Software Agreements: Software licence agreement \\ SaaS agreement
When drafting a software contract it is important to understand the specifications and use of the technology in question, otherwise the client and the lawyer will not get it right and this will result in a poorly drafted software agreement.
Very often we see lawyers providing clients with a SaaS agreement which is in fact a software licence agreement. This is due to the lack of clarity and understanding of the technology behind the software and how this is used by the end user.
Let’s look at the key differences between the traditional software licence agreement and a SaaS agreement before we analyse further the legal terms that are distinctive for these two different software agreements.
Understanding how the software is being used
The licensor under the software licence agreement is offering a licence over the software which has a tangible form, since the software is installed in the user’s environment, either via a CD-ROM or downloaded from the vendor’s website. The user has control over the data that is stored and processed by the software on its own system, as this is configured, implemented and accepted on the computer.
Under the SaaS agreement, the software company is offering a service whereby the software that has been developed by the vendor is accessed by the user remotely making this available only on the hosted platform of the vendor either on its own servers or the ‘cloud’. The user does not download the software on the computer, instead the software and the user’s data are stored on the hosted platform of the vendor.
Whilst this may seem to many like a simple distinction it makes a big difference to how the relevant software agreement is drafted.
We highlight here some of the key legal terms which are specific to these two types of software agreements:
Licensing
with a software licence agreement, the vendor is providing a licence of the software to the licensee (user), detailing how this is used, restrictions on its use, alteration and reproduction.
with a SaaS arrangement, licensing is not required since the user is not downloading and/or installing the software in its own environment. The user is in fact given access to use the software remotely, therefore, the contract terms must detail the scope of use and permissions given.
Term
the term of a licence under the software licence agreement would either be perpetual or for a fixed term.
with a SaaS agreement, the term will follow the payment model adopted, usually monthly or annually, either renewed upon request or automatically.
Pricing
a software licence is usually based on a one -off fee for the term of the agreement and for the number of users or devices for which software is installed; it may include an additional fee for maintenance, training or updates.
a SaaS agreement is a subscription-based agreement, paying for the service either monthly or annually.
Maintenance \\ Service Levels
for software licence agreements it must be identified what updates and type of maintenance are caught under the agreement.
a critical element of a SaaS arrangement, especially for B2B contracts, is to identify the service levels that the vendor would need to comply with to ensure business continuity.
Liability \\ Indemnity \\ Data
Once the above key elements are negotiated and determined, then the lawyer would need to deal with the most critical aspect of the software contract, being the limitation of liability and indemnification clauses. This is a particularly complex matter in SaaS arrangements and requires a risk-assessment exercise.
Similarly, negotiating the correct data privacy arrangements in SaaS arrangements is critical, given that the customer’s data is stored on the vendor’s platform. Ensure that there is a high-level of data security, adequate policies and procedures are in place, in compliance with applicable data protection laws. This is a particularly important issue to look out for in SaaS arrangements where the critical aspect of the data security is handled by the vendor or its sub-contractors.
More Information
For more details on how to draft and/or negotiate a fit-for-purpose software agreement, please contact us here