any third party for special, punitive, incidental, or consequential damages including loss of data, business or profits, arising out of or in connection with this agreement.

Clause of Independent Contractor

The clause acknowledges that the Saas agreement is in no way an employment agreement, agency, partnership or joint venture between the parties. The licensee shall be an independent contractor under this agreement.

Clause of governing laws and jurisdiction

Specify explicitly the law that applies to the SaaS agreement and any disputes arising from it. In international SaaS agreements, make sure that you specify in which language the dispute will be dealt with, and if the agreement is in more than one language, which language prevails if there is a discrepancy between the two versions. The bare reading of the clause might be, “This Agreement shall be governed by and construed under the laws of India. Any dispute arising out of or in relation to this Agreement shall be submitted to the sole jurisdiction of the courts of law at ____”.

Arbitration clause

The arbitration clause is an attempt to settle the future disputes likely to arise in the case of conflict between the licensor and the licensee. The clause specifically sets the seat of arbitration.

The clause on arbitration states, in the event of disputes arising, the parties to the agreement shall try to find an amicable solution by means of arbitration. Where the dispute is not resolved by the means of amicable solution that is arbitration, the parties will be free to approach the appropriate court. The arbitration proceeding shall be governed by the provision of the Arbitration and Conciliation Act, 1996. The language used in the arbitration shall be (as decided by the parties).

Clause of “Force Majeure”

Without limiting the foregoing, under no circumstances shall Licensor be held liable for any damage or loss due to deficiency in performance of the Service resulting directly or indirectly from acts of nature, forces, or causes beyond its reasonable control, including, without limitation, internet failures, computer equipment failures, telecommunication equipment failures, power failures, internet outage, or any other government regulations, floods, storms, electrical failure, civil disturbances, riots.

“Escrow” clause

Escrow clause has been a life savior clause in the situations where the service provider company, i.e, the SaaS supplier became insolvent or is unable to continue to provide the SaaS services. Escrow clause enables a third party an escrow agent to hold a copy of a SaaS supplier’s software code on behalf of the SaaS customer and SaaS supplier.

Return of Data clause

On the completion of the agreement, the customer’s data should be returned. The clause deals with this issue. The manner in which the data will be returned is decided in this clause.

Service level agreement clause

The clause specifies the hosting, support and maintenance services which the SaaS supplier will provide to the customer. SLA specifies the data center, who is operating it, security of the data center, backup, disaster recovery procedures, support hours, support services for dealing with hosting issues.

This was all about clauses in a SaaS agreement. Hope the article served your purpose. Please comment below your views on SaaS agreement.