The Role of Intellectual Property in SaaS Agreement: A Comprehensive Overview

5th December, 2024 - 9:38 am Categories: Intellectual Property Protection 0 Comments

INTRODUCTION

Many of us have, at some point in our lives, thought of having our own company or doing a profitable startup; it can be connected to any segment or trail of segments taking the market requirements. The question arises here: is the money all we need to build up a company? You have the amount required to make your company, but simply investing the money in good infrastructure is not enough. Do you think it’s child play? It’s certainly not. To hit the high spot among other competitive companies, money also has to be spent on research and development, products required in the present era, and lastly, a strong intellectual property (IP) portfolio on different forms of commercial contracts.

Software-as-a-service is not a new idea in today’s world; it is somewhat similar to the ASP (Application Service Provider) Model, wherein the provider provides clients with online access to third-party software.

If we look at the type of the agreements more specifically, then the agreements related to the delivery of the different types of software, particularly the SaaS-related agreements may contain clauses related to IP and various aspects related to intellectual property rights. In layman’s terms, a Software as a Service (SaaS) agreement refers to a legally binding contract that outlines how a software provider will permit a customer to use its services and under what terms and conditions. It also features several types of clauses required for the precise service provider and website or app.

Is it mandatory to construct a SaaS agreement?

We know that different software companies and businesses have visionary management procedures in their respective organizations. When it comes to SaaS agreements, there are no strict laws in the picture that compel these organizations to make SaaS agreements specifically.

So why do these organizations focus so much on SaaS terms? The simple answer is that the company does not want to compromise its services at any cost; hence, it is always recommended to have a well-structured SaaS consensus.

SaaS Provider and User Relationship

When drafting a SaaS agreement, it is very important to define the type of specific functions for each party involved in the agreement; this may include some of the provisions concerning the usage of intellectual property rights. The clauses that characterize the protection of intellectual property in SaaS agreements involve ownership and license of intellectual property connected with certain software. It guarantees that the license holder uses the software and does not own it or have any rights over the same. During the term of the SaaS agreement, the client is typically granted a limited SaaS license to the program.

To provide the services successfully, the SaaS agreement provides the framework, mentioning the terms of the software usage and the obligations of several parties. For example, in the agreement, it may be outlined that the customer using the services has to strictly comply with the clauses mentioned thereto.

In addition, the SaaS agreement might place specific limitations or restrictions on the usage of the software licensed to the customer by the agreement. These restrictions could include restrictions against adding or subtracting features from a given piece of software or seeking to find out how the software was designed.

Intellectual Property Clause in SaaS Agreement

Different types of SaaS agreements have various kinds of intellectual property clauses; they can include clauses relating to app usage, terms and conditions in the website, etc. These terms make it clear that the owner of the website is the real owner of the content present on the app or website.

These clauses also outline what the user can and can’t do and under what certain requirements they can download the content. A SaaS agreement, in some cases, can include provisions that say the site owner can stop people from accessing the website at his discretion. While making a SaaS agreement, notices related to copyright, intellectual property rights, and use or restrictions on trademark use are some of the most often used points.

IP Indemnification in SaaS Agreement

It is common for lawyers as well as nonlegal professionals to demand and come to a conclusion that outlines both parties’s contractual obligations identically. However, there is no reason why the indemnity clauses for a SaaS services provider and its client should be the same, as the risks that the former brings to the relationship are frequently very different from the latter. Once more, the emphasis is on the distinct dangers that each party faces.

For example, a SaaS company that handles financial data exposes its clients to allegations of data breaches and intellectual property infringement. Thus, the SaaS provider might only offer indemnity for loss of data from its systems and infringement of intellectual property.

When a SaaS provider provides its services to any client, it allows that particular client to use the software. But if the client moves the data from one place to another that he is not allowed to access—like personal or financial data information—it would be a pure violation of the SaaS Agreement. For example, if an end-user (a person whose data is uploaded) finds out their information was misused, they could file a claim.

Circumstances under which the SaaS Agreement may be terminated

Most of the service providers under any SaaS Agreement are determined to suspend the use of services immediately if any breach or violation happens to occur from the side of the customer using the services. The breach can happen in any way, for eg., if the customer has violated or infringed any intellectual property rights or if a customer engages in actions that violate the law or breach the provider’s acceptable use policy (AUP), or negatively impact other customers’ ability to use the service, etc.

