Archive for October, 2013

SaaS Agreements – Terms and Conditions – Renegotiating Terms

Customers are increasingly attempting to renegotiate the terms of existing SaaS agreements, to reduce costs as more SaaS suppliers enter the market offering competing and cheaper SaaS services. In order to pre-empt such discussions SaaS suppliers should review their current SaaS agreements to ensure that they have the following terms in place to deal with and counter such requests.

Annual Price Alignment

SaaS customers will argue that hosting, storage and IT costs are becoming ever cheaper, so the savings should be reflected in prices. However, even if this is true, this does not automatically have a knock-on effect on a SaaS supplier’s total costs. Wages, IT and professional indemnity costs are increasing. It is therefore prudent to have the right to increase fees included in the pricing terms of your SaaS agreement. SaaS suppliers can then decide on an individual basis whether to actually exercise this right. Without this right, SaaS suppliers will have difficulties increasing prices at all.

Merger & Restructure

Depending upon the pricing model used, SaaS suppliers may or may not align prices to the numbers of users, traffic, data storage etc. However all SaaS suppliers set their prices based upon some sort of variable – which could change in the future. For example, if a SaaS customer merges their business with a competitor, is acquired, or simply restructures its business, a SaaS supplier must have the right to adjust prices to reflect the increase in users, traffic, data storage etc. This right should be specifically included in the terms of the SaaS agreement. It should include the right to adjust prices if the scope of access to the SaaS services is to be altered or increased, to a different set or extended group of users.

Term

SaaS customers often order SaaS services for a fixed term and obtain a discounted price. The SaaS agreement often says nothing about an increase in prices after the expiry of the fixed term. SaaS suppliers should always include a right to renegotiate or increase prices prior to expiration of the fixed term. If a discount has been given in return for a fixed term then any discount should cease to apply after the fixed period expires. If there is no fixed or minimum term SaaS suppliers should include a specific contractual right to renew prices on a regular basis.

Termination

Any termination rights given to a SaaS customer in a SaaS agreement could become problematic when negotiating changes to existing terms. Customers who have the right to terminate a SaaS agreement at any time, can simply demand a lower price and then terminate if there is a disagreement. Where SaaS customers are granted more restrictive rights of termination, it will be more difficult for them to terminate if you exercise a contractual right to increase prices.

Changes in Law

The laws applicable to your SaaS agreement will change with time. SaaS suppliers should reserve the right to amend their SaaS agreement terms to incorporate any changes in mandatory applicable laws, without this triggering a wholesale renegotiation of the SaaS terms generally. For example, once the new Data Protection Directive is finalised (probably next year), SaaS suppliers may have a mandatory obligation to disclose data and security breaches which may currently be prohibited under existing SaaS agreement terms.

Help

Irene Bodle is an IT lawyer specialising in SaaS agreements with over 10 years experience in the IT sector. If you require assistance with any SaaS, ASP, software on demand contracts or any other IT legal issues contact me:

irene.bodle@bodlelaw.com
www.bodlelaw.com

To learn more about SaaS and cloud computing join me at the Berlin CloudConf 2013 on 5th of December.

To register for my newsletter click here

______________________________________________________

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SaaS Agreements – Hosting – Encryption of Stored Data

Under the Data Protection Act (DPA), SaaS customers are required to take “appropriate technical and organisational measures” to prevent the unauthorised or unlawful processing of personal data and accidental loss or destruction of, or damage to, personal data. SaaS providers who process personal data on behalf of SaaS customers are required to include such obligations in their SaaS agreement (or SLA).

Written Obligation

The specific obligations specify that SaaS customers must have a written contract with SaaS providers which states that:

  • the SaaS provider may only process data in accordance with the SaaS customer’s instructions; and
  • the SaaS provider undertakes to comply with the “technical and organisational measures” requirements of the DPA.

Encryption Requirement

Last year the Information Commissioner’s Office (ICO) issued some guidance on cloud computing. Amongst other issues, this advised SaaS customers to ensure that personal data in transit is secure and protected from interception by:

  • encrypting data in transit;
  • using encryption that meets recognised industry standards; and
  • obtaining assurances from SaaS providers that data in transit is appropriately secure.

The ICO also advised that data “at rest” i.e. personal data which is stored, should also be encrypted, depending upon the nature of the personal data held i.e. is it sensitive personal data and the type of processing taking place.

