Software as a Service

Software as a Service Can Be a Boon with the Right Contract

Software as a Service (SaaS) is an interesting legal field that by definition entails different issues than standard on-site or on-premise software. Because of its payment structure and the way the software is located and accessed by the client, contracts and other issues of software as a service law require lawyers with an expertise in this niche area of software law. SaaS plays a growing role in essential business functions in the United States and around the developed world. For this reason, as with many other aspects of business, one of the most important parts of SaaS law is negotiating the right contract and making sure it includes all necessary protections.

In the technology industry, SaaS is an important evolution, and in combination with the growth of Cloud computing, could be called a revolution. In general, for the first 20 years or so of the technology boom heralded by the emergence of the personal computer, software was generally installed on users desktop or laptop computers, having been distributed first as large packages, then as CDs or DVDs, and finally over the Internet. However, with the emergence of SaaS, desktops have much less software installed, merely accessing the software they need often by use of a browser, or client plus browser, and accessing program (without ability to download them) from licensor servers, often maintained with almost unlimited scalability in the Cloud, i.e., often in third party data centers where server capacity can be expanded immediately as needed. Of course, this makes the user dependent on Internet connections and the availability of the Service. The latter implicates what are called the “SLAs” or service level agreement, generally understood as the percentage of uptime to which the licensor of the SaaS service has committed (should be in the 99% range), and response and resolution times should errors or system failures occur in the SaaS offering. In the SaaS model, updates are often accomplished virtually seamlessly, so users often benefit from the latest software. Also, because the software is not downloadable onto local computers, much of the piracy problem is eliminated. One other difference between the SaaS model and conventional software distribution is that in most cases, the software is licensed on a subscription model, often for terms of one year, with payments due every month, quarter or year, generally in advance. In this way, licensors are able to ensure a comfortable revenue stream over time.

To ensure that the licensor or licensee of the SaaS service achieves optimal terms, your lawyer needs to be a very good contracts negotiator, in addition to understanding all of the copyright, tax, technology and other issues that arise when software is distributed as a service rather than a product. Data issues and privacy become very important when systems can be accessed and worked on remotely. At least in the minds of licensees, this makes data loss and personal data claims a greater likelihood than in the closed garden of all software residing on servers and desktops within an end user company’s computers.