SaaS customers and suppliers entering into business to business (BTB) contracts are increasingly using arbitration clauses in their SaaS agreements to avoid going to court to resolve disputes. If you do not already have an arbitration clause in your SaaS agreement it is worth considering adding one for the following reasons.
Costs of Litigation
Court fees charged by the UK courts for dealing with commercial disputes have been substantially increased in the last few years. In addition to court fees, you will need to pay solicitors and barristers to represent you in court. Legal fees for defending a SaaS dispute can easily run into millions of pounds in a large intellectual property dispute. Also, the English law principle of the “loser pays” will add substantially to the costs of the losing party.
Litigating a dispute is not a fast process. It can take months to prepare a claim before court proceedings are even issued. Following the issuing of the court proceedings, it could then take a couple of years for the SaaS dispute to be decided at trial. Thereafter the parties may be able to dispute the court’s decision, thus making the process even longer, unlike an arbitration decision which is final and can only be disputed in very limited circumstances.
Court proceedings are open to the public (i.e. your competitors) who will have access to details about the operation of your SaaS business, prices and products. Such information is confidential information but may have to be disclosed in litigation. Arbitration proceedings are held in private and details about the existence of the dispute or any of your confidential information revealed in the process can usually remain confidential.
Brussels I Exemption
Currently arbitration proceedings can be delayed, blocked or disputed by one of the parties simply issuing court proceedings in their own courts (due to the application of Regulation (EC) 44/2001 on the jurisdiction and the recognition and enforcement of judgments). Once the Regulation is revised and in force it will specifically exclude arbitration from its scope and the aforementioned tactic will no longer be of any practical use.
Whether or not you decide to include an arbitration clause in your SaaS agreement will depend upon the importance of the above factors to your SaaS business and the types of matters that you envisage being disputed. Also bear in mind that you should carefully consider the type of expert to be used in the arbitration process and how the costs of the arbitrator should be allocated between the parties to the dispute.
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:
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