Corporate Insights: Key Legal Tips to Maximize Your Understanding and Use of Software-as-a-Service Agreements

Scope of License / Intellectual Property Rights

• Keep scope narrow to specific named licensees
• If possible, software to be used only internally by customer for business purposes
• Ensure that SaaS Agreement includes protective IP provision that software will remain the IP of the vendor and that customer cannot copy, sublicense, reverse engineer, decompile, or reproduce the software/ source code

• Broader scope of license where license extends to affiliates, if needed
• Right to sublicense the software, if needed

Warranties

• Provide limited warranties relating to defects and/or infringement. Vendor should retain control of the choice of remedy that will be provided in case of breach of warranty.

• Customer may demand additional warranties, like strict compliance of software function with the documentation provided
• Customer would prefer to retain control of the choice of remedy that may be provided in case of breach of warranty

Service Level Agreements (SLAs)

• Should include commercially reasonable targets
• Should provide exceptions for things beyond vendor’s control (like outages, third-party software update issues)

• More robust SLA setting out the specific targets and specifications
• Right to request refund and/or right to terminate in event of non-compliance

Use of Data/ Data Rights

• Right to use anonymized / de-identified data to improve performance of software or create reports for potential customers

• Retain right to all customer data or grant limited rights to data

Indemnity

• Narrow scope – provide indemnity for infringement of IP and data rights violation
• Get indemnity from customer relating to infringement of customer IP or misuse of vendor software
• Build exception where IP indemnity will not be provided if customer misused software

• Broader scope of indemnity, including indemnity for infringement of IP, data rights violation, breach of reps and warranties, and for willful misconduct and negligence

Limitation of Liability Cap

• Liability cap should be limited in terms of amount and the covered term. Vendor should consider the fees paid under the SaaS Agreement and vendor’s insurance coverage amount before determining the liability cap amount.
• Keep all indemnity obligations subject to the cap amount

• Not all indemnity provisions should be subject to a liability cap. For example, claims relating to infringement of IP, confidentiality and breach of data privacy can be carved out of any liability cap.
• To the extent possible, no indemnity should be provided by customer

Auto-Renewal

• Prefer auto-renewal provisions

• Avoid auto-renewal provision which allow opt-out only for a limited period prior to expiration
• Prefer termination at convenience provision