Careful Drafting of Pricing Terms is Key to all Software Licenses and SaaS Agreement

As a software company, do you make a special point of sending all your price schedules, payment terms, and price-related clauses to software counsel for review before you send them out the door to your potential customer?

If your company is like most, my expectation would be that you are probably handling all such issues internally  since those are not purely legal terms and you are probably trying to save money on legal fees.

However, when a dispute arises over software licenses or SaaS agreements, what is usually at the heart of the dispute?  If you guessed that it is those pricing terms that your company is handling internally to save money on legal fees, then you would be correct.  It is precisely those clauses that will typically be the basis for the customer dispute.

Why is this?  Well, one problem that often arises is that the pricing terms were not considered as part of the overall drafting of the contract.  For example, if you are selling a multi-user license or SaaS Agreement, you have to draft the whole agreement to work with the multi-user model.   If you just take a single-user software license and add a price schedule for 90 users as an attachment, then your contract is not going to work.  It is still going to be a contract for a single user that is charging for 90 users.  Also, if you a charging for a particular add-on service at a flat fee rate, and your contract is not set up to describe the terms and conditions being provided for the services charged, then there is a high likelihood that there is going to be an issue over the fee you are charging at some point in the future.  The attorney needs to understand each and every fee you intend to charge a customer and how the fees will be charged in order to properly draft the contract.  If the attorney is kept in the dark on these issues, there is likely going to be a problem with how the contract is structured and drafted.

Another problem that arises on a recurring basis is over implementation and costs that the software user may have to pay while implementation continues.  When you haven’t considered the timing and amount of payments that may be due while implementation is ongoing, you are setting the scene for a potential dispute to arise. Again, if  software counsel were to review your contract before it goes out the door, this issue would most likely be flagged and addressed before it ever arises and the attorney might raise with you suggestions on how to structure the fees differently to ensure that the issue never arises.

A third problem that comes up frequently is the adding on of terms onto a price schedule that conflict with terms that the attorney carefully drafted in the agreement.  You should not make a practice of adding extra terms into a price schedule, and in particular, you definitely want to refrain from adding conflicting terms into a schedule.  If software counsel had had the opportunity to review the draft contract before it went out the door to the customer, the attorney would have reviewed the contract specifically looking for conflicting terms and this issue would be caught and fixed.

Finally, a fourth problem that often arises is charging fees that just don’t make sense in the context of a particular agreement.  For example, if you are negotiating a SaaS agreement with a customer and charging an annual maintenance fee, when maintenance fees are generally included as part of the recurring subscription fee of the SaaS agreement, or alternatively, charging on a monthly basis for a license that would generally be licensed on a one-time basis, then you are likely to run into an issue with the pricing either in negotiation or as soon as the customer becomes disgruntled.  Software counsel reviewing the contract would be alert to any such issues and would flag the problem before the contract is sent out the door.

The above examples are just a few of the scenarios that can arise over how pricing terms are structured if they are not run by software counsel before they are sent out to a prospective customer for review.

The bottom line is that those pricing terms you may not want to talk to your outside software counsel about are precisely the terms that you should be consulting him or her about, as those are the terms that are most likely to result in a contentious legal dispute.   Fees in software contracts need to be carefully structured in conjunction with the rest of the contract, and where that is not happening, mistakes are most likely being made, any one of which could blow up into dispute with a customer.

Kristie Prinz

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