Business Lawyers in Columbus, Ohio
By Drew Stevens - April 14, 2019 - Technology & IP
If you’re not a software licensing attorney, choosing what to include in a software as a service (SaaS) agreement can certainly make your head spin.
Here, we’ll cover a number of key areas in drafting a SaaS agreement, including contract term, termination, limitations of liability, damages, and insurance provisions.
Two of the more popular routes with term provisions are a specified period of time or an indefinite amount of time. With the specified amount of time, the SaaS agreement may provide for an initial term of a year or a few years. This route may also provide for a renewal term and the terms for how the parties renew.
With an indefinite term clause, the SaaS agreement does not terminate unless triggered by a specific event or provision. Think completion of a certain objective or termination by election.
Termination for convenience clauses in a SaaS agreement allow the specified party or parties to terminate for any reason. The parties can stipulate whether notice is required, i.e. ten, sixty, or ninety days, to terminate for convenience.
Termination for cause provisions allow a party to terminate the software as a service agreement if the other party has breached the agreement. What constitutes “for cause” can be as broad or as narrow as the parties negotiate. Some SaaS agreements often have mitigation factors, such as requiring the breach to be “material” or providing for a cure period of thirty days.
If you’re the service provider, you may be expending certain resources in entering into a multi-year deal with your customer. Accordingly, if the customer wants out of the SaaS agreement before the term expires, it may be wise to require an early termination fee to help offset the cost incurred if the customer abruptly pulls out of the agreement.
Should the parties decide to terminate the SaaS agreement, there are a number of post termination obligations that can be specified. For example, one popular provision dictates the procedures for the customer to be able to retrieve all customer data. Another provision to contemplate is transition services. Such clauses may require the service provider to help the customer transition to a different service provider. A good transition service provision may specify whether the transition services will be for a fixed fee or on a time and materials basis.
A good limitation of liability provision in a SaaS contract will cover a number of bases. One component is disclaiming liability, no matter if a claim or action arises in contract, negligence, or tort. Another issue is distinguishing between willful misconduct, gross negligence, and perhaps even “ordinary” negligence.
Some provisions may have exceptions that specify when liability is not limited. These circumstances might include intellectual property infringement or breach of confidentiality obligations.
Certain limitations of liability clauses will also limit the amount of monetary damages. Some provisions specify an actual cap, such as $1,000 or $10,000. Other clauses limit the total liability to the amount of money exchanged under the SaaS agreement.
We’ve all heard of the rare case where a jury may award a party a modest sum in actual damages, but then further award a much larger amount of money in punitive damages. Having possible exposure to such a scenario can keep the most confident of business owners awake for many an hour at night.
Thankfully, it is reasonable (and often widely done) that the parties in a SaaS agreement will limit their possible exposure to such damages. A good damages provision will state that neither party will be liable for special, enhanced, punitive, consequential, indirect, incidental, or other “extra” damages.
Finally, it never hurts to contemplate inserting insurance provisions. If it is the parties’ first time doing business with one another, neither may be entirely certain of the other party’s ability to cover potential liabilities.
One side may want the other to stipulate that the other party has specific types of insurance in certain amounts. Common examples include commercial general liability, errors and omissions, employers’ liability, and workers compensation. For larger transactions where policy amounts are in the millions, it is often prudent to make a quick call with your insurance provider to double check your policies are sufficient.
If you think you need help covering the major element of a SaaS agreement, or you would like assistance in negotiating a SaaS contract, do not hesitate to reach out to our SaaS lawyer today.