The Prinz Law Office

What are the top mistakes the average company will make when it enters into a SaaS deal, when the company has not involved an experienced SaaS lawyer early in the negotiations?

Companies Negotiate with the Wrong Technology Contract 

First and foremost, the most common mistake with all types of technology negotiations, but especially with negotiations in the SaaS space, is that companies handling their own SaaS negotiations often end up negotiating with the wrong contract as the starting point.  For example, the parties may negotiate from a software license template when they need a SaaS agreement template instead, or they may negotiate from a master services agreement or a hosting agreement when the deal they were doing actually involved SaaS terms. A knowledgeable software attorney will know and understand that the terms of a well-drafted template will be completely different based on the technology model under negotiation and will be able to ask the right questions in order to identify the right technology model and therefore the necessary baseline terms that need to be addressed in a well-drafted agreement.

Companies Negotiate with the Right Technology Contract But One that was Written for a Different Product or Relationship

Another common issue is that even if the parties choose the right initial type of contract to begin the negotiations with, they begin the negotiation with a template that was designed for an entirely different product or relationship than what is currently being contemplated: a SaaS agreement transaction. Obviously, it is going to require less negotiation to reach a good deal when the starting point for the negotiation is a set of proposed terms that applies to the right type of technology transaction and the particular product or relationship under negotiation.  Also, the terms of the signed contract are far more likely to be meaningful when they were developed around the right product and services.  Otherwise, they are likely not to include the key deal terms or contemplate any of the issues that could come up between the parties.  The firm sees many signed contracts that are little better than a handshake because the terms agreed to are almost completely irrelevant to the transaction.  An experienced SaaS attorney is going to be able to ask the right questions to determine whether the contract terms were written for the appropriate product or services.

The Contracts Do Not Sufficiently Contemplate how the Relationship will Evolve

A third issue is that the contracts do not sufficiently contemplate how the relationship will evolve over time.  A standard practice in the industry is to rely exclusively on a list of prices to determine on the fee-related issues in the agreement.  What is typically missing is all the terms that explain how the pricelist will be implemented.  While this might not be fatal to the relationship if there is some sort of initial agreement on the price to be paid overall, few SaaS business relationships are up-front, fixed price relationships.  Most relationships now are intended to generate recurring revenue streams and anticipate new fees as new seats, services, and functionality are added.  So, a mere pricelist is almost never adequate to support an ongoing relationship.  Thus, if an experienced SaaS attorney is not involved with the deal, there is a high likelihood that the contract signed will not have all the necessary terms to explain precisely how all the fees will be assessed going forward.

They Overlook the Technical Concerns About the Transaction

A fourth issue typically overlooked by a SaaS contract negotiated without the assistance of experience SaaS counsel are all the technical concerns about the transaction.  In many software deals, the service level is absolutely critical to the transaction.  However, more often than not, the service level agreement being relied on by the parties was copied off the Internet and has absolutely no significance or relevance to the service being offered or provided.  Also, even where the service level agreement was obtained in a more thoughtful way, it is very common to find the agreement full of terms that are so poorly written or that have so many carve-outs that it is completely unenforceable.  In addition, many relationships contemplate the performance of a variety of services which are never addressed in the contract at the technical level required to reach any sort of understanding regarding those services.  An experienced SaaS counsel will be able to ask the right questions to understand all the technical aspects of the deal between the parties and will be able to determine all the terms that have been omitted from the contract before it is executed.

They Fail to Contemplate the Possibility of Suspension of Services

A fifth issue typically missed when a contract is negotiated without the assistance of experienced counsel is the contemplation of all the issues that could arise with regard to the suspension of services.  Today, the service provider frequently has the ability to “suspend” a company’s access to the software and the data stored therein at any time and could just as easily erase all of that data.  However, few contracts that the firm sees really address the issue of suspension at the level required to address all possible issues that could arise between the parties.  An experienced SaaS counsel will ask the right questions to identify these issues and address them in the contract.

They are Overly Focused on the Negotiation of the Indemnification Clause

A sixth mistake is contracts that contain elaborately negotiated indemnification clauses but never really contemplated all the related issues such as whether the indemnification could ever be enforced and whether the focus of the indemnification clause negotiated was on the liabilities most relevant to the transaction.  An experienced SaaS counsel will be knowledgeable about software indemnification clauses and all the issues relevant to the clauses in order to ensure that the maximum amount of protection is in place.

The bottom line is that an experienced SaaS counsel understands technology sufficiently to ask enough questions about the relationship envisioned to determine all the key terms that were never contemplated in the agreement, and can add that additional level of skill and expertise to the negotiation of the deal that a general business lawyer or business person simply cannot.   Technology deals are fundamentally technical and only someone that understands technology and technical deals sufficiently is going to be able to evaluate proposed terms sufficiently to negotiate them appropriately in order to look after the party’s best interests.

Does your company have a SaaS deal on the table right now that you are trying to negotiate?  Schedule a consultation with experienced SaaS counsel today at this link.

USA Today is reporting that multiple technology and telecommunication companies are lobbying Congress to pass federal privacy legislation that would pre-empt the new privacy law recently passed in California which grants sweeping protections to consumers.  In particular, USA Today reports that Amazon, AT&T, Apple, Google, Twitter and Charter Communications are leading the lobbying effort and argue that inconsistent state laws will “make it tough for companies to operate” and would “threaten innovation.”

Of course, as USA Today reports, the lobbying companies are seeking weaker regulations than exist in the European Union or that were just passed in California, with the sole exception of Apple, which relies on a different business model and was reportedly the only company “at the hearing to argue that the bar for federal legislation should be set “high enough” to protect consumers.”  As The New York Times reported, the goal of the tech industry is to institute federal rules that would give technology companies wide leeway over how personal information is handled.    The Electronic Frontier Foundation describes the tech industry’s goal as “neuter[ing]” California for a weaker law at the federal level.

According to The New York Times, however, the tech industry’s efforts are not limited to just federal lobbying efforts.  In fact, The New York Times  reported that lobbying efforts are underway in California as well, and that the California Chamber of Commerce and other business and tech groups have just submitted nineteen pages of bill edits to State Senator Bill Dodd, one of its authors.  In addition, The New York Times reports that the groups are also asking California to delay enactment for a year.

The bottom line is that the tech and telecommunication industries are actively lobbying at both the federal and state levels to ensure that California’s new privacy law never goes into effect in its current form.  Convincing Congress to pass a federal law that they hope to be able to influence and s