What is a SaaS agreement?

Introduction

A SaaS agreement establishes the legal framework that supports the delivery and commercialisation of software products. Unlike traditional software licences, SaaS arrangements create an ongoing commercial relationship between the provider and customer, requiring clear terms governing access, use, services, data, liability and termination.

For growing SaaS businesses, a SaaS agreement is more than a set of standard terms and conditions. As a SaaS business grows, the agreement becomes the legal framework that protects both the software provider and its customer relationships.

What should every SaaS agreement include?

Software access, scope and commercial terms

This section of the Agreement defines the software services being provided and the customer’s right to access and use the platform.

Key areas include:

• scope of services: what software, features and services are being made available to the customer;
• access rights: the customer’s right to access and use the software during the subscription period, without transferring ownership of the underlying software;
• usage restrictions: permitted use, user limits and any restrictions applying to the customer’s access; and
• commercial terms: the subscription fees, payment obligations and renewal terms.

For SaaS providers, clearly defining the scope of services (as simply as possible) helps manage customers’ expectations and reduces the risk of disputes about the services agreed upon.

Intellectual property ownership and licensing

This section of the Agreement defines who owns the intellectual property (IP) contained within the SaaS product and what rights the customer receives to access and use that software.

Key areas include:

• IP ownership: ownership of the underlying software, source code, documentation and related IP;
• customer licence rights: the rights granted to the customer to access and use the software during the subscription period; and
• customer data and materials: how customer data, feedback, integrations and other materials provided by the customer are treated.

“A key clause to consider is how the Agreement treats improvements, modifications or new functionality developed by customers through their use or integration of the software.”

For SaaS providers, clearly defining the IP rights is critical to protecting the value of the product and preventing unintended transfer of ownership rights.

Risk allocation and exit rights

This section of the Agreement defines how risk is allocated between the software provider and customer, including each party’s responsibilities if something goes wrong or the relationship comes to an end.

Key areas include:

• liability: how responsibility for loss or damage is allocated, including limitations on liability, exclusion of losses and caps on exposure. For more information on liability clauses in SaaS agreements see here;
• indemnities: when one party may be required to compensate the other for specific losses, such as intellectual property infringement claims or breaches of contractual obligations;
• service obligations and warranties: the commitments made by the provider regarding the performance, availability and reliability of the software;
• termination rights: the circumstances in which either party can end the agreement and any obligations that continue after termination; and
• data return and transition: how customer data is handled when the relationship ends, including any obligations to return or delete information.

For SaaS providers, these provisions help manage commercial exposure and provide certainty around customer relationships.

Are there any regulatory considerations for SaaS agreements?

SaaS agreements may be subject to the unfair contract terms (UCT) regime under the Australian Consumer Law where they are standard form contracts and satisfy the relevant statutory criteria.¹

The UCT regime applies to terms that create a significant imbalance between the parties’ rights and obligations, are not reasonably necessary to protect a legitimate business interest and would cause detriment if relied upon or applied.²

For SaaS businesses, the regime is particularly relevant to standard customer terms that contain provisions dealing with:

• limitation of liability;
• indemnities;
• unilateral variation rights;
• suspension and termination rights; and
• automatic renewal mechanisms.

From 9 November 2023, proposing, applying or relying on unfair terms in standard form contracts may attract civil penalties. As a result, SaaS providers need to ensure their standard terms allocate risk in a way that protects legitimate business interests while remaining consistent with the statutory framework.³

Key takeaway for business owners?

A SaaS agreement is not simply a document that grants access to software. It establishes the commercial framework for protecting intellectual property, managing customer relationships and allocating risk as the business grows.

For advice specific to your circumstances, consult a qualified Australian legal practitioner.