Because indirect damages might make up a substantial slab of the customer’s damages in the case of a breach, customers should carefully consider whether an indirect damages disclaimer is suitable. For instance, there will be significant indirect or consequential damages if data is lost or destroyed. The significance of recovering consequential or indirect damages for a consumer can also probably depend on how sensitive the data in question is.

In a SaaS agreement, the termination for breach clauses must be understood by both parties because, this is so because, in case a breach occurs, it should be specific under what scenario who would be held liable for that breach.

Oracle’s Intellectual Property Infringement Lawsuit

Oracle made allegations against NEC that NEC had violated the software license terms of the agreement; Oracle alleged that their database had been breached. In response, NEC said that Oracle had tricked them into accepting a restricted license. NEC made several arguments in contention that the lawsuit should have to have some of the claims dismissed. Eventually, NEC caved in, and both parties came to a settlement. The details of the settlement were not disclosed to the public, but NEC paid Oracle compensation.

Procedure for Maneuver Challenges in SaaS Agreement

Some apps or websites have limitations and can’t be included in a SaaS agreement, for example, Data Control. In a traditional on-premise license, the company mandates the control of data, but when it comes to SaaS agreements, the service provider has the authority to control the data. If this problem related to authority arises in the future, it can be resolved simply if the ownership clause or the type of data mentioned is distinguished clearly.

The problem faced by customers in the SaaS Agreement is that the company that consumes cloud-based software relies on a third-party supplier to maintain continuous access in a secure environment. Business application continuity is critical since the SaaS offerings align with the customer’s business processes. It is also important to have a backup, if the service provider decides to end the agreement, business continuity scenarios should be included in the service agreement. This can also consist of the particular measures mentioned in the SaaS agreement for handling matters such as the cloud provider shutting down or in the case of force majeure.

One more problem that can be looked at is whether the company is putting a final stop on its cloud services. In this case, it needs to make sure that the data related to intellectual property, services, security, etc. that had been given and taken back after the expiry terms is still compatible or useful. If the data is not up to the industry standards at present, it would be of no use. Therefore, organizations should include a clause guaranteeing their ability to insource, outsource, and backup services in the technology vendor agreement or in the different SaaS agreements to avoid company reliance on a single cloud computing solution.

CONCLUSION

We have seen how in the SaaS Agreement the role of intellectual property rights is crucial and important to protect certain software services that the service provider is giving to its customers. Your software license agreements need to be in precise language stating that the customer understands they are getting a license to use the software in a specific way and that the provider retains ownership of its intellectual property rights in the software. We have seen how in the case of Oracle America Inc. v. NEC Corp. of America The case states awareness and realization of compliance to legal software licenses, proper IP management, and documentation. It is recommended that businesses should carry out checking exercises frequently and participate in negotiations more often, seek legal advice from lawyers to minimize these risks, and not infringe on copyright which costs a lot of money to defend. Any company wanting to protect its business interests should be legally ready and must first have an efficient handling of its intellectual property rights. Having a well-structured SaaS consensus is very important, though it is not mandatory to construct one. These agreements are highly recommended to ensure the smooth functioning of online services present on websites or other platforms. They maintain the relationship between service providers and customers on how a particular software can be used. They protect intellectual property by clarifying ownership and usage rights, as they set clear terms in case of breaches or violations. Intellectual property is an emerging field of law, it is well recommended to protect the owner’s rights under SaaS or any kind of agreement.

Author: Danish Husain, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at Khurana & Khurana, Advocates and IP Attorney.

5. REFERENCES

https://smartbear.com/blog/the-pre-history-of-software-as-a-service/

https://www.vendr.com/blog/manage-saas-agreements#:~:text=from%20their%20infrastructure.-,When%20to%20use%20a%20SaaS%20agreement,and%20clearly%20outlined%20SaaS%20agreements.

Software Agreements: Models Most Commonly Used

SaaS Indemnity Provisions: 5 Things to Watch For

SaaS Agreements: Key Contractual Provisions

https://www.reuters.com/legal/transactional/oracle-nec-resolve-contract-copyright-dispute-over-database-software-2022-03-02/

https://gouchevlaw.com/saas-agreements/

https://gouchevlaw.com/oracles-ip-infringement-lawsuit-sheds-light-on-audit-protocols-in-software-licensing-agreements/