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Issue 34

Legal aspects in SaaS

Claudia Jelea
Avocat & Consilier in domeniul marcilor
@IP Boutique
OTHERS

Some legal aspects concerning software applications in general, such as intellectual property and the usage of open source code, collecting personal data through an application, publishing in Google Play, have been analyzed in the previous issues of Today Software Magazine.

In the article of the current issue, I would like to focus on the way applications of the SaaS (Software as a Service) type are commercially exploited and, especially, on the partnerships that can help you collect revenues from the usage of these applications.

For the beginning, I would like to make a short preliminary observation for those who are not familiarized with the concept: SaaS applications are those which software developers deliver to their clients in the form of a service. The clients do not buy and do not own the program or the application in itself, but purchase the limited (and non-exclusive) right to use its functionalities in exchange of a sum of money, usually, an annual fee or subscription for a certain period of time. What is characteristic of this type of application is the fact that the application is not hosted by the clients. Most of the times, it is hosted in the cloud, by a provider that offers cloud services or in an independent data center, and clients can access it through the Internet browser.

The birth of a dilemma: Reseller / Distributor / Agent / Stakeholder / Service Provider / Another name?

Recently, during the break of a conference, I was talking to a software developer who was at the beginning of his career. Together with his associates, he had created a niche SaaS application, addressed to a well-established target public. He knew the industries in which he would approach the potential clients and he was negotiating with a partner to help them get to the respective clients. After he told me what the application consisted in, he told me: “Everything is ready. Now, we only need a simple draft of a reseller contract to sign with the reseller. But we will take a model from the Internet and that’s it.”

My natural question in relation to the role the reseller would play in the arrangement they had in plan (stakeholder, agent, distributor, etc.) confused him. By the way he looked at me, I could guess he was thinking about at least some of the clichés about lawyers: “here is another one who wants to take my money and cover me with paperwork”, “why should I pay a lawyer when the Internet is full of contract drafts?”, “I do not need a complicated contract, but rather something simple and cheap, maybe even for free”, etc. Well, maybe my interlocutor had, nevertheless, a better opinion on the work of lawyers, but, leaving the joke aside, from his commercial point of view, the matter was simple: we have created the product, we know the clients we want to reach (the ones we have established as a target), all we need now is a distributor to deliver the product to the clients; there is no need for us to complicate things with legal matters.

Does this approach sound familiar to you?

Suddenly, I remembered that words often have different connotations for different people. Especially if there are also legal expressions involved, which can have various meanings.

Of course, for the developers, the name under which this reseller would operate does not necessarily have different meanings – he can be called distributor, agent, stakeholder, service provider; what is important is to stimulate the use of the SaaS application. Moreover, it would have no reason to have another meaning. Most of the times, it is the duty of the legal department to be aware of the legal aspects involved in a project. But what happens if the legal department does not ask all the right questions? Or, even worse, what if you do not benefit from any legal support? That is why it doesn’t hurt to have at least an idea about some of the delicate issues raised by the distribution of this type of applications.

Questions that few people ask

The first thing you should do is to prepare your business strategy and think about what you would like your contractual relationship with your partner to look like, the partner who will promote and distribute / license the application to the potential clients. In order to be able to benefit from a good contract to protect your interest and position of developer of the application, it is necessary that you know certain details.

You can find below a few examples of questions that you should insist on:

Which will be the attributions of your partner? Will he only help you to promote your software product, will he represent you in negotiations or will he have more extended attributions?

What type of relationship would you like your partner to have with the final client? Who will sign the contract with the client – your partner or yourself (the developer of the application)?

Will the partner conduct his activity independently or based on the developer’s indications?

Is it necessary for the developer to sign a separate contract with the final client regarding the usage of the application?

Who is responsible for the contract signed with the final client and for the possible actions that are not allowed on the application from the part of the final client?

Which is the financial mechanism agreed upon – does the partner get a commission or directly cashes the entire amount and then pay a certain amount of it to the developer?

Who ensures technical support in the case of a dysfunction?

If, through the application, personal data can be collected and processed, who has to comply with the legislation in force?

Will you grant any license to your partner or any other right regarding the application? For instance, for the purpose of distributing the application, will you allow him to adjust the application in any way?

And others – depending on the actual case.

Why do these legal issues matter?

Based on the answers to these questions, the business intentions can be contractually reflected in a manner as accurate as possible, and, with the right help, even to your advantage.

From the point of view of drafting of the contract, the quality in which your partner acts – be it as a distributor, reseller of the application, commissioner, representative that negotiates the licensing of the application on behalf of the developer, be it as an agent who signs the contracts on his behalf and assumes responsibility, etc. – attracts different legal consequences and, therefore, different rights/ obligations for the developer. In short, the content of the contract always matters.

Usually, the name given to the contract can help us to legally classify that agreement, namely to identify the rules that apply to it and to determine the extent of the obligations assumed by the parties. Nonetheless, in practice, there are numerous cases when the name does not reflect the actual relationship between the parties. If, to the problem of the name we also add the faulty editing of the contract, the conflict represents a certainty, being just a matter of time.

Therefore, a clear discussion regarding these aspects is of a major importance for the developer and the advisor who assists him in the preparation of the contract and the negotiation. Firstly, it helps you not to waste time with editing some contractual clauses that afterwards might prove not to cover everything or to be inappropriate for the business goals. Secondly, it will help you limit the risk of contingent disputes with your partner, when the incomes resulted from the application substantially increase and the commercial interests change.

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