Escrow Archives

SaaS Agreements – SLAs – Business Continuity and Escrow Agents

SaaS customers are increasingly asking for disaster recover provisions to be included within the terms of a SaaS agreement to ensure that they have access to their data and continuity of service if a problem arises at the SaaS supplier’s data centre. The costs of providing disaster recovery used to be prohibitive, due to the requirement of having mirrored servers and transferring data, however there is now a new market opening up with former escrow providers offering a variety of disaster recovery options at affordable prices.

Disaster Recovery

Disaster recovery sets out the processes and procedures to be followed in the event of a SaaS supplier’s software or customer data no longer being available. This is commonly due to a problem at the SaaS supplier’s third party data centre.

The most common problems are usually caused by:

  • physical damage to the data centre; or
  • insolvency of the party operating the data centre.

However, disaster recover does not cover the situation where the SaaS supplier itself becomes insolvent. In these circumstances a SaaS customer will have no right to access its data and backups at the data centre, as it is not a party to the hosting agreement between the data centre and the SaaS supplier.

Escrow

In the past, SaaS customers used escrow agreements to enable a third party – an escrow agent – to hold a copy of a SaaS supplier’s software (the source code) on behalf of the SaaS customer and SaaS supplier. The source code would be released to the SaaS customer if the SaaS supplier became insolvent or unable to continue to provide the SaaS services. This did not however actually ensure business continuity as SaaS customers did not generally have the technical know-how to understand and use the source code. Accordingly escrow agreements are rarely used today.

Alternative to Escrow

Many escrow providers, such as the NCC and Iron Mountain have amended the services they offer to SaaS suppliers and SaaS customers. They have replaced traditional escrow services with service continuity options which on the most basic level permit the escrow agent to step in and take over the SaaS provider’s hosting obligations, if the SaaS provider becomes insolvent or unable to provide the SaaS services. The escrow agent provides the SaaS customer with continuity of the SaaS service by hosting the SaaS software and data either:

  • at an alternative data centre, if there are issues at third party data centre; or
  • at the existing data centre in the event of the insolvency of the SaaS supplier.

For example. A SaaS customer enters into a SaaS agreement with a SaaS supplier who is hosting the SaaS service via AWS (Amazon Web Services). The SaaS supplier becomes insolvent and AWS stops hosting the SaaS services. However, if the SaaS customer had included a service continuity option in the SaaS agreement with the SaaS supplier, the escrow agent would simply have replaced the SaaS supplier in relation to the AWS hosting and the SaaS services would have continued uninterrupted.

Advantages for the SaaS Customer

There is no immediate need for the SaaS customer to obtain copies of the source code, data and find a new hosting provider. The SaaS services will continue to run uninterrupted without any loss of service which is very important if the service is being used for a business critical function. The SaaS customer will have time to transition to a new SaaS supplier and service and will also have the peace of mind that the SaaS service will not be interrupted in the interim.

Advantages for the SaaS Supplier

Providing for this type of service in your SLA offers reassurance to your SaaS customers. By proactively approaching the issues of business continuity you will have a competitive advantage over other SaaS supplier sand it will help you build trust into your customer relationship.

Summary

This is just one of the services offered by such former escrow agents. SaaS suppliers should consider discussing this option with customers in order to deal with their concerns over continuity of service, when signing up new business and/or negotiating a SaaS agreement.

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 register for my newsletter click here

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SaaS, ASP Agreements – FAQs – Escrow

When negotiating a SaaS agreement you may come across the term escrow. What is  escrow and is an escrow agreement necessary?

SaaS and Escrow

Under the terms of a SaaS agreement you do not own and only have very limited rights to use the software (which includes the source code) that you are accessing. This is usually not an issue until technical problems arise, i.e. unexpected service interruptions, downtime, loss of application functionality and loss of data. Such problems can add significant costs to your business and you are dependent upon the supplier to resolve these issues, unless you have an escrow agreement in place.

Escrow Agreement

An escrow agreement sets out the terms on which the  software source code will be held by a third party – an escrow agent – on behalf of the customer and the supplier. The escrow agent stores a copy of the software source code and will release this to the customer if any of the events set out in the escrow agreement occur (e.g. the supplier fails to maintain the software, there is a transfer of intellectual property rights in the software or the supplier becomes insolvent). Thus the customer has the right to continue to use the software if the supplier is in default. However, having the right to use the software and actually being able to use the source code are very different.

