February 2010

SaaS Agreement Templates are Too Important to Leave to the Lawyers!

Seth Godin did a great job with this perspective on marketing (‘why marketing is too important to leave to the marketing department’) but it triggered something in me (at least from the perspective of a software attorney): SaaS agreement templates are too important to be left to the lawyers. Let me explain.

I have found that most IT companies or companies have end user agreements provided from their outside lawyers. These agreements look like a corporate type agreement (pretty formal) and are long/way too complex. On the other hand, IBM and Oracle had non-lawyer consultants help their legal departments to simplify and streamline their end user agreements, as they realized early on that their agreements were an impediment to closing a sale (not a good thing). I doubt most IT companies can afford to hire a bunch of consultants to help them with their agreements the way IBM and Oracle did, but what they can do is  not accept such complexity and length in their SaaS agreement templates. They should challenge their lawyers to simplify and shorten these agreements. Remember that lawyers are paid by the hour, so the longer the agreement the better. Do you think a longer agreement is easier to explain to a jury?  I don’t think so.

More to come on this topic, but I want to plant the seed  that you don’t want to put a complex SaaS agreement template in front of your …

Contrary to common perception, for privately held IT companies, one law firm for the company may not be the right fit; at least from the view of a software licensing attorney. The founders have a relationship with one law firm that usually handles all the legal issues. I have found that too often it is more economical to find specialized lawyers at small firms (they usually provide better service for smaller companies too). These firms will inherently have more reasonable hourly rates/fee structures. On the other hand, it makes a lot of sense to have a corporate lawyer from a larger firm if you are venture backed (as corporate law issues can be quite complex in those situations), but that may not be the case in other areas: for employment, trademark, copyright, patent, litigation or licensing issues. The hourly rates of some of the larger firms have increased dramatically over the last few years (in fact some attorneys bill at $1,000 an hour), but that does not necessarily hold true for smaller firms.   When thinking about rates, I have also talked to many CEOs that would not make the call to a $550 an hour attorney for advice on a potential dispute, but would probably make the call if the attorney were $200 something an hour (I suggest that not making a call to a good, reasonably priced,   lawyer for advice could be a missed opportunity to avoid a dispute).

For example in litigation matters, often the total legal fees …

I get this question often as copyright lawyer, so I thought I would briefly explain what intellectual property is (at a high level). Intellectual Property or IP, should really be viewed when compared to other types of legal property, namely real property (i.e. real estate) and tangible property (i.e. things you can see, touch and feel (other than real estate)). IP is really an umbrella term, as it is broken down into copyright, trademark, patent and trade secret laws. When you hear people referring to IP, just think about these 4 areas of the law, as that is what they are really describing.

So why should an IT company care about these laws?   Well, these laws help to define/protect your rights in your important property.

• Copyright law protects and provides rights in various things, but to start with they must be ‘fixed in a tangible medium’ (i.e. can be perceived, reproduced, or communicated (written, images, etc.)). This means that copyright law protects source code, and other items that a software company writes or publishes. For example, if someone were to use your company’s source code without permission, copyright law will be one of the legal vehicles employed to identify the property, and right the wrong.

• Trademark law protects and provides rights in words, designs, logos, phrases and slogans that identify products, and distinguishes them from the products of others. This area of the law protects company/product names, logos and associated marketing phrases, and is much more important today, as these

As a software copyright attorney, I was wondering if you read all the electronic contracts you enter into (yea right). But just in case you had, you may have noticed one sentence in certain contracts that states that one party (always the party that wrote the electronic contract) can change the software contract “…at any time, in its discretion….”

• You probably have heard about this particular case, as Blockbuster was supposedly transferring movie rental information to Facebook accounts, without the express advance permission of the Blockbuster account holder (in essence people had automatically opted into this program, called “Beacon”). This program was widely reported and Blockbuster was subsequently sued.
• Blockbuster claimed that the case could not be brought in court as it had to be resolved through arbitration as provided in the Blockbuster ‘Terms and Conditions.’ However, the court ruled that as Blockbuster included language in the contract stating that any contractual term could be changed–at any time, in its discretion–the arbitration clause was therefore not enforceable.
• If you really think about it, a contract is supposed to be a fixed agreement between two parties, and neither party can change it without the permission/consent of the other party.

Just a suggestion for any Software or SAAS based company, which of course is relying on its end user/customer contracts to be enforceable.

By the way, keep in mind that policies can generally be changed without permission, but this case was about contracts not policies.

Disclaimer:

This is for informational and …