Tech & SaaS contracts: what to include in service agreements (part 2)

Even the most well-crafted contract can lose its legal force if it lacks a clear roadmap for handling breaches. For Tech and SaaS companies, this is often the greatest source of legal exposure: vague liability provisions, the absence of enforcement mechanisms, or a missing exit strategy. As international transactions and digital services continue to grow, so does the number of disputes caused by poorly defined liability clauses. In the second part of this article, we explore the essential provisions every Tech/SaaS agreement should include to safeguard the business from breach-related risks, anticipate potential consequences, and reduce both legal and financial pressure.

Intellectual Property Rights

In IT and SaaS service agreements, it is crucial to clearly define ownership of software, databases, user interfaces, algorithms, and any custom developments created during the course of the project. Without explicit provisions, disputes may arise, particularly when the client has invested in product customization.

Core platform VS custom developments

Typically, the service provider retains exclusive rights to the SaaS platform, source code, system architecture, and infrastructure. The client is granted a limited license to use the solution, usually non-exclusive, non-transferable, and restricted in terms of the number of users, geographical scope, and duration.

If custom features, integrations, or reports are developed under the agreement, the parties should clearly outline the ownership structure. Common scenarios include:

1. Full transfer of rights to the client (generally when the client fully funds the development);
2. Retention of rights by the provider, with a license granted to the client;
3. Joint ownership, which typically requires complex coordination and governance.

It is also advisable to prohibit reverse engineering, decompilation, and replication of proprietary functionality, especially in the case of proprietary software solutions.

Licensing scope, restrictions, and liability

The agreement should specify:

1. The license scope: number of users and permitted use cases;
2. Geographical reach: whether the software can be used outside specific countries or regions;
3. Restrictions: prohibitions on resale, sublicensing, or hosting on third-party platforms.

It is essential to include liability clauses for license violations. For example, if the client exceeds the number of authorized users or modifies the software contrary to the agreement, the provider should reserve the right to suspend access or seek compensation.

According to the World Intellectual Property Organization (WIPO), a significant proportion of disputes in IT services—estimated at over 30% of WIPO arbitration and mediation cases—relate to intellectual property issues, including licensing and ownership of software deliverables (source).

Confidentiality and Data Protection

Confidentiality and data protection are among the most sensitive aspects of SaaS agreements. In the digital era, a leak of personal or corporate data can result not only in reputational harm but also in multimillion-euro fines. Therefore, information protection clauses must be legally sound and aligned with the laws of the relevant jurisdictions.

Personal data and party obligations

If the service provider processes personal data of users or the client’s customers during service delivery, they are classified as a data processor under the EU GDPR, while the client is the data controller. This imposes the following obligations:

1. The provider must act strictly according to the client's instructions, may not disclose data to third parties without consent, and must ensure adequate protection.
2. The contract must specify what data is being processed, for what purposes, and for how long it will be retained.
3. It is also essential to indicate the physical location of servers and the conditions for cross-border data transfers (including use of Standard Contractual Clauses – SCCs).

Violating these requirements may lead to regulatory sanctions. For example, under the GDPR, the maximum fine for a personal data breach can reach €20 million or 4% of a company’s global annual turnover (whichever is higher).

General confidentiality provisions

Even if personal data is not involved, both parties are required to protect any confidential information exchanged under the agreement. Standard NDA (Non-Disclosure Agreement) clauses typically include:

1. A clear definition of what qualifies as confidential information;
2. A prohibition on disclosure and use outside the scope of the project;
3. Exceptions (e.g., information that became public without fault of the receiving party);
4. Duration of confidentiality obligations (typically 2–5 years after the contract ends).

Legal experts also recommend including provisions requiring the return or destruction of confidential materials after the end of the engagement, as well as specifying technical safeguards such as end-to-end encryption and two-factor authentication for data transmissions.

Liability and Indemnity

Liability provisions in SaaS agreements play a crucial role when losses arise due to contractual breaches, data loss, or third-party claims. Well-drafted limitation clauses help mitigate the risk of unforeseen financial exposure.

Limitation of Liability

Most SaaS contracts include caps on liability, typically set as a fixed amount or tied to the total value of the annual subscription. The agreement should also outline exclusions—circumstances where limitations do not apply (e.g., willful misconduct or data breach involving personal information).

To ensure enforceability and legal clarity, it is recommended to avoid common mistakes such as:

1. Failing to define the types of damages excluded from recovery, such as indirect, consequential, or loss of profit;
2. Overlooking mandatory legal provisions that prohibit the exclusion of liability in certain cases (e.g., death, personal injury, or consumer protection violations).

Indemnity obligations

SaaS agreements often contain indemnification clauses, requiring one party to compensate the other (or third parties) for specific types of harm. Common indemnifiable events include:

1. Infringement of intellectual property rights (e.g., patents, copyrights, or trade secrets);
2. Breaches of data protection laws or unauthorized disclosure of personal information;
3. Legal claims resulting from the client’s misuse of the platform (e.g., illegal content or violations of terms of use).

The contract should clearly define the indemnification process, including notification procedures, timelines for response, scope of compensation, and the provider’s or client’s right to participate in legal defense.

Compliance and Regulatory Clauses

With the increasing regulation of digital services, technology and SaaS contracts must comply with a wide range of legal obligations—from export control rules to consumer protection laws.

Sanctions and export control

SaaS providers are required to follow international export control regulations, particularly when transferring technologies or data across borders. The contract should include:

1. A representation of compliance with export control laws (e.g., U.S. EAR, EU Dual-Use Regulation);
2. A prohibition on the use of the platform in sanctioned countries (e.g., U.S. OFAC, EU sanctions);
3. A clause assigning liability to the user for violations of these restrictions.

Industry standards and consumer protection

If the SaaS product operates in sensitive sectors such as finance, healthcare, or education, the contract must incorporate relevant regulatory standards. For example:

1. HIPAA for processing healthcare data in the United States;
2. PSD2 for fintech services within the European Union;
3. WCAG guidelines to ensure digital accessibility for users with disabilities.

The agreement should also include provisions that ensure consumer protection to contract termination, refund policies, data rights, and transparency of terms.

Dispute Resolution and Governing Law

The contract must include a clear clause specifying:

1. Which country’s courts or tribunals will have jurisdiction over disputes;
2. Whether the dispute will be resolved in court or through arbitration;
3. Which substantive law will govern the contract.

For international agreements, parties often opt for neutral jurisdictions and international arbitration to ensure fairness and enforceability.

To avoid public litigation, the parties may choose alternative dispute resolution methods such as:

1. Mediation or negotiation facilitated by a neutral third party;
2. Commercial arbitration (e.g., under ICC Rules);
3. Streamlined procedures for low-value claims.

It is recommended to specify the language of arbitration, the location of the proceedings, and the enforcement mechanism for arbitral awards.

How can Key2Law help with the preparation of Tech & SaaS contracts?

The Key2Law team helps you create not just a well-written contract, but an effective agreement that works when disputes arise.

Our experts are ready to support you:

1. Draft legally sound breach and liability provisions. We develop reliable mechanisms for dealing with service failures, delays, and non-performance, including penalty clauses, liability caps, and liquidated damages.
2. Define indemnity terms and risk allocation. We clearly outline who is responsible in the event of data breaches, third-party claims, or regulatory violations, and tailor indemnity clauses to the requirements of the applicable jurisdiction.
3. Develop a structured exit strategy and termination terms. We help you implement secure offboarding procedures, data return processes, and frameworks for resolving outstanding obligations — all while protecting your financial and reputational interests.
4. Support dispute resolution and protect your interests. We build multi-tiered dispute resolution strategies (mediation → arbitration → litigation), assist with negotiations, and represent clients in international proceedings.
5. Adapt your contract to jurisdiction-specific requirements. We account for national legal specifics: from enforceability standards in the U.S. to liability and indemnity rules in the EU, UAE, or Asia-Pacific jurisdictions.

If your SaaS contract requires more than standard clauses and demands real protection from risk, the Key2Law team is here to help.