When to Use a SaaS Reseller Agreement & which Essential Terms should be included

If you decide to use a local partner to resell your SaaS software and services to customers outside of the countries in which you are based, you will need to have a distribution/reseller agreement in place between yourself and each distributor/reseller.

What is a Reseller/Distributor

A reseller is the same as a distributor. A reseller/distributor purchases the supplier’s SaaS software and services under the terms of a reseller/distribution agreement. The reseller/distributor then resells the SaaS software and services to its own local customers in its territory using its own terms and conditions (and SLA). The SaaS supplier has no legal relationship with the reseller/distributor’s customers. Customers enter into a SaaS agreement with the reseller/distributor directly.

Is an Agent the same as a Reseller/Distributor

Agents are often confused with distributors, but there are clear legal differences. An agent is a person or company who acts on behalf of the SaaS supplier to find leads and/or assist with sales of the supplier’s SaaS software to local customers in the agent’s territory.

The agent has no legal relationship with the customer – the agent has no contract with the customer. The supplier enters into a SaaS agreement, with the customer using the supplier’s SaaS terms and conditions and SLA. The supplier is liable to the customer for issues and errors that may arise during use of the SaaS software and services.

Why use a Reseller/Distributor

Most SaaS suppliers use resellers to enable them to sell their software and services to customers who would not otherwise purchase the SaaS software and services, due to the Supplier’s:

– Lack of physical presence in the customer’s country;

– Lack of sales channels and contacts in the customer’s country;

– Inability to speak the local language;

– Inability to provide customer support in the local language;

– Inability to provide customer support within the customer’s local business hours;

– SaaS terms and conditions not being written in the customer’s language;

– SaaS terms and conditions not being or subject to, or compliant with the customer’s local laws and regulations.

By using a distributor/reseller the above problems are resolved as the reseller sells the SaaS software directly to customers, in the local language, pursuant to local law, with local support, as if the SaaS software was the reseller’ own software.

Advantages of using Resellers

The main advantage of using a reseller/distributor is that the SaaS supplier will have no liability to customers –there is no contract or legal relationship between the customer and the SaaS supplier. For example, any implementation issues or software errors that the customer encounters when using the SaaS software will be the reseller’s problem. The reseller will be liable to the customer and will be obliged to resolve such issues directly with the customer.

Disadvantages of using Resellers

The main disadvantage of using a reseller/distributor is that the SaaS supplier has no control over the sales process and in particular of the choice of customers. Also, the terms of the reseller agreement itself will be subject to local anti-competitive laws and regulations.

Essential Terms to Include is a SaaS Reseller Agreement

The following legal issues should be included in any SaaS reseller agreement. The term of the SaaS reseller agreement will in part mirror the supplier’s standard SaaS terms and conditions but will also need to include additional clauses to cover the issues set out below.

Applicable Law and Language

Usually, the reseller will be located in another country. The reseller will be selling the supplier’s SaaS software to its customers using its own local terms and conditions. These will probably be subject to local law i.e. German law if the reseller is in Germany and in the local language, German. However, there is no reason why the reseller agreement should be in German and subject to German law, as the supplier has no relationship with the customers in Germany. The supplier should resist any attempt by the reseller to use its local law and language in the reseller agreement.

As a compromise, it is worth allowing the reseller to have the reseller agreement translated into their local language “for convenience”, in parallel to the English version. However, if the reseller agreement is created in more than one language, the supplier should ensure that the English version of the reseller agreement prevails if there is any discrepancy between the two different language versions.

Please note that in some countries it is mandatory under local law to have the reseller agreement in the local language, for example in China.

IPR

It is essential that the supplier controls the use of its name, trademarks and intellectual property rights by resellers. The reseller agreement should clearly set out whether or not the reseller is permitted to register local domain names, company names and trademarks on behalf of the supplier in relation to reselling the SaaS services and software. A supplier may need to grant this right to a reseller, as in some countries it is a requirement to registering a trademark that the trademark owner is a resident national of that country or has a company located in the country.

If you do grant the reseller such rights, it is essential that you regulate what happens to ownership of the trademarks, domains and use of your name if the reseller agreement is terminated or expires.

Territory

The SaaS supplier should specifically identify the territories in which the reseller may resell the SaaS software and services. Country names should be listed individually. Do not refer to unclear terms such as EMEA, the Middle East or North Africa – there is no agreed definition of which countries this includes. The supplier should also decide whether or not the reseller should have exclusive or non-exclusive rights in any or all of the territories. If the reseller is granted exclusive rights in any territory, the supplier must ensure that it retains the right in the reseller agreement to make passive sales to customers, or the supplier will be in breach of EU competition law.

EU and Local Competition Law

Depending on the country in which the supplier is based and the country in which the SaaS reseller is based, the supplier will need to comply with various anti-competitive laws that will automatically apply to the reseller agreement. Failure to comply with relevant competition laws could make not just an individual clause in the reseller agreement, but the whole agreement invalid. Additionally, the supplier could be subject to very large fines based on a substantial percentage of its annual turnover for breaches of competition law.

Summary

Due to the unique nature of SaaS reseller agreements, you will need to seek specialist legal advice on the content of a SaaS reseller agreement whether you are a supplier or a reseller to ensure that your rights are adequately protected.

Irene Bodle is an international IT lawyer who specialises in IT law, in particular, SaaS and cloud computing. Irene provides specialist, pragmatic and business-focused legal advice to companies who provide IT services to business customers. She has over 14 years experience (gained both in-house and in private practice) advising technology companies across all business sectors on the legal and commercial risks of operating a technology business. Whether you are a start-up who needs help creating a legally compliant business website or are an established technology company who needs assistance drafting and negotiating complex legal agreements, Irene can help you achieve your commercial objectives, efficiently and cost effectively. As a dual-qualified English and Irish lawyer, Irene advises primarily on English law, but also advises on Irish IT law. Being based in Berlin and fluent in German, Irene can also assist in negotiating or advising on technology agreements drafted in German.

Visit https://www.bodlelaw.com for more information.