The Threat of Termination

The emergence of high speed Internet services and the ability to outsource the networking and processing requirements has generated a plethora of opportunities for various companies to avail these emerging services and reduce their overheads and speed up product delivery.  There are however, various critical termination and post termination issues that are encountered by IT companies who are operating on a Software as a Service (SaaS) and Platform as a Service (PaaS) business model.

cyber-security-a-growing-issue-small-businesses1A typical SaaS Agreement is akin to a “property lease agreement” whereby the user would pay rent for the property as long as it is used and on termination of such a lease, the user would cease from using the said property.

However, unlike property, the services rendered by a SaaS operator would need not only require protection in-terms of asserting its rights over the underlying software program, but also for ensuring that only the right to use are assigned to the end user for the limited period.

From the end user perspective, the SaaS model of business operations raise a whole new gamut of issues given the nascency of this Industry. A common concern that is being raised by them is “what would happen if the service contract were to be terminated by the service provider”.

While many a client/end user would brave the odds and accept the risks associated with the industry, it is critical to address the concerns discussed herein. In a standard SaaS agreement, it should be viable for having an amicable exit option so as the interests of the end users are protected especially with respect to migrating to a new platform so as to ensure business continuity and guarantee data security post termination. If the agreement secures these rights of the end users in case of a termination, the agreement will be deemed to be not too restrictive so as to attract anti competition regulations, if any. The end user in which case can easily migrate to another platform or use services of a different service provider in an effective manner.


A SaaS or PaaS business model is susceptible to Anti-Competitive regulations especially if the arrangement is in exercise of a dominant market position. It would also be a concern for the client to have an exit option and not be wholly dependent on a single SaaS provider. Following are some of the tools to be used in negotiating a contract in these scenarios:

  • Use a Post Termination clause to assist the client in identifying alternatives
  • Assert IPRs in the underlying software
  • Non-disclosure and Non-compete agreements may be entered into between the parties
  • Post termination cleanse of all traces of the software
  • Build in adequate clauses for protection on data and codes during migration to the new provider

Guest Post contributed by Aashish Somansi and Shantanu Sahay, Anand & Anand