SaaS customers were advised to ensure that encryption keys are:

  • kept up to date, in order to maintain the level of protection; and
  • not lost, as this could render the data useless.

Compliance

SaaS customers are increasingly asking SaaS providers to include data encryption obligations in SaaS agreements. Google cloud services now:

  • automatically encrypts all data before it is stored;
  • regularly updates keys;
  • implements access controls; and
  • permits auditing procedures.

In time this could become standard for all SaaS providers. In any event you may want to check with your data centre, where you are outsourcing hosting and storage to check whether they also offer this service, which is provided to Google cloud service customers at no additional cost.

Help

Irene Bodle is an IT lawyer specialising in SaaS agreements with over 10 years experience in the IT sector. If you require assistance with any SaaS, ASP, software on demand contracts or any other IT legal issues contact me:

irene.bodle@bodlelaw.com
www.bodlelaw.com

To learn more about SaaS and cloud computing join me at the Berlin CloudConf 2013 on the 5th December.

To register for my newsletter click here

______________________________________________________

Other related articles:

SaaS Agreements – Terms & Conditions – Insolvency and ERRA

From April 2014 the UK government plans to change the Insolvency Act under the provisions of the Enterprise and Regulatory Reform Act 2013 (ERRA). This will make a SaaS supplier’s right to terminate or alter the terms of an existing SaaS agreement void if a SaaS customer becomes insolvent. From this data no SaaS agreement may be terminated or have the pricing and payment terms changed due to a customer’s insolvency. Furthermore the SaaS supplier must continue to provide SaaS services without receiving any payment or having any right to arrears.

ERRA

Section 233 of the Insolvency Act 1986 prevents suppliers of gas, water, electricity and telecoms from ceasing to supply utilities to insolvent customers. ERRA will widen the scope of section 233 to anyone designated by the Secretary of State as providing essential services and includes the “supply of a specified description of goods or services by a specified description of person where the supply is for the purpose of enabling or facilitating anything to be done by electronic means” i.e. an IT supplier. All SaaS suppliers could fall within the scope of ERRA.

Contractual Restrictions

The terms of existing SaaS agreements and any agreements entered into after April 2014 will be affected as follows:

  • SaaS suppliers will no longer be able to withdraw or suspend the supply of SaaS services from insolvent SaaS customers;
  • SaaS suppliers will no longer be able to make it a condition of continuing to supply SaaS services that all outstanding debts are paid;
  • SaaS suppliers will no longer be able to “unfairly” or “unreasonably” increase prices for the continued supply of SaaS services to an insolvent customer; and
  • Sub-contractors of SaaS suppliers, such as the hosting centre, backup providers or software developers may also be obliged to comply with the ERRA in relation to the SaaS provider’s insolvent customer.

Protection for Suppliers

SaaS suppliers should however be partially protected against being tied into loss making SaaS agreements, by being given the following rights:

  • to request a personal guarantee for payment from the insolvency practitioner of the insolvent customer as a condition for continuing to supply the insolvent SaaS customer;
  • to terminate the SaaS agreement if the relevant insolvency practitioner or a court agrees;
  • to terminate the SaaS agreement if post-insolvency charges are not paid within 28 days of the date that they fall due.

However such safeguards need to be introduced by secondary legislation.

Avoiding Potential Problems

SaaS suppliers should now check the terms of agreements with sub-contractors to ensure they are not liable to sub-suppliers for providing services to insolvent customers unless the SaaS supplier itself receives payment from the insolvent customer i.e. a software developer is working on a project specifically for the insolvent SaaS customer under a consultancy agreement.

SaaS suppliers should also review the terms of their existing SaaS agreements, in particular to check that:

  • SaaS customers have no right to assign the SaaS agreement, then an insolvency practitioner will not be able to transfer it; and
  • regular price reviews are built into the terms so that prices do not remain static indefinitely.

The consultation process on the changes to the Insolvency Act is not yet finalised and SaaS suppliers should therefore look out for further developments.

Help

Irene Bodle is an IT lawyer specialising in SaaS agreements with over 10 years experience in the IT sector. If you require assistance with any SaaS, ASP, software on demand contracts or any other IT legal issues contact me:

irene.bodle@bodlelaw.com
www.bodlelaw.com

To learn more about SaaS and cloud computing join me at the Berlin CloudConf 2013 on 5th of December.

To register for my newsletter click here

______________________________________________________

Other related articles:

  
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