SaaS Agreement: what is a Software as a Service Agreement?

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It is difficult today to imagine an economic sector that can function efficiently without access to IT services. However, the development of applications which will then reside on the customer’s servers is becoming less and less popular due to the high costs of on-premise solutions. Services provided in the SaaS model are gaining in popularity. What is SaaS and how should a SaaS agreement be structured?

What is access to applications in the SaaS model?

The provision of services in the SaaS model (Software as a Service) is based on the fact that the service designed by the service provider is made available to the service recipient directly on his computers via the Internet. All resources reside on the servers of the service provider, who is responsible for ensuring uninterrupted access to the application, its maintenance, application and security of use.

SaaS usually goes hand in hand with cloud services. The purchaser only needs to log into the application via a browser to access the software interface. Therefore, many applications in the SaaS model can be easily shared and can be accessed by many employees at the same time regardless of where they are working from.

Advantages of using the SaaS model

The model of sharing applications as SaaS has many tangible benefits for the entrepreneur.

Security and stability

As the entire application architecture is hosted directly by the service provider, the service provider ensures that the application runs smoothly and provides an adequate level of security for the information stored in it. IT companies usually guarantee comprehensive support in terms of SLA services and troubleshooting through a helpdesk. At the same time, work is constantly being carried out to update and remove further bugs, so the user does not have to bear this in mind.

Significantly shorter technology implementation time

The SaaS model allows for a much faster start-up of a given service in a company. There is no need to install and configure the software yourself, as these aspects are taken care of by the service provider’s employees.

Business scalability and lower application costs

SaaS services are usually provided in a subscription model. This means that the service recipient pays (e.g. monthly or quarterly) in exchange for the ability to use a certain number of workstations in parallel. The customer does not pay for subsequent versions of the software, as updates are usually included in the price. Nor does he or she have to pay for a licence under copyright law.

The SaaS model allows the IT infrastructure to be quickly adapted to the changing needs of the company. For this reason, it is often the solution of choice for start-ups.

Easier integration with other software

Many applications provided in the SaaS model include a ready-made API or other type of integration tool to connect the system to the customer’s plug-ins or the software they use. With on-premise software, such flexibility would require customisation of the entire source code.

What should a SaaS contract look like?

A SaaS contract regulates the use of the delivered software, but unlike a typical licence model, it should include a number of specific elements. In practice, the agreement is often replaced by appropriately developed terms and conditions referred to in Article 8 of the Act on Providing Services by Electronic Means. Which provisions should be paid particular attention to?

Obligations of the service provider

The primary obligation of the service provider is to provide access to the service as agreed with the counterparty. Therefore, it is said that part of the SaaS contract will always be an SLA, i.e. a maintenance agreement. In this respect, it is necessary to determine which services the service provider guarantees access to, as well as what action it should take in the event of a lack of access resulting, for example, from a cyber-attack.

Copyright licence

There is no consensus in the doctrine as to whether SaaS contracts in any way infringe the service provider’s copyright monopoly, but in practice most contracts regulate the scope of permissible use of the software. In this respect, the contract should provide for an exhaustive catalogue of fields of exploitation that the service user is entitled to use. This is due, among other things, to the fact that in order to use the software, it is often necessary to install plug-ins that allow the use of the service provider’s software. It should be noted that fields of exploitation cannot be presumed and cannot be defined “for the future”. They must realistically reflect the possibilities of using the software.

Undoubtedly, however, SaaS contracts are a type of mixed service contract, which suggests the legitimacy of referring to a contract of mandate when structuring them.

Data protection rules

SaaS services usually go hand in hand with the processing of personal data of the service recipient’s customers (e.g. a bank, an insurance company, a healthcare provider). Therefore, in the content of the contract, it is important to remember to include precise information regarding who is processing the personal data and for what purpose, and which specific information is being processed.

It is often the case that the service provider, when making the service available within SaaS, uses subcontractors itself to perform certain functions of the application. In such a situation, the user should be notified that the data stored in the software can also be accessed by other entities.

The situation is slightly different if the application is provided by entities that are not obliged to apply the GDPR standards, e.g. the United States, Latin American countries. In this case, it is important to make sure that the country in question guarantees data processing in compliance with GDPR standards. Examples are Andorra (based on the EC decision of 19 October 2010) or Argentina (based on the EC decision of 30 June 2003). Otherwise, appropriate measures will need to be implemented, such as the use of data protection clauses approved by the Commission.

Liability for breach of contract

A breach of the SaaS contract will usually involve contractual penalties charged for each day of interruption of access to the service or a reduction in the quality of its provision beyond the critical values specified in the contract (usually defined by technical indicators such as ASA, TSF or FCR). Such a solution better protects the interests of the beneficiary than a lump-sum one-off compensation. In addition, a right to withdraw from the contract without notice may be introduced.

Contract duration

SaaS contracts are generally of a term nature, which is due to the subscription nature of their settlement. Normally, the user may cancel the service at any time provided that the subscription fee is paid for the period in question.

Dispute resolution methods

Clarifying the means of dispute resolution is of key importance, especially when the contract is concluded by entities from different countries. It then becomes important to develop a method of amicable conflict resolution, but also to determine the law applicable to the contract.

How to choose a SaaS provider?

When choosing a SaaS provider, it is important to be guided above all by transparent rules regarding data protection, terms of service and payment. Excessively complicated agreements or contracts favouring one of the parties will not only hinder reliable cooperation, but will be impossible to interpret unambiguously in case of a court dispute. Linke Kulicki Law Firm has specialised in providing services to IT entities for years. We advise on the wording of contracts and also negotiate the terms of cooperation for our clients.