Key Terms in the SaaS Agreement: Intellectual Property and Data

No Software as a Service (SaaS) agreement is complete without provisions governing the use of intellectual property (IP) and data.

Clear delineation of IP ownership, data rights, and conflict resolution mechanisms is essential for fostering trust between SaaS providers and customers. This article serves as a foundational guide for the key considerations that SaaS providers should take into account when drafting the IP and data provisions of SaaS agreements.

Intellectual Property (IP)

The SaaS agreement should address, at a minimum, three key points concerning intellectual property:

1. Who owns the IP.
2. What rights each party has with respect to IP owned by the other party.
3. What happens in the event either party is sued for infringement based on their use of the other party’s IP.

Provider’s IP

Typically, the SaaS provider owns all of the IP that enables the functionality of the SaaS platform. This includes not only the core functionalities but also any enhancements or improvements made to the platform over time, even if those improvements stem from customer feedback. 

Sometimes the provider incorporates third party IP into the platform (e.g., software, multimedia content, articles, etc.). While the provider may not necessarily own that third party IP, the provider should possess the rights to incorporate such IP into the platform. 

As far as the customer is concerned, the SaaS provider “owns” that third party IP, because the customer expects the SaaS provider to make the same guarantees about the third party IP as it makes for the SaaS provider’s own IP. The customer will expect the SaaS contract to reflect that. 

Customer’s IP

Customers typically retain ownership of any intellectual property they upload to the platform or create when they access the platform, such as media editing features. 

Joint Collaboration

In some unique cases, the SaaS platform may enable joint collaboration between the customer and the SaaS provider. This is becoming more common as generative AI is integrated into platforms. The SaaS agreement should be clear about ownership rights in that jointly-created IP. 

Jointly-owned IP opens up a series of complex questions (e.g., any restrictions on what each party can do with the IP? Do the parties share revenue from exploitation of the joint IP?), so the SaaS provider will want to think through that language in the SaaS agreement carefully.

Licenses Between The Saas Provider And Customer

Because the SaaS provider and customer each own their own IP, the SaaS agreement needs to be clear about what each party can do with the other party’s IP. This is accomplished through license grants.

The SaaS provider grants the customer the right to use the IP within the platform solely as necessary to use the platform as permitted by the SaaS Agreement. This license grant may seem obvious and the language unnecessary, but the language within the licensing agreement can provide important parameters for use of the platform. 

These parameters may include, for example: whether the license is limited to a specific period of time, whether the platform can only be used in specific territories, and whether the license can be sublicensed to affiliates. So the license grant language can serve the dual role of explaining what the customer can do with the provider’s IP, and explaining what the customer cannot
do with the provider’s IP.

Customers typically grant SaaS providers a license to utilize their IP as necessary for the SaaS provider to facilitate the platform. Again, this license may seem obvious and unnecessary to spell out, but the language within the license grant is important.  

For example, the SaaS provider may have the right to use content that is uploaded indefinitely, even after the customer is no longer a customer. As another example, if customers can submit content that can be shared with other customers (e.g., content that is displayed on public portions of the SaaS platform), the license grant needs to give the SaaS provider the right to display the content with other customers.

The key point here is that simply granting the other party the right to “use” the IP is not only vague, but can be quite problematic if it allows the other party the right to use the IP in unintended ways. As a result, the SaaS provider should think carefully about the ways in which customers should be able to use the provider’s IP, and the ways they should not (and likewise about the customer’s IP).

Infringement Protection

Both the customer and the SaaS provider want peace of mind that they won’t get in trouble for using the other party’s IP. As a result, each party should agree to indemnify the other party if they are sued for infringing third party IP simply by their permitted use of the other party’s IP. 

There are typically many limitations to this indemnification obligation. For example, if the customer uses the platform in a way that is expressly prohibited by the SaaS agreement, the provider should not have to indemnify the customer for infringement claims based on that impermissible use. 

This mutual indemnification approach mitigates IP infringement risks and offers legal protection for both parties, while fostering a relationship built on trust.

Data

Although data is typically treated differently than intellectual property, the key considerations to cover in the SaaS agreement are similar.

Ownership

Distinguishing between customer data and provider data is crucial. Customer data typically encompasses all information uploaded to the platform, including any enhancements or modifications made through the platform. Provider data, on the other hand, typically encompasses analytics and data that the provider aggregates across multiple customers. It’s important for the provider to own its analytics data, especially if one of its revenue streams is making that analytics data available to other customers. 

Licensing

At a minimum, customers should grant the provider a license to use their data for the purpose of (i) providing the platform, (ii) improving the platform, and (iii) creating aggregate data that the provider will own.

Except in certain circumstances, the provider should not need to grant the customer a right to use the provider data. Usually the provider data is only really useful to the provider (e.g., analytics about use of the platform). However, if the platform is a data platform through which the customer accesses data that the provider makes available (e.g., a SaaS platform through which the provider
makes financial analysis data available to its customers), then the provider will need to grant a license to the customer.

As discussed in the IP section above, the license grant language can set important parameters around the other party’s use of the data.

Guarantees

As with IP, each party should indemnify the other party to the extent they are sued based on their permitted use of the other party’s data. This can be especially important when the licensed data includes data pulled from third party sources, since certain industries tend to be a bit cavalier in their sourcing of data. 

If the customer isn’t being careful with the data it submits to the SaaS platform, it is critical that the customer protect the provider through indemnification in the event the provider is sued based on its use of that data.  

Personal Information

If the data includes personal information, the SaaS agreement must carefully address the handling of that personal information. Applicable data privacy laws will dictate what must be addressed in the agreement.  As discussed in our previous article, the privacy policy and data processing agreement are the typical ways in which SaaS providers address the use of personal information and data security. We will dive into those documents in upcoming articles. 

By comprehensively addressing intellectual property and data considerations in SaaS agreements, SaaS companies can foster mutually beneficial relationships with customers while safeguarding the interests of both parties.

Have more questions about how to set up key agreements for your SaaS startup? Connect with us today!