SaaS Purchase Agreement: Everything You Need to Know
A SaaS purchase agreement stands for “Software as a Service Agreement” and it should be carefully drafted and include detailed sections.4 min read
2. High-Level Knowledge About Technology is Required for Drafting SaaS Software Licenses
3. Reasons Not to Use License Agreements for SaaS
4. Negotiating SaaS Agreements
Updated November 25, 2020:
A SaaS purchase agreement stands for “Software as a Service Agreement.” These specific types of agreements should be carefully drafted and include detailed sections.
Software as a Service Agreement Template
A SaaS agreement should start with basic identifying information such as agreement and effective dates, party names, addresses, jurisdiction, and more. Then, ensure your SaaS agreement includes complete information concerning:
- Grant of license to access and use service.
- Fees — Typically done as a monthly subscription.
- Payments — When and how payments are to be made.
- Taxes — Payment amounts don't include taxes, and one party needs to pay applicable taxes related to payments.
- Interest on late payments.
- Detailed support services and what is included.
- Service levels and what percentage of system availability applies.
- How data protection, data privacy, and data backup are handled.
- How the provider may compile statistical information related to service levels.
- Publicity — No use of logo, party, name, or trademarks, and no press releases or announcements without prior written consent.
- Hardware and antivirus obligations.
- What uses are restricted under the agreement.
- Confidentiality and indemnification clauses.
- Export compliance.
- Limited warranties.
- Intellectual property.
- Agreement termination.
- Liability limitations.
You should also include a section of definitions, even the most basic of terms such as effective date, party address, corporate jurisdiction, and more. Define industry terms such as:
- Authorized users
- Business day
- Confidential information.
High-Level Knowledge About Technology is Required for Drafting SaaS Software Licenses
There is a misconception among companies that there is a single form agreement available circulating between software lawyers. Some people believe this elusive document contains the perfect terms that can be cut and pasted into any SaaS agreement. This is incorrect. Cutting and pasting terms into an agreement, even the most well-written one, is the wrong way to construct a SaaS purchase agreement. Any attorney who wants to proceed with this method of contract drafting likely has little-to-no experience in the field.
Obviously, there are standard terms you'll find in any contract that is legally enforceable, and that extends to software agreements, whether it's SaaS or software licenses. However, a well-drafted contract exhibits a deep knowledge of the products being offered rather than a collection of the “correct” terms. This is why it's important to find someone who not only knows how to draft these specific types of contracts but who also understands exactly what the products are.
The structure of a SaaS agreement doesn't end with the user rights. The person drafting the contract has to make choices based on:
- The type of data being stored.
- Where it's stored.
- What the risk level is if the software is accessed by a third party.
Other areas that can vary significantly include fees, technical support, and the training offered.
Reasons Not to Use License Agreements for SaaS
Expert IT contract drafters understand there is a difference between a contract for technology services and a software license agreement:
- With the license agreement, a customer has the right to copy and to use the software.
- With a services contract, the customer gets a service, typically IT consulting or tech support.
SaaS agreements are more complex to figure out. If you look at the nuances of each, you'll see a SaaS agreement is a services contract and doesn't require a software license.
The role of the software itself is why some people get confused. If someone downloads a copy of it, installs the software from a disk, or keeps a copy of it on his or her local computer, you need a software license.
With SaaS agreements, the customer is not loading the software onto his or her machines but simply accessing it, usually through the internet. The software resides on the vendor's computers or sometimes in a third-party data center. This is why you get a service in the SaaS agreement rather than software. The vendor simply utilizes the software to deliver a service. This is not absolute, which means there are instances where an agreement may include both SaaS and locally installed software.
Negotiating SaaS Agreements
When preparing a SaaS agreement, there are several areas where you can negotiate. Because it's a service, most SaaS pricing is based on a subscription model. It's usually published and is pretty straightforward. There are instances where the price might be negotiable, or you can look for applicable discounts. And the bigger the deal, the higher the discount may be.
Additional costs can include:
- Third-party services
- Setup fees
- Extra users
Extra fees can add up quickly, so ensure you calculate those in when you're calculating pricing.
If you need help with a SaaS purchase agreement, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb.