Legal Issues in SaaS SwANH InfoXchange 2007

1. Legal Issues in SaaSSwANH InfoXchange 2007 Claire R. Howard, Esq. Getman, Stacey, Schulthess & Steere, P.A. Three Executive Park Drive, Suite 9, Bedford, NH 03110 www.GetmanStacey.com choward@getmanstacey.com (603) 634 4300 We make our mark, by building your business.TM

2. Introduction • What do we mean by SaaS? • Vendor (Licensor) • Customer (Licensee)

3. What’s the Diff? • License – Customer “purchases” license for specified number of users or sites and software is hosted and maintained onsite • SaaS – Customer “leases” right to access software via a network (generally the web) and access, upgrades, hosting, etc. are provided by vendor (through 3rd party?) seamlessly for a monthly fee

4. Licensing v. SaaS

5. Licensing v. SaaS • Why is Saas different (from a legal standpoint) than a traditional license arrangement? • Significant shift of responsibility/liability

6. SaaS On the Rise? In 2005 SaaS represented ~ 5% of business software revenue By 2011, ~ 25% will be delivered as SaaS Gartner, Inc.

7. SaaS On the Rise? • www.SaaS-showplace.com - Poll October 8, 2007 • 59% - SaaS solutions are essential to operations of my business • 32% - Still trying to understand the benefits of Saas solutions • 9% - SaaS solutions are still unproven and risky - Bias? -

8. The Agreement • Data • Ownership (c)/liability (v) • Export availability (c) • Back-up and storage procedures (c & v) • Responsibility for data loss and cost of retrieval (c & v) • Privacy issues - e.g., SoX, HIPAA compliance (c & v)

9. The Agreement • Service Level Requirements • Percentage of uptime required - permissible downtime for routine maintenance • Salesforce.com 2005 outage • Response times • Service availability • Exceptions (e.g., force majeure, failure to notify, etc.)

10. The Agreement • Hosting Hardware & Facility • Hardware redundancy • Server scalability in case of rapid demand increase • Redundant power supplies (battery and diesel backups) (v) • Facility staffing (v)

11. The Agreement • Software Escrow Agreement • Do you offer (v) or ask for (c)? • Bargaining power • How important is the software to day-to-day operations? • “Release Event”

12. Case Study – Dealpower.com Dealpower.com • “Master Subscription Agreement” • Saas powerhouse • Names have been changed

13. Dealpower.com • Scenario #1 • Customer enters into Dealpower.com agreement. After the initial term, the Customer determines the service is not adequate for its needs and terminates Agreement • What happens to Customer’s data?

14. Dealpower.com • Scenario #1 • “In the event this Agreement is terminated (other than by reason of your breach), Dealpower.com will make available to you a file of the Customer Data within 30 days of termination if you so request at the time of termination.” • Right to delete more than 30 days after termination

15. Dealpower.com • Scenario #2 • Customer enters into Dealpower.com agreement, but runs into financial difficulty and falls behind on payments • What happens under the Agreement to: • Customer’s access to the Service • Customer’s data

16. Dealpower.com • Scenario #2 • Access - “Dealpower.com reserves the right to suspend or terminate this Agreement and your access to the Service if your account becomes delinquent (falls into arrears).” • Data – “Dealpower.com reserves the right to withhold, remove and/or discard Customer Data without notice for any breach, including, without limitation your nonpayment.”

17. Dealpower.com • Scenario #3 • Customer enters into Agreement • A hardware issue with the server results in Service being unavailable for 6 hours during business day and Data not being backed-up correctly • What is remedy for Customer?

18. Dealpower.com • Scenario #3 • “You, not Dealpower.com shall have sole responsibility for the accuracy [of the Data] . . . and Dealpower.com shall not be responsible or liable for the deletion, correction, destruction, damage, loss or failure to store any Data.” • “Dealpower.com makes no representation, warranty, or guaranty as to the reliability, timeliness, quality . . . availability, accuracy or completeness of the Service or any content.”

19. Dealpower.com • Scenario #3 • NO uptime requirements • NO response times • NO credit/termination right for downtime

20. Dealpower.com • Scenario #4 • Customer enters into Agreement and after 6 months Dealpower.com begins having financial difficulty • Creditor of Dealpower.com seizes all Dealpower.com hardware and/or Dealpower.com files for bankruptcy • What happens to Customer access & data?

21. Dealpower.com • Scenario #4 • Unclear • No software escrow (Service will not be available to Customer going forward) • “In the event this Agreement is terminated (other than by reason of your breach), Dealpower.com will make available to you a file of the Customer Data within 30 days of termination if you so request at the time of termination.” • No explicit mention of Dealpower.com breach

22. Dealpower.com • Scenario #5 • Customer enters into Agreement and properly terminates at the end of the initial term • Dealpower.com timely provides Data to Customer, but does not delete or destroy • Data winds up in possession of Customer’s direct competitor through inadvertent disclosure by Dealpower.com

23. Dealpower.com • Scenario #5 • Under Agreement, Dealpower.com has no obligation to delete or destroy Data • “Dealpower.com does not represent or warrant that . . . use of the Service will be secure, timely, uninterrupted or error-free . . . .”

24. Questions?

25. Claire R. Howard, Esq. Getman, Stacey, Schulthess & Steere, P.A. Three Executive Park Drive, Suite 9 Bedford, NH 03110 603.634.4300 choward@getmanstacey.com