- Detail that metric
- Define what a user is
- Establish penalties for abuse
- How you will provide support for your services
- Response time
- Any additional guarantees in terms of expected service
- Encryption responsibilities
- How often data will be backed up
- Protections offered
- Security of entered data
- What happens to data in the event of:
- A security breach
- Bankruptcy
- Termination of service use
- Guarantees
- Relevant results
- What your service does not promise
- Monthly
- Quarterly
- Yearly
See SaaS Agreement Pricing by State
Is a SaaS Agreement Different From a Licensing Agreement?
A SaaS agreement differs from a licensing agreement. Under a licensing agreement, a company will usually deliver the actual software for use, typically for a single or monthly fee. Software and relevant hardware must be physically installed.
In a SaaS agreement, customers get access to software and other technology through the cloud, but no physical goods are exchanged. A SaaS agreement will give end users access to the products involved online. As a result, the structure of a SaaS agreement focuses on permitting the use of a product (i.e., granting access to software hosted remotely) instead of allowing product use as a service (i.e., allowing the licensee to install and run the software on their owner servers).
Types of Agreements SaaS Companies Need
If you have a software as a service company, you will need agreements at various levels. In addition to the SaaS agreement or terms of service / terms of use agreement for your customers, you may need a variety of other agreements.
- Company-level agreements for SaaS companies can include:
- Assignment of intellectual property, or IP transfer agreements
- Confidentiality/non-disclosure agreements
- Employment agreements
- Shareholders agreements
- Master services agreements
- Purchase and sales order agreements
- Service level agreements
- Terms of service / terms of use
- Advisor agreements
- Affiliate or partner agreements
- Contractor agreements
- Privacy policies
- Security policies
- Trademark policies
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Terms of Use and Privacy Policies Needed for a SaaS
No matter how your SaaS functions, you should have a terms of use and privacy policy in place for users. These agreements serve different purposes.
Terms of Use Agreements for a SaaS
This type of agreement will act as a legally binding contract between your company and your customers. You can use your terms of use to set guidelines and rules that customers must follow if they want to have access to the services your SaaS provides.
You might hear this type of agreement referred to in the following ways:
- Terms of use
- Terms of service
- Terms and conditions
Practically speaking, they're all the same thing. Clauses to include in this agreement are:
- Business contact information
- Copyright and intellectual property rights
- Details about what would happen if either party violated the terms of use
- How customers can end the service contract, including penalties should they end a contract early
- How your SaaS handles content generated by users
- How you will notify users about changes to the terms of use
- Laws that govern the contract
- Licensing information
- Limitations of liability and disclaimers of warranties
- Payment term specifics
- Restrictions and/or limitations of use
You should ensure that language you include in terms of use agreements are very clear. A judge may find an agreement is not clear enough to be upheld if you use too much legal or technical jargon for a user to reasonably understand.
Privacy Policies for a SaaS
If your SaaS service collects personal data, you must legally have a privacy policy. Many countries and regions have laws governing this, including:
- California: The California Online Privacy Protection Act ( CCPA ).
- Canada: The Personal Information Protection and Electronic Documents Act ( PIPEDA ).
- European Union: General Data Protection Regulation ( GDPR ).
Almost all SaaS services will end up collecting at least one piece of information considered personal data: a user's email address. If you collect email addresses, that's enough to require that you have a privacy policy in place. Simply having a terms of use in place is not enough.
To be in compliance with most privacy directives, your privacy policy should include information about:
- What personal data your service collects and uses
- How your service collects and uses personal data
- How your service stores personal data
- Whether your service shares personal data with third parties
- Information about cookies:
- If cookies are used
- Which cookies are used
- Why cookies are used
- Limit the data that is collected and used
- Withdraw consent to have their data collected and used
- Request to have data deleted
Legal Requirements and Best Practices for SaaS Agreements
Navigating the legal landscape of SaaS agreements can seem daunting, but it doesn't have to be. A SaaS agreement must comply with various legal requirements, depending on where you and your customers are located.
GDPR and CCPA Impact on SaaS Agreements
Two of the most critical regulations affecting SaaS agreements are the GDPR and the CCPA. Both laws aim to protect personal data and give individuals more control over their information.
GDPR (General Data Protection Regulation) :
- Scope : GDPR applies to any company processing the personal data of EU residents, regardless of the company's location.
- Key Requirements :
- Data Processing Agreements : Your SaaS agreement must include a Data Processing Agreement (DPA) outlining how personal data is handled, ensuring compliance with GDPR principles.
- User Consent : You must obtain explicit consent from users before collecting their data. This consent must be documented and easily withdrawable.
- Data Rights : Users have rights to access, correct, delete, and port their data. Your agreement should clearly outline these rights and the process for exercising them.
- Data Breach Notification : In the event of a data breach, you must notify affected users within 72 hours. Your SaaS terms and conditions should include your breach response plan.
CCPA (California Consumer Privacy Act) :
- Scope : CCPA applies to for-profit companies that do business in California and meet specific criteria (e.g., annual gross revenue over $25 million, buying/selling personal data of 50,000+ consumers, etc.).
- Key Requirements :
- Data Collection Disclosure : Your SaaS agreement must disclose what personal data is collected and how it will be used.
- Consumer Rights : Similar to GDPR, CCPA gives users the right to know, delete, and opt-out of the sale of their personal data. Your cloud service agreement should detail these rights and how users can exercise them.
- Non-Discrimination : You cannot discriminate against users who exercise their CCPA rights. This principle should be clearly stated in your agreement.
Best Practices for Compliance
Ensuring your SaaS agreements comply with GDPR, CCPA, and other relevant laws is crucial for maintaining trust and avoiding legal issues. Here’s a checklist to help your company stay compliant:
- Data Processing Agreements (DPA):
- Include a DPA within your SaaS subscription agreement.
- Outline data processing activities, ensuring they comply with GDPR requirements.
- Specify data protection measures, including encryption and access controls.
- Clear and Explicit Consent:
- Obtain clear consent for data collection, processing, and sharing.
- Provide users with easy-to-understand privacy notices.
- Allow users to withdraw consent easily and ensure this is documented.
- User Rights and Data Access:
- Clearly outline user rights to access, correct, delete, and port their data.
- Provide straightforward procedures for users to exercise these rights.
- Regularly review and update these processes to ensure efficiency.
- Data Breach Response Plan:
- Develop a comprehensive data breach response plan.
- Include breach notification procedures in your SaaS terms and conditions.
- Conduct regular drills to ensure your team is prepared to handle a breach.
- Transparent Data Practices:
- Be transparent about what data you collect and how it is used.
- Regularly update your privacy policy to reflect current practices and regulations.
- Educate your users about their data rights and your data practices.
- Regular Compliance Audits:
- Conduct regular audits to ensure compliance with GDPR, CCPA, and other laws.
- Keep detailed records of compliance efforts and audit results.
- Use findings from audits to continuously improve your data protection practices.
- Training and Awareness:
- Train your staff on data protection laws and best practices.
- Foster a culture of data privacy and security within your organization.
- Encourage employees to report potential compliance issues.
- Third-Party Compliance:
- Ensure any third-party vendors you work with also comply with GDPR and CCPA.
- Include data protection clauses in contracts with third parties.
- Regularly review third-party compliance to mitigate risks.
Frequently Asked Questions About SaaS Agreements
What Is the Difference Between a SaaS Agreement and a Traditional Software License?
A SaaS agreement grants users access to software hosted on remote servers and accessed via the internet. This model involves no transfer of software ownership, and users typically pay a subscription fee for continued access. In contrast, a traditional software license involves purchasing and installing software on local machines, often with a one-time fee. SaaS agreements focus on service delivery and continuous updates, while traditional licenses emphasize software ownership and local installation.
