What is Software as a Service?

As many businesses turn to Software as a Service (SaaS) for their business needs, understanding the legal framework surrounding its use is crucial. Many companies are now utilising SaaS applications, SaaS solutions, and SaaS products as SaaS offerings are gaining popularity. SaaS offers flexibility by allowing companies to access software applications via the cloud. However, SaaS is unique, and as such, it introduces significant legal considerations – particularly regarding data protection and contractual agreements between SaaS suppliers and customers. SaaS providers or suppliers need to understand the legal issues surrounding SaaS delivery and take steps to protect themselves from risk when delivering these services to their customers. This article explores SaaS works and critical legal considerations around using these services. 

What is Software as a Service (SaaS)?

SaaS is a cloud-based software delivery model in which applications are hosted remotely and accessed via the Internet. Instead of purchasing and installing software on local servers or devices, users typically access it through a web browser. At the same time, the supplier manages the required updates, security, and maintenance remotely. 

SaaS services generally operate on a subscription or pay-per-use model, which removes upfront software purchases and can reduce costs. 

While SaaS is a popular choice for businesses today looking to reduce operational costs, it can also raise specific legal considerations – for instance, regarding data protection law rules and intellectual property rights issues.

What Data Protection Issues Can Arise Under SaaS Models? 

Data Processor Obligations 

As a SaaS supplier, your business may process personal data on behalf of clients when delivering your services. The UK GDPR applies whenever personal data is processed, meaning a company will have a range of obligations to follow as a data processor.

You will likely act as a data processor if your service allows users to upload personal information, such as employee data or customer details, as part of the services. In this role, you may handle data for the data controller, who decides the purpose and recipients of data processing.

In such cases, it is essential to have mandatory data processing terms in place between you and your clients. These terms should explain how you will handle and secure personal data. They should also detail the actions to take in case of a data breach. Additionally, the law requires that you notify your clients if a breach occurs and assist them with other compliance-related actions. 

If personal data is transferred outside the UK, SaaS suppliers must comply with UK GDPR international data transfer laws, which can be highly complicated. 

Data breaches are a big risk for SaaS Suppliers – their business should ensure they implement strong security measures to safeguard the data of their customers and train their staff on data protection and data security. 

6 Key UK SaaS Contract Essentials

This cheat sheet will explain your SaaS contract essentials.

Download Now

Data Controller Considerations

In contrast to the position above, you will likely act as a data controller if your business uses personal data for its own purposes in a SaaS project. This role comes with additional obligations under the UK GDPR. If you are processing personal data under your SaaS agreements, then determining whether you are acting as a data processor or data controller is critical to ensuring compliance. If you are unsure about this, you should take legal advice from a data protection solicitor. 

What is the Importance of SaaS Agreements?

Alongside data protection law compliance, having well-structured and robust SaaS agreements is essential for safeguarding both supplier and the customer. These agreements set out the terms under which customers can access and use the software. They also clearly define each party’s rights and responsibilities.

Key contractual considerations include the following:

• the agreement should clearly set out any specific service levels and details around how the services will be charged by the supplier, including information regarding user subscriptions and rules;

• a vital aspect of any SaaS agreement is clarifying intellectual property (IP) rights. This include IP usage and specific permissions around IP use by the customer. Typically, the supplier retains ownership of the software while the customer obtains a licence to use it. The agreement must clearly define the scope of this licence. This should include any usage restrictions, such as the number of users or geographic limitations. Clear IP clauses will help protect the supplier from unauthorised use or modification of the software. At the same time, customers will need assurance that they have the rights necessary to use the software for their operations. By setting out comprehensive IP provisions, both parties can avoid disputes over software parameters and misuse;

• limitation of liability clauses is critical in SaaS agreements. These clauses define the extent to which the supplier could be responsible for issues. Issues could include service outages or data breaches. Suppliers may seek to heavily limit their liability to a maximum financial amount. This could be the contract value or the fees paid by the customer. This can be particularly important when SaaS services start for customers; and

• it is vital to set out parameters for how long the SaaS services will be provided – for instance, whether the contract will automatically renew (a common feature in such agreements). Termination clauses in SaaS agreements specify how and when the contract can be ended, either through natural expiration or due to breaches of contract or service failures. Data transition clauses are very important, as they should clearly explain how customer data will be handled once the contract ends – this can be particularly important from a data protection law perspective where personal data is processed by the supplier.  

Why Should You Consider Legal Risks Under Your SaaS Arrangements?

SaaS agreements can be risky due to several key factors. 

Further, liability arising from breaching a SaaS agreement can expose businesses to significant financial risks. Particularly if service disruptions or data breaches occur without any contractual limitations on liability. 

A technology lawyer can help you mitigate these risks by drafting a robust and legally sound contract. This can ensure your SaaS agreement is fit for purpose and includes necessary provisions to protect your business from risk. A lawyer can also advise you on a range of other legal considerations for your business to address.

Key Takeaways

SaaS offers businesses a flexible solution for accessing software, but it also comes with significant legal considerations. SaaS suppliers must ensure compliance with data protection laws under the UK GDPR. Particularly in determining whether they act as a data processor or data controller. Further, having well-drafted SaaS agreements that address key issues such as intellectual property rights, limitation of liability, and termination procedures is critical for protecting both parties and avoiding disputes. By addressing these legal considerations, SaaS suppliers and customers can ensure compliance with the law and safeguard their business interests.

If you need help with SaaS contracts, our experienced data, privacy and IT lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0808 196 8584 or visit our membership page.

Frequently Asked Questions