Key Considerations In Software as a Service (“SaaS”) Agreements

What is Software as a Service or “SaaS”? 

Unlike traditional software, which is generally downloaded and saved to a user’s own device, software-as-a-service, or “SaaS,” refers to software applications hosted by a software provider and made available to customers over the internet through a remote server. In other words, SaaS products refer to cloud-based or web-based software products that are not saved to a user’s own device but are instead accessed remotely.  

What Type of Agreement is Used with Software-As-A-Service? 

Because SaaS products, unlike traditional software, tend to provide users with additional services beyond just a downloadable version of software, such as ongoing updates, modifications, and enhancements; technology and user support; and options to add authorized users, SaaS Agreements tend to be more detailed, and customizable, than traditional software license agreements. Whereas downloadable software has generally been governed by end user license agreements, or“EULAs,” when ordering a SaaS product, a customer will generally be required to enter into one or more agreements which may be referred to as “Subscription Agreements,” “Master Service Agreements,” “Order Forms,” and/or “Terms of Use Agreements.” Regardless of the name used, a SaaS Agreement will generally contain both standard terms governing use of the SaaS product itself, and specific terms governing each individual user’s order of the SaaS product. Although an EULA may be required as part of, or along with, a SaaS Agreement, licenses, if any,granted to a user under a SaaS Agreement will generally be included within the SaaS Agreement itself. (Information regarding Key Considerations for End User License Agreements (EULAs) can be found here.) 

In most circumstances, a user will be subject to a Master Service Agreement (commonly referred to as a “MSA”) and/or “Terms of Use” which will contain the software provider’s detailed terms governing use of the SaaS product, such as warranties, permissible use guidelines, dispute resolution mechanisms, and ownership provisions. The user will then also sign either a Subscription Agreement, Statement of Work, Order Form, or other agreement specifically ordering the SaaS product and detailing the fees to be paid by the user, billing process, number of authorized users, and length of the order. Although this dual-agreement model may be used with individual customers, it is especially helpful where a customer is a large enterprise with ongoing needs. In such situations, the customer can negotiate and enter into a detailed MSA with a SaaS provider with the understanding the MSA will govern all future orders between the parties. The customer can then add additional users or order additional services as needed through use of a simplified Order Form without having to renegotiate a detailed agreement each time.

What Are Some Of The Key Terms and Considerations In A SaaS Agreement? 

Regardless of the form a SaaS Agreement takes, and although Software as a Service Agreements will need to be tailored to meet the specific software and business models of the contracting parties, a few key considerations when drafting, negotiating, or reviewing a SaaS Agreement include the following:  

- Defined Service Levels. SaaS Agreements often offer users customer support or other services in connection with a SaaS product. Additionally, in many instances, a provider may offer different “packages” or “levels” of support to a user based on either the product ordered or price paid by the user. Where a SaaS provider offers customers such levels or categories of service, the SaaS Agreement should include provisions clearly describing what services are provided within each service level, the times during which specific services are available to the user, the mechanisms for submitting service requests, and the effect of exceeding the scope of one’s assigned usage under a service level. Although information regarding service levels may be included in a master agreement, a separate Service Level Agreement may be appropriate in certain situations.  

- Service Interruptions. Because SaaS products are generally web-based and accessed remotely by users, users may be restricted from accessing the software services during outages resulting from events such as routine maintenance, actions taken by a provider in response to malicious attacks, or outages that are the result of circumstances beyond a provider’s control, such as a third party provider’s outage. Accordingly, a SaaS Agreement should include detailed terms describing the parties’ rights with respect to service outages, including when such outages can be expected and whether a customer is entitled to any refund or termination rights upon the occurrence of an outage. Such terms may be included through the use of standard provisions such as Force Majeure, Outages, and Maintenance provisions.

- Authorized Users and Account Assignability. One benefit of SaaS products is that they can be easily scaled to add, or remove, user accounts to meet individual customers’ needs. Accordingly, many customers, especially larger enterprises, will enter into Master Service Agreements with a SaaS provider that allows the customer to add or remove users to their account during the term of a SaaS Agreement. However, from a provider perspective, because SaaS products can be accessed remotely, it is important that SaaS providers ensure unauthorized users are not accessing and using services they did not pay for. Accordingly, a SaaS Agreement should include a clear definition of who an “Authorized User” is, explain who is permitted to assign accounts to new authorized users, describe whether authorized user accounts may be reassigned between former and new employees of a customer, and include mechanisms for addressing issues concerning misuse of user accounts.

Priority of Agreements. As mentioned, SaaS Agreements often include more than one document, such as where a customer agrees to both a Master Service Agreement and individual Order Forms. Where a provider requires customers to enter into, or agree to, multiple stand-alone agreements, such as a MSA and Order Form, or Subscription Agreement and Terms of Service, such agreements should contain clear language stating which agreement will control over the other in the event of conflict between the terms of the agreements. Such terms may be included through the use of a “Priority” or “Order of Preference” provision.  

The above-listed provisions are just a few of the many provisions which should be carefully considered when drafting, negotiating, or reviewing a Software as a Service (SaaS) Agreement. For more information regarding how the Law Office of Nicholas J. Vail, PLLC assists software and technology providers, developers, licensors, and licensees, click here.

If You Need Assistance With A Software as a Service Agreement, or SaaS Agreement, Contact The Law Office of Nicholas J. Vail Today To Set Up A Free Consultation.