How Can I Ensure Data Security in a SaaS Agreement?
Ensuring data security in a SaaS agreement requires including specific clauses that outline data protection measures. Key elements should include data encryption standards, regular data backups, compliance with data protection regulations (such as GDPR and CCPA), and detailed procedures for handling data breaches. It's crucial to establish who is responsible for data security and to outline the steps the SaaS provider will take to safeguard user data.
What Should I Look for in a SaaS Agreement's Service Level Agreement (SLA)?
When reviewing an SLA in a SaaS agreement, look for clearly defined performance metrics, such as uptime guarantees (e.g., 99.9% availability), response times for technical support (e.g., within 24 hours for critical issues), and specific service standards. The SLA should also detail remedies or compensations if the provider fails to meet these standards, ensuring accountability and reliability in the service provided.
The Importance of a Solid SaaS Agreement
SaaS agreements are the backbone of any software as a service company, ensuring both the provider and the customer understand their rights, responsibilities, and expectations. By carefully crafting your SaaS agreement, you can protect your business, comply with legal requirements, and build trust with your customers. Whether you’re just starting out or refining your current agreements, understanding the key components and legal considerations is essential. Always consider consulting with a legal professional to ensure your SaaS terms and conditions meet all regulatory standards and best practices. SaaS agreements are integral parts of any software as a service company. Make sure you work with lawyers who know how these contracts work when crafting yours.
ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.
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Ryenne S.
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October 11, 2022Ryenne S.
Principal Attorney Free Consultation Chicago, IL 14 Yrs Experience Licensed in IL DePaul University College of LawMy name is Ryenne Shaw and I help business owners build businesses that operate as assets instead of liabilities, increase in value over time and build wealth. My areas of expertise include corporate formation and business structure, contract law, employment/labor law, business risk and compliance and intellectual property. I also serve as outside general counsel to several businesses across various industries nationally. I spent most of my early legal career assisting C.E.O.s, General Counsel, and in-house legal counsel of both large and smaller corporations in minimizing liability, protecting business assets and maximizing profits. While working with many of these entities, I realized that smaller entities are often underserved. I saw that smaller business owners weren’t receiving the same level of legal support larger corporations relied upon to grow and sustain. I knew this was a major contributor to the ceiling that most small businesses hit before they’ve even scratched the surface of their potential. And I knew at that moment that all of this lack of knowledge and support was creating a huge wealth gap. After over ten years of legal experience, I started my law firm to provide the legal support small to mid-sized business owners and entrepreneurs need to grow and protect their brands, businesses, and assets. I have a passion for helping small to mid-sized businesses and startups grow into wealth-building assets by leveraging the same legal strategies large corporations have used for years to create real wealth. I enjoy connecting with my clients, learning about their visions and identifying ways to protect and maximize the reach, value and impact of their businesses. I am a strong legal writer with extensive litigation experience, including both federal and state (and administratively), which brings another element to every contract I prepare and the overall counsel and value I provide. Some of my recent projects include: - Negotiating & Drafting Commercial Lease Agreements - Drafting Trademark Licensing Agreements - Drafting Ambassador and Influencer Agreements - Drafting Collaboration Agreements - Drafting Service Agreements for service-providers, coaches and consultants - Drafting Master Service Agreements and SOWs - Drafting Terms of Service and Privacy Policies - Preparing policies and procedures for businesses in highly regulated industries - Drafting Employee Handbooks, Standard Operations and Procedures (SOPs) manuals, employment agreements - Creating Employer-employee infrastructure to ensure business compliance with employment and labor laws - Drafting Independent Contractor Agreements and Non-Disclosure/Non-Competition/Non-Solicitation Agreements - Conducting Federal Trademark Searches and filing trademark applications - Preparing Trademark Opinion Letters after conducting appropriate legal research - Drafting Letters of Opinion for Small Business Loans - Drafting and Responding to Cease and Desist Letters I service clients throughout the United States across a broad range of industries.
