Key Issues in a Master Services Agreement (MSA) of a SaaS Vendor

By David Jay Mor

More and more software companies are migrating into the software as a service (SaaS) business model rather than the old software licensing model. With the proliferation of cloud computing, it is much easier for a new software vendor to start deploying its services through a SaaS vendor  rather than software distribution.

What is the Saas Model? Saas is an acronym for Software as a Service (SaaS) and is a software distribution model in which applications are hosted by a vendor or service provider and made available to customers over a network, typically the Internet, instead of the traditional model of software in a box or a CD.

What to look for in a Master Service Agreement (MSA) with a Saas Vendor?

1. Acceptable Use Policy – many web 2.0 sites today includes some sort of content to be included by its end users. In order to shift any liability that the SaaS vendor may be exposed to as a result of the posting of illegal and infringing content by end users, the SaaS vendor usually includes, as an integral part of the SaaS Master Services Agreement (or MSA), an Acceptable Use Policy.

 What is an Acceptable Use Policy or AUP?  

An AUP is another agreement between you and the SaaS vendor pursuant to which guidelines are set forth of what a web site subscriber can and cannot do while using your web site service. It usually contains legal language such as liability disclaimers, lists of actions or behavior that will result in the termination of a customers’ account, and list of other restrictions. The most powerful tool for a SaaS vendor under an AUP is its ability to terminate the services it provides to you immediately when the SaaS vendor determines that an illegal or infringing content is posted on your site. An AUP is an extremely important document for a SaaS vendor because it enables to enjoy the safe harbor granted under the DMCA (Digital Millennium Copyright Act) under which the SaaS vendor shall have no liability for any infringing content posted on its services if it terminated a service or removed infringing content from the service upon receipt of a take down notice.

 2. SLA or Service Level Agreement – one of the most important things for you as a customer is to get some assurance that the services granted by the SaaS vendor are provided without interruptions. This usually means 24/7 availability and reliable performance. While SaaS vendors cannot guarantee 100% un interrupted performance in the cloud, they should be “punished” for any down time. Many SaaS vendors include an SLA under which there is a credit granted to each instance of down time. Sometimes it could be 1 day free of charge for any one instance of down time.

3. Term and Termination – many SaaS vendor will want you to enter into a minimum commitment of one year or two without the ability to terminate at will. Please read those sections carefully if you want flexibility to exit from an agreement. This is especially true if there is no SLA in place. You can get locked into a service which under performs without a clear way out.

 4. Proprietary Rights – many SaaS’s MSA’s will include language that provides that any intellectual property rights in the services provided by the SaaS vendor are owned solely by the SaaS vendor. This is of course true, however, if you are an application vendor that develops its own application using an API provided by the SaaS vendor, make sure the language in the SaaS’s MSA is not true broad to cover any software development you make.

If you are looking for a form of a Master Service Agreement (MSA) for a SaaS vendor which is suitable for start-up companies you can find one at

David Jay Mor is a member of;  a web site dedicated to offering legal forms which are tailored for start-up companies.

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