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Your Company's Transition to Software as a Service; Legal Considerations Regarding Customer Agreements (part 1 of 2)

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Your company is adopting a Software as a Service (SaaS) business model. How will you adapt? Your business has been producing and selling a software product successfully for some time. Change has come, however, and you've just received news from the CEO that your company will adopt a SaaS business model. This means that instead of marketing software for sale as a product, your company will increasingly focus on delivering services to customers over the net. You've got work to do... where do you begin?

Let's start with the most important focus of a company - the customer. You can begin by having your lawyer prepare a Subscription Agreement that defines your relationship with your customers. This takes the place of, and may include a number of provisions common to, the Software License Agreements with which you are already familiar. Like the Software License, your Subscription Agreement will include sections describing what you will provide and how much the customer will pay, limitations on liability and a description of the warranties provided and disclaimed.

If your company will store data about clients on your servers, then you need to consider privacy issues. If your company already has a website, then probably you have a privacy policy in place. If not, it is important to implement one. In addition, your customers will be keenly interested in protecting their ownership and exclusive access to their data. Additionally, the customer data should be treated as confidential information subject to confidentiality provisions found in many Non-Disclosure Agreements (NDAs).

If your company will store clients' data on your servers, you need to consider mechanisms for protecting your company from exposure to legal liability from that data. Malware including viruses, spyware, worms, time bombs, Trojan horses, spam or otherwise duplicative or unsolicited messages in violation of applicable laws - infringing, obscene, threatening, libelous or otherwise unlawful or tortious material, including material that is harmful to children or violates third party privacy rights - are just some of the things that could find a way onto the servers of an unwary or overly trusting SaaS provider. Your lawyer should include a clause that seeks indemnity for liability to protect your company from shouldering the risk of storing many clients' data.

In the SaaS environment, some of your subscribers may come and go. You will need to provide for the return of customer data when a customer terminates their subscription. You should work with your lawyer to have a well-defined procedure in place in your Subscriber Agreement to 1) return the data to the customer, and 2) remove the data from your server so that there will be no misunderstandings. After all, you hope that the customer will miss you enough to come back!

Stay tuned... our next post will feature implications of a transition to SaaS regarding patents, trademarks and copyrights!

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