Limitations of Escrow Agreements

The following should be considered by customers before entering into an escrow agreement:

  • is the software business critical, if not, do you really need an escrow agreement?
  • the cost of setting up the escrow agreement and the ongoing renewal fees;
  • do you have the technical know-how to understand and use the source code in the event of an escrow release?
  • do you have programmers who can in the long term update and enhance the software to stop it becoming outdated?
  • will you need to engage a specialist software consultant to deal with the source code?
  • is there alternative SaaS software which could simply be used instead?

There is no point having access to the source code if you cannot actually use  and understand it, as access alone will not ensure business continuity.

Types of Escrow Agreement

If you decide to enter into an escrow agreement you will need to choose between a multi-licence or a single licence agreement.

Many suppliers have multi-licence escrow agreements for their source code already in place with recognised escrow agents. The customer can quickly be added to pre-existing agreement as a licensee. The advantage of multi-licence agreements is that they are relatively inexpensive (compared to a single licence agreement). The customer simply pays a fee to join the existing multi-licence agreement and usually an annual renewal fee. The disadvantage of a multi-licence agreement is that only the basic source code will be held in escrow, no customisations will be stored.

If the customer has any source code customisation that they are accessing it is worth considering having a single licence escrow agreement. This will ensure that the customer’s source code version is held in escrow. The disadvantage of this is that the single licence agreement will need to be set up and the fees are much higher.

Help

For assistance with any escrow matters, SaaS, ASP, software on demand contracts or any other IT legal issues contact me at:

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

To register for my newsletter click here

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SaaS Agreements – Essential Elements

The following legal issues should be included in any SaaS agreement, whether you are a SaaS supplier or a SaaS customer.

Software Licence

Access to the software should be limited to the term of the SaaS agreement. Once the SaaS agreement expires or terminates the software licence should automatically terminate.

If the SaaS customer is a global entity, specify which companies or entities may access the SaaS software, in which territories and the number of users. Identify the specific purposes for which the software may be accessed. Name any third parties who will be permitted access to the SaaS software i.e. outsourcing providers or clients of the SaaS customer.

Intellectual Property Rights – IPR

The SaaS supplier should retain ownership of all IPR in the software and services it provides. The SaaS customer should retain ownership of all IPR in its systems and data. The SaaS agreement should specifically state that the source code remains owned by the SaaS supplier. The SaaS customer should grant the SaaS supplier the right to use its IPRs for the term of the SaaS agreement i.e. display its logos and copyrighted information.

Applicable Law, Jurisdiction & Language

State which law applies to the SaaS agreement and which courts will deal with any disputes arising from it. In international SaaS agreements make sure that you specify in which language the dispute will be dealt with, and if the SaaS agreement is in more than one language, which language prevails if there is a discrepancy between the two versions.

Return of Data

At the end of the SssS agreement the SaaS customer’s data should be returned. The format in which the data is to be returned and payment for this service should be agreed in advance.  Additionally the parties can agree that the Saas supplier will provide assistance in transferring SaaS customer data to a new supplier – in return for payment for this service.

Data Protection

The SaaS supplier is the data processor and the SaaS customer is the data controller. Under UK data protection law different rules apply to the data controller and the data processor. The SaaS supplier is obliged to process data in accordance with the SaaS customer’s instructions and should protect itself against claims from third parties that such processing was illegal. Likewise, the SaaS customer will also need to protect itself against claims from third parties caused by the SaaS supplier not processing data in accordance with its instructions or the terms of the SaaS agreement.

Service Level Agreement (SLA)

This sets out the hosting, support and maintenance services being provided to the SaaS customer by the SaaS supplier. The SLA should specify where the data centre is located, who is operating it, what security, backup and disaster recovery procedures are in place. Support hours and support services for dealing with hosting problems and software problems should be identified and documented and the procedure for dealing with with upgrades and maintenance to the software should be specified. The particular details will depend on the amount being paid for the hosting, support and maintenance and the purpose for which the software is being used.

Escrow

Specify who the owner of the source code is, as it may not be the supplier i.e. the holding company of the supplier. State whether or not the customer can enter into an  agreement with a third party to hold the source code in escrow.  Include the name of the escrow agent and who will be responsible for the costs of the escrow agreement and any annual renewals.

Help

Irene Bodle is an IT lawyer specialising in SaaS, with over 14 years experience dealing with SaaS, cloud computing matters and IT law issues. If you require assistance with any SaaS agreements, cloud computing matters or any other IT legal issues please contact me at:

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

To register for my newsletter click here

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