Negotiating SaaS Contracts: How AI Simplifies Digital Service Relations

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Software-as-a-Service (SaaS) contracts reflect a new software licensing model where companies and individuals pay for software use over a set period. This type of arrangement allows software companies to generate ongoing revenue while providing the user with security updates and innovative new features. As a result, companies must update software agreements continually, as unoptimized contracts can lead to excess licenses with overlapping services, unmet customer needs, and unnecessary liabilities.

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Negotiating SaaS contracts can become a labor-intensive task without the right tools. Increasingly, artificial intelligence (AI) is enabling companies to ensure software license agreements are efficiently kept up-to-date. Here we’ll discuss how SaaS contract review and negotiation enhanced by AI has become an indispensable tool for corporate legal departments.

The Complexities of Reviewing and Negotiating SaaS Contracts

Legal teams should not take shortcuts in negotiating SaaS contracts. All too often, though, cut-and-paste clauses fall short, crucial omissions are made, or portions of the contract are incorrectly drafted. SaaS providers do not want to agree to unfavorable terms that can affect the company’s operation and growth. At the same time, customers don’t want to pay exorbitant fees for performance that falls short of their expectations. A well-constructed SaaS agreement can ensure all parties are held to reasonable terms. 

The following areas prove especially challenging when negotiating SaaS contracts:

  • The License Access Clause defines the ways purchasers can use the product. In granting users access, a carefully prepared SaaS agreement will need to spell out permissions, depending on whether the software involves a per-user fee, a per contact bundle, or a flat monthly rate. Prohibited uses, such as spamming or virus spreading, and the consequences of such misuse, should also be delineated in this clause. 

  • The Customer’s License defines how SaaS providers may use customer data. Most consumer data uploaded to SaaS products is subject to copyright protection. Yet, there may also be a need for sellers to copy some usage or demographics data, which they may choose to share with third-party affiliates for specified purposes. How data is protected, stored, used, and destroyed by the company should also be outlined here. Depending on federal or state privacy laws, there may even need to be opt-out measures for customers.

  • The Product Warranty denotes how much the company is willing to cover in the event of a malfunction. This element can vary greatly depending on whether the client is B2B or B2C. Most consumer SaaS products make no such promises. In some cases, customers may demand certain “commercially reasonable” protections and performance standards. The most generous differentiators may promise 99.99% uptime—particularly in industries like healthcare or finance where software failures can be catastrophic. 

  • Liability Clauses protect the company from lawsuits. Since software users expect broad rights and quality standards when buying a license, companies must address this default standard to reduce their potential legal liability. Otherwise, consumers may sue for breach of contract and additional damages. SaaS contracts may require liability limits as a prerequisite to using the software. B2C SaaS products may go so far as to bar users from suing for any reason, excusing the company from responsibility for direct, indirect, consequential, or incidental damages. 

Experienced attorneys generally write these clauses to protect companies from litigation or misuse and protect consumers from unnecessary invasion of privacy or loss of service. 

How AI Tools Simplify SaaS Digital Service Relations

Legal tools that harness the power of artificial intelligence have progressed at an astounding rate. Researchers in machine learning and natural language processing have enabled contracts uploaded by users to serve as models that “teach” the software how to work smarter. After the initial document uploading and onboarding, an AI-powered contract negotiation platform can review and mark up SaaS contracts in minutes. 

To streamline the review and negotiation of SaaS contracts, AI tools allow legal departments to:

  • Create a searchable repository of old contracts
  • Develop an AI Digital Playbook to house the company’s contract standards and best practices
  • Redline ambiguously worded clauses that could be contentious or risky
  • Receive comprehensive “rewrite” suggestions based on models and past negotiations
  • Automatically approve all changes to produce a final document in one click
  • Improve accountability with contract lifecycle management
  • Visualize a contract timeline that can help legal departments address negotiation bottlenecks 
  • Fully automate the work normally performed by legal staff in marking up and negotiating a business contract

AI-powered contract review technology has emerged as a game-changer for corporate legal departments required to review and negotiate SaaS contracts at scale. Negotiations that once required days or weeks to accomplish can be completed by the AI in minutes.

Contact LexCheck to discover how an AI-powered contract platform can eliminate bottlenecks and streamline negotiating SaaS contracts at your company. Request a demo to see the technology in action, or contact us at sales@lexcheck.com for more information.

gary-sanghaGary Sangha | Founder & CEO

Gary Sangha is the Founder and CEO LexCheck. He's a serial entrepreneur and an academic. Gary previously founded Intelligize, a legal technology company that was acquired by LexisNexis. He's affiliated with the University of Pennsylvania and Stanford University and started his career as an attorney at Shearman & Sterling and White & Case.