Learn how integrating AI contract review into your SaaS Terms of Service Agreements (TOUs) can improve your contract negotiation, ensuring clarity, precision, and mutual understanding.
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A SaaS (Software as a Service) Terms of Service Agreement, also known as a TOU (Terms of Use), is a legal contract between a SaaS service provider and its customers. The agreement outlines the rights and responsibilities of both parties, setting clear expectations for the services to be provided, the level of performance, and the support and maintenance to be offered.
SaaS Terms of Service Agreements are essential for businesses across a wide range of industries that rely on cloud-based software solutions. These industries include healthcare, education, retail and e-commerce, finance and banking, human resources, marketing, manufacturing and supply chain, legal, real estate, and IT, among others
There are several key reasons why businesses should use SaaS Terms of Service Agreements:
According to the provided document, the top provisions to consider in a SaaS Terms of Service Agreement are:
In addition to these top provisions, a comprehensive SaaS Terms of Service Agreement should also include:
To ensure that your SaaS Terms of Service Agreement is effective, comprehensive, and legally sound, use this checklist:
To give you a sense for the benefits of leveraging ai legal contracts trained by lawyers, we’ve selected some sample language our software presents to customers during a review. Keep in mind that these are static in this overview, but dynamic in our software - meaning our AI identifies the key issues and proactively surfaces alerts based on importance level and position (company, 3rd party, or neutral) and provides suggested revisions that mimic the style of the contract and align with party names and defined terms.
These samples represent a small sampleof the pre-built, pre-trained AI Contract Review solution for SaaS Terms of Service Agreements. If you’d like to see more, we invite you to book a demo.
For: Both
Alert: May be missing an article regarding the parties' data protection obligations.
Guidance: Data protection is a vital component of SaaS agreements, as these services frequently involve the collection, storage, and processing of sensitive data. It is advisable to include a clause in the SaaS Terms of Service Agreement that outlines the data protection obligations of both parties. This ensures that they understand their responsibilities in managing and safeguarding user data, helping to maintain trust, prevent data breaches, and comply with relevant laws and regulations.
In practical terms, this provision serves to protect sensitive customer data, such as names, addresses, and purchase histories, by implementing robust encryption, conducting regular security audits, and providing training on data protection best practices.
Relevant statutes or laws to consider in this context include the United States' federal and state data protection laws, such as the California Consumer Privacy Act (CCPA) and the New York Stop Hacks and Improve Electronic Data Security (SHIELD) Act. If the SaaS provider or its customers process data of individuals located in the European Union, the General Data Protection Regulation (GDPR) may also be applicable.
Additionally, other federal laws such as the Health Insurance Portability and Accountability Act (HIPAA) and the Children's Online Privacy Protection Act (COPPA) may apply to data protection and privacy, depending on the nature of the SaaS service and the type of information being collected and processed.
Sample Language:
PROTECTION OF PERSONAL INFORMATION
The terms of the Data Processing Addendum (the “DPA”) posted as of the Effective Date are hereby incorporated by reference.
For: Provider
Alert: May be missing an article prohibiting use of the service by a competitor of the provider.
Guidance: To safeguard the provider's proprietary rights and competitive interests within a SaaS Terms of Service Agreement, it is recommended to incorporate a clause that explicitly forbids the use of the service by competitors. This precaution helps maintain a level playing field in the market and prevents competitors from gaining unfair advantages by accessing the provider's services, resources, and intellectual property.
For example, if a SaaS provider offers a unique project management tool, a competitor may attempt to replicate or analyze its features by signing up for the service under false pretenses. By including a non-compete clause in the Terms of Service Agreement, the provider can take legal action against the competitor for breaching the agreement and protect its proprietary information.
However, it is essential to consider general principles of contract law, intellectual property law, and unfair competition law when drafting and implementing such a provision.
Sample Language:
NO USE BY A COMPETITOR OF THE PROVIDER
PROVIDER’s direct competitors are prohibited from accessing the Services, except with PROVIDER’s prior written consent.
For: Provider
Alert: May be missing an article prohibiting the customer from copying, modifying or otherwise creating derivative works of the service.
Guidance: It is essential to safeguard the service provider's intellectual property rights. One method to accomplish this is by explicitly forbidding the customer from copying, modifying, or creating derivative works of the service. This ensures that the provider's intellectual property remains protected from unauthorized use, alteration, or distribution, which could adversely affect their business and the value of their service.
For example, if a customer attempts to reverse-engineer the software provided by the SaaS company to create a competing product, the inclusion of this provision in the Terms of Service Agreement enables the service provider to pursue legal action against the customer for violating the terms and infringing on their intellectual property rights.
Relevant laws to consider in this context include the United States Copyright Act, which governs the protection of copyrighted works, and the Digital Millennium Copyright Act (DMCA), which addresses the circumvention of copyright protection systems. State-level trade secret laws and the federal Defend Trade Secrets Act (DTSA) may also be relevant in protecting the service provider's intellectual property.
Sample Language:
RESTRICTION ON COPY, MODIFICATION, CREATION OF DERIVATIVE WORKS OF THE SERVICES
USER shall not, and shall not allow Users to copy, modify, or create a derivative work of the Services or any part, feature, function or user interface thereof.
To make the most of your SaaS Terms of Service Agreements and ensure their effectiveness, follow these best practices:
SaaS Terms of Service Agreements are critical for businesses that provide cloud-based software solutions to their customers. By clearly defining the rights, obligations, and expectations of both parties, these agreements help to mitigate risks, protect intellectual property, ensure data security and privacy, and facilitate compliance with relevant laws and regulations.
To create an effective SaaS Terms of Service Agreement, it's essential to include key provisions such as the details of the services, the use of customer data, intellectual property rights, payment terms, termination conditions, limitations of liability, warranties and disclaimers, support and maintenance obligations, confidentiality, and dispute resolution procedures.
By following best practices for drafting, implementing, and maintaining your SaaS Terms of Service Agreements, you can establish a strong legal foundation for your customer relationships, foster trust and transparency, and ultimately drive the success of your SaaS business.
Our guides are for informational purposes only. Such information is not legal advice and is not guaranteed to be correct, complete, or an up-to-date representation of LegalOn's legal content. Nor is the information tailored to the unique needs or objectives that accompany each transaction. For legal advice for a specific problem, you should consult an attorney licensed to practice law in the appropriate jurisdiction for each transaction.
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