Best Practices for Saas Contract and Agreements – Oloniyo Ololade


SaaS refers to software as a service. It is a business model adopted by software companies in which software applications are delivered online to a wide range of customers or online users usually at a fixed rate, called the subscription fee. The SaaS application which is accessed by users through a web browser is quite different from IaaS and PaaS. The SaaS application is used on the internet without downloading them. Everything is to be used and engaged online, there is no need to call in IT specialist to help install software programmes or worry about trying to regularly update them. On the other hand, the PaaS (Platform as a Service) is primarily used by software developers, and it helps them to create unique and customizable platforms for end-users. IaaS (Infrastructure as a service), is a virtual data center, it is also a cloud service that provides basic computing services such as servers, networking and storage resources. Per time, users pay for the usage of services and don’t have to bother about the cost of maintenance or investment in physical hardware.

Without doubt, the SaaS application has a way of helping client meets their needs; from management of IT infrastructure to saving lots of time and effort, reducing budget costs, as well as taking responsibility for the security and compliance costs. However, there are some legal problems organizations might face when dealing with SaaS, and it is the responsibility of legal advisers to provide solid recommendations during negotiations and contracts. Sometimes, legal documentation created from suppliers can be one –sided, leaving the other party with little or no legal remedies in the event that a problem occurs.

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Before a customer or end user has access to a particular SaaS application, there ought to be legal documentation construed to define the legal rights and obligations of each party. Two major important terms to be included in the agreement are the Service Level Agreement and Data Protection Clause. The service level agreements will typically cover the level of service that the suppliers will be able to provide the customers. It set out the hosting, support and maintenance services required from the supplier to the end users, who could be an individual, corporate business, or an institution. Ideally, an SLA should be aligned to the technology or business objective or engagement. Disalignment might be a lot more expensive, any significant SaaS agreement without a clear and proper construction of the service level agreement between parties is open to inadvertent misinterpretation and legal risk. Support hours and support services for dealing with hosting problems, as well as service credits and termination rights must be included in the agreement.

Data privacy and protection is also a critical part of a SaaS agreement, parties should be able to determine who is responsible for the protection of personal data in the event that a data is breached. It is true that data protection by design is one way to mitigate the risk of breaching digital rights, however, clearly stipulated terms of agreement between the data processor and data controller can go a long way in reducing liability for breach of personal data. Likewise, customers will need to protect itself against claims from third parties in the event that supplier does not process data in compliance with legal obligations.

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Protection of intellectual property right is another essential ingredient of a SaaS agreement. Clauses for the protection of intellectual property and ideas which belongs to the Supplier must be conspicuously entrenched in agreement. When drafting an intellectual property clause, it is essential that you grant the user with a license to use the product for a stipulated time, and most times, SaaS suppliers generally include an intellectual property clause related to user generated content, allowing the users to create their own content, and permitting the suppliers to use, re-distribute, modify etc.

Another relevant clause is the limitation of liability clause. It helps to protect the SaaS suppliers from legal danger or limits the extent of their legal liability where a user experiences delay or constraint in the use of the application, thereby causing some business loss or financial set back. It is advisable to get a good lawyer to select important words and phrases within this clause that limits the extent to which liability might occur in the event that there is a malfunction during the usage of the SaaS software. In circumstances beyond control, such as outbreak of fire, wind, storm, epidemic or a significantly unforeseeable event, a force majeure clause allows parties to alter their obligations to the agreement, however, the agreement must also state that parties will keep other terms and conditions of the agreement that do not affect force majeure. The Covid-19 pandemic has altered various business models within many sectors, but from a legal perspective, many clients have lost tangible contracts from suppliers and partners across the globe due to the border restriction bans in different states. It should be noted that cloud might not always be dependable, and failures at data centers are becoming more frequent, failure due to unforeseeable events can cause a great deal of disruption and businesses can incur significant risk consequently. The same way it’s important for commercial agreements to bear force majeure clauses, likewise, the arena of cloud computing should not be disregarded, every SaaS agreement should contain a force majeure clause.

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As industrialization and cloud computing expands, the concern as regards legal risks also grows with it. It is necessary that the best practices for contract drafting and negotiation are employed by skilled legal advisers to help curb legal liabilities, reduce risk, and also limit the amount of lingering cases flooding the court rooms. The consequential effect of adopting best practices for contract drafting is that it leaves both parties with a document that reflect their intentions and obligations which is legally enforceable. Well written SaaS agreements provides mutual understanding between both parties, obviates litigation and allows for improved business relationship.

 Ololade is an Associate at Aes Triplex LP


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