Using Customer “Paper” – When your SaaS Customer Sends you the Wrong Type of Contract (not for SaaS) but still insists on using it

It happens all the time. You provide SaaS subscription services and a customer insists on using their contract, but it’s designed for the wrong type of transaction. Maybe it's designed for the sale of goods, consulting, custom dev work (work for hire), downloadable software, etc., but the customer still insists on using their "paper" (i.e., their form or template agreement).

The first thing you should try to do is politely tell them how/why it’s wrong and see if they'll use your SaaS template instead.

But assuming they still insist on using their (wrong) agreement, how can you fix it? No two customer templates are the same, so please seek legal assistance, but….here’s a checklist and roadmap of the most common issues and differences you will likely need to fix:

1.        License Grant. If the contract was designed for goods or consulting, any and all licensing related terms will likely be entirely missing. If the contract was designed for downable software, there may be licensing terms but they will probably be wrong (access vs download, subscription vs perpetual, scope limitations, etc.).

2.        License Restrictions. Again, for goods or consulting this will be missing and is crucial to protect your IP.  Standard restrictions clause should be added (no resale, no reverse engineering, no using to build or improve competitive products or services, etc.).

3.        Intellectual Property. IP terms will likely be all wrong – it may say the customer owns your deliverables as "works for hire", instead of you retaining all your IP and merely granting a term license to access.  

4.        Data.

a.        You may need to add a vendor favorable DPA

b.        You will almost certainly need to add your right to use aggregated or anonymized data

c.        Depending on the nature of your business, you may need to add your right to use certain data to train your AI tools and models.

5.        SLAs. The contract specifications may say or imply that the deliverables will be bug free, guaranteed, and/or 100% available if they aren’t designed for SaaS. You will likely need to add vendor friendly SLA terms, most importantly, with all the standard caveats (e.g., internet downtime, things outside your control, customer error, downtime for routine maintenance, etc.)

6.        Right to Update. Because of the real-time nature of SaaS, you’ll need to affirmatively state your right and ability to constantly update and iterate the services without notice or consent. For other deliverables, the customer might expect input before you change the products or services they’ve contracted for.  

7.        Generally Available Service. Clarify for SaaS you offer one standard off the shelf generally available product that is the same version used by all customers; it’s not customized in any way for each customer.

8.        Additional Obligations of Customer. In goods and even many software deals, most obligations, reps and warranties are one sided, obligating only the vendor. But in SaaS, the customer has certain obligations too, eg:

a.        Obtain consents and approvals to share and use data

b.        Not violate scope of license

c.        Not violate vendor’s IP rights

d.        Indemnities from customer for breach of the above

9.        Deletions and Changes. In addition to those mentioned above, look for any other terms in other agreements that are irrelevant or wrong and need to be deleted entirely or completely replaced. Other common examples include, e.g.,

a.        Acceptance/Testing – Delete any such provisions. Because SaaS is delivered constantly and in real time, it makes no sense for each delivery to be tested then accepted or rejected.

b.        Maintenance, Warranty, repair, etc. – These will look very different for SaaS than for goods or even consulting services etc. You might want to delete and replace in entirety with your standard maintenance provisions.

10.  Other Changes NOT Unique to SaaS. Of course, when reviewing customer paper, you will want to review many provisions carefully, whether or not they would differ based on the nature of the deal. For example, indemnities, limitations on liability, confidentiality, etc., may be different from your preferred terms not because it’s SaaS, but simply because their paper is a customer friendly draft instead of a vendor friendly draft.

As you can see, it’s possible to work with a customer’s proposed template contract, as long as you carefully review and make the correct changes. Before you send a heavy redline, you may want to try to use your own template first, explaining to them that you need to because they send the wrong contract type. If they insist on still using their agreement, then be sure to set expectations, explaining to them the reason why so many edits are needed is because they sent the wrong type of contract, so they should expect the above changes.

If you need help doing this, please feel free to reach out to me at BHeller@OutsideGC.com

-----------------------

About the Author:

Brian Heller is a Tech Transactional Lawyer (Digital & Social Media, SaaS, Ad Tech, etc.) for Outside GC (OGC), a different kind of law firm.

OGC is virtual, so it’s much more affordable, and all OGC lawyers have prior in-house GC experience and/or experience in business roles.

Brian started his career with Shearman & Sterling in NYC, then Akin Gump in DC), then in-house in a variety of tech companies, and in Business Development and Corporate Development roles, including in a Private Equity owned startup, with a successful exit.

E-Mail: BHeller@OutsideGC.com  

Bio: https://www.outsidegc.com/attorney/brian-heller