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Common Software Agreement Fee Drafting Problems and How to Fix Them

Written by on Wednesday, May 3rd, 2017 Print This Post Print This Post

When a client sends me a software license agreement or SaaS agreement to review or update, I always make a priority of reviewing any terms in the contract involving fees and then carefully reviewing the website and any marketing materials or fee schedules to confirm that the fee terms in the contract clearly match the fees listed outside the contract.  Then, I will also confirm that the contract terms clearly articulate how the fees listed on the website and in other marketing materials or a fee schedule are to be calculated.  I have generally found it to be rare for the contract terms and website, marketing materials, or fee schedule to match.  More often than not, it is clear upon review of all of the supplemental materials that the fee terms of the contract are poorly drafted and make no sense.

So, what are some of the usual discrepancies that I will find?

One common issue I often see is that the marketing materials or the fee schedule suggest that the license or subscription fees are being calculated according to the number of authorized users, but there are no terms in the contract to explain what constitutes an authorized user, what rights the authorized users obtain through the license or subscription, whether authorized users are made available in blocks of users or individually and for what fees, or how you would add or drop authorized users.  Whether your software contract is a license or a SaaS subscription, just listing the total fees and total users and not drafting contract terms describing the relationship between the licensee and users or subscriber and users and how that relationship works is completely inadequate.  Those terms need to be clearly defined in the contract and not just in marketing materials.

A second issue that I frequently come across upon review is that the marketing materials or fee schedule suggest that there are multiple types of software licenses or SaaS subscriptions being offered to the customer, each of which provides different levels of functionality or services for a different fee, but the terms of the contract only reflect a single level of functionality or services and provide no clarification as to what functionality or services are comprised by that single offering.  Whether the software contract is a software license or a SaaS subscription, the contract always needs to define the scope of the license or subscription being offered for a particular fee, and if multiple options are being made available for different fees, the contract needs to carefully describe the base option extended and the add-on option extended and how the various options and the applicable fees work.

A third issue I frequently come across upon review is that a fixed fee amount for “professional services” is listed in the fee schedule or marketing materials.   However, often the terms of the contract are completely silent on what professional services are being provided under the software license or SaaS subscription, what the hourly or project rate is for the services and how many hours are being provided, or any other clarification about what constitutes the “professional services” to be provided under the agreement. Moreover, it’s generally unclear as to how fees would be billed for additional professional services.

In general, the problem with many software contracts is that companies are relying on marketing materials and fee schedules to justify fees that are never explained in the contract terms.  However, the contract terms are what is binding on the customer–not the marketing materials, vague fee schedule, or other supplemental documents.  So, clearly, software companies need to exercise the same sort of drafting caution that I exercise in my reviews, and go through each and every marketing material and fee schedule to confirm that any fee described is carefully explained in the terms of the contract.  Where disparities exist, software companies need to identify those disparities and revise their contract terms to address the issues.  When they fail to exercise such care in their drafting, they significantly increase the risk of future customer disputes.


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