October 2010

While this may not be one of the most exciting topics, if you work with any type of SaaS agreement you will (or have) run into SaaS indemnity issues. I thought I would break this down into 4 basic issues you should know when your customer/partner asks you to indemnify them.

Before we get started, as you probably know indemnities are those pesky paragraphs (near the end of the contract) that the lawyers seem to get caught up with.

They usually have wording similar to:

“…x will indemnity, defend and hold-harmless y from all claims, demands….”

So let’s get started.

1) Indemnity = Insurance. As a general matter, an indemnity is the same as an insurance policy, so that indemnity clause in your agreement is as if you are writing an insurance policy for your customer/partner. You are really providing software or a software service, so why are you writing an insurance policy on top of that? Exactly. That is the way you should think about it, as you are providing technology, not selling insurance.

Here is few words from the ‘Insurance Liability Wiki.’

2) Infringement Indemnity. On the other hand, what is typical in the IT industry is to provide an ‘infringement type indemnity’ (i.e. protects your customer/partner if you don’t have the necessary rights under copyright, patent, or trade secret law) to provide the license or access to your technology (that seems fair). I realize that this may make you queazy, but …

I often get the question of which type of SaaS distribution agreement do I need (i.e.SaaS reseller agreement, SaaS distributer agreement, SaaS referral agreement or SaaS oem agreement). While these agreements could be structured differently, here are some good general rules (i.e. 80% true).

Q1) Who is Paying the Vendor?

A1) End User – Yes for Referral Agreement

A2) Partner – Yes for OEM, Distribution and Reseller Agreements

Q2) Who is Entering into the Agreement with the End User?

A1) Vendor – Yes for Distribution, Reseller and Referral Agreements (i.e. license resale)

A2) Partner – Yes for OEM Agreement (i.e. sublicensing)

Q3) Who is Provisioning/Configuring the Service for the End User?

A1) Vendor – Yes for Distributor, Reseller and Referral Agreements

A2) Partner – Yes for OEM Agreement (some Distributors do this too though)

This is just a simple quick checklist when you are deciding which agreement to start from. Give it a try and see what you come up with.

Disclaimer: This is provided for educational and informational purposes only, and is not legal advice. Talk to your attorney for legal advice, as they should consider the pertinent facts and applicable law before providing any advice.…

Let me frame this right. When you are selling to an end user, they sometimes say/insist/require that you use their form of agreement as part of the Software agreement negotiations or SAAS agreement negotiations. So what do you do?

1) Negotiate, Negotiate.

Don’t forget about this, as this is not the time to simply say yes and hope that somehow this will make it easier to close the deal (it won’t). Trust me. What to negotiate? See 2-6 below.

2) Price and Terms are Linked.

If you think about it, your end user agreement contains your model (what rights the end user receives (and doesn’t get), what restrictions they have, warranties, transfer rights, etc.) and your pricing is based on your model. If your customer wants to significantly change the terms of your offering/model, then this could/should affect the price they receive. Remember this, as price and terms are inextricably linked.

3) Time is of the Essence (hopefully).

Is time an issue for them? If time is an issue (i.e. there is an impending event), then make sure you bring this up before you agree to use their form agreement, as I have found that using the customer’s form as a starting place will too often lengthen the sales cycle (not shorten it, even though they may tell you it will). Instead, try to start with your agreement, and make the changes that your customer needs to that agreement (much more efficient).

4) Set the Right

…

Have You Had Your Software EULA/SaaS Contract TUNEUP for 2010?

You know, adjust your contracts to improve their performance…just like your car. Ok, let me explain. Every software or SAAS based business should take a look at their Software EULA or SAAS Contract each year to see if they are 100% consistent with their current model, pricing, go-to-market strategy, etc., as too often this is forgotten or last on the list. Look I know legal issues and contracts are not top-of-the-mind for most executives, but don’t over look it.

My TuneUp ideas are:

1) At least once a year, whenever you make a change to your model, or come out with a new offering etc., think about whether you need to change/tweak your Software EULA or SAAS contract.

2) When do you take a look, think about whether you can simplify, shorten and make your agreement more transparent and clear. That is the trend in contracting for software and SAAS, so don’t forget it.

3) As with cars, there is no one size fits all tuneup (I hope you knew that already), so there is no one size fits all tuneup for your agreements either. Figure out what is new or different, and fix/improve it.

Just a few thoughts from a software attorney.

Disclaimer: This is provided for educational and informational purposes only, and is not legal advice. Hire an attorney for legal advice, as they should consider the pertinent facts and applicable law before providing any advice.…