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B2B SaaS Agreements: Mitigate Risk with Force Majeure Clauses

A force majeure clause in a B2B software-as-a-service subscription and license agreement (“B2B SaaS Agreement”) is intended to excuse a party's failure or delay in performing the party's contractual obligations due to unexpected events beyond the reasonable control or anticipation of the party. With respect to SaaS providers, the clause should be designed to temporarily excuse them from fulfilling their contractual obligations due to unexpected events that limit or prevent the availability, functionality, performance, security, or operation of their software applications and associated SaaS services. 


Some common force majeure events in B2B SaaS Agreements include acts of God (e.g., hurricanes, floods, earthquakes, etc.), pandemics, epidemics, wars, acts of terrorism, civil disturbances, labor strikes, electrical, internet, or telecommunication outages, changes in laws or regulations, and government actions or trade restrictions affecting the delivery of third-party components or services.  


For purposes of this post, the focus is B2B SaaS Agreements involving web-based software applications offered to companies on a per user subscription basis for access and use by the companies’ authorized users. First, I address two key benefits of a force majeure clause for SaaS providers followed by a general discussion on application dependencies and potential force majeure events. Next, I address why tailoring a force majeure clause is the prudent approach. In my final remarks, I highlight the key takeaway and provide some questions to help spark thoughts on what should be considered for the terms of the clause.


Two Key Benefits of Force Majeure Clauses

A force majeure clause can protect SaaS providers from incurring liability arising from a failure or delay to perform contractual obligations relating to their software applications becoming unavailable, inaccessible, or not performing, functioning, or operating as expected due to interruptions, disruptions, or damages caused by unexpected events beyond their reasonable control. Thus, the main benefit of including a force majeure clause in a B2B SaaS Agreement is to establish a SaaS provider's contractual right to be excused from fulfilling contractual obligations without incurring liability to its customers. 


A second key benefit of a force majeure clause is that it sets the parties’ expectations in advance as to what constitutes a force majeure event and the parties’ respective rights and obligations. This helps to mitigate the risk of potential disputes and litigation. To set expectations clearly and adequately, the clause should specify the kinds of unanticipated events that constitute a force majeure event, include notification obligations, indicate an acceptable duration for excusing performance, provide for any mitigation duties, and state any termination rights and obligations. To the extent there are certain obligations of one or both parties that are not excused during a force majeure event, those should also be specified in the clause.


Consider Application Dependencies

Web-based software applications heavily rely on a variety of different resources and components for its availability, functionality, performance, security, and operation (e.g., internet connectivity, content delivery networks, databases, external APIs, third-party integrations, network bandwidth, and intrusion detection and prevention systems, to name a few). Many of these resources and components are interdependent. Due to this interdependence, a disruption to a certain resource or component could potentially impact multiple aspects of the application that may impair its availability, performance, functionality, security or operation. For example:


-- hurricanes or other natural disasters that damage data centers hosting the application’s servers or interrupt internet connectivity can result in downtime and may affect the application’s functionality; 

-- distributed denial-of-service attacks or other cyberattacks that overwhelms the application’s servers or compromises its infrastructure (e.g., codebase, databases, underlying systems) may interrupt the application’s availability and impair its functionality;

-- disruptions in internet infrastructure or content delivery networks may present bandwidth constraints that impair the application’s performance; or,

-- stoppages or shortages in the supply of essential hardware or software may impair the application’s operation.


These examples only illustrate a tiny sample of the different types of force majeure events that may interrupt or impair the availability, functionality, performance, security, or operation of a web-based software application. 


The takeaway here is that application dependencies that could potentially be impaired or interrupted by causes beyond a SaaS provider's reasonable control is an important part in identifying unexpected events suitable for inclusion in a force majeure clause for a B2B SaaS Agreement.


Tailored Force Majeure Clause is Prudent

Boilerplate or template force majeure clauses may fail to adequately define the types of unanticipated events that could potentially disrupt a web-based software application’s availability, functionality, performance, security, or operation. This may result in insufficient protection for SaaS providers.


The prudent approach is accounting for unexpected disruptions to the application’s dependencies and how the application is managed (including administrative, physical, and technical safeguards) to help tailor the clause. This is best because courts interpret force majeure clauses narrowly, which means that the terms must be supported by the language of the force majeure clause. See Palm Springs Mile Associates, Ltd. v. Kirkland’s Stores, 20-21724-cv-Scola at *2 (S.D. Fla. Sept. 9, 2020) (“This type of clause is not an opt-out provision and is limited in scope.”) (citing Princeton Homes, Inc. v. Virone, 612 F.3d 1324, 1332 (11th Cir. 2010)). See also Veriet Real Estate, LP v. Fitness Int’l, 365 So. 2d 442, 446 (Fla. DCA 3d 2023) (“The plain language of the force majeure clause itself defines when, and under what circumstances, the contracting parties are excused from performing under the agreement.”).


Additionally, it's important to understand that a force majeure clause is limited to excuse performance for an unexpected event that makes it impossible to perform. Where an unexpected event causes a software application and its associated SaaS services to become unprofitable or inconvenient, relying on a force majeure clause as a defense to a breach of contract claim will fail. See Magma Glob. v. NHT SP, LLC, 8:23-cv-2076-SDM-AEP at *3 (M.D. Fla. Dec. 1, 2023) (“Making a deal that becomes unprofitable or even unpalatable differs from making a deal that becomes impossible.”).


Final Remarks

The key takeaway is that every B2B SaaS Agreement should include a strategically written force majeure clause to mitigate a SaaS provider’s risk of potential liability arising from a delay or failure to perform contractual obligations due to unexpected events beyond the reasonable control or anticipation of the SaaS provider. In addition to specifying the kinds of unexpected events that constitute a force majeure event, the clause should include terms specifying the parties' respective rights and obligations to set clear expectations to further mitigate the risk of potential disputes. 


When contemplating the terms for the language of a force majeure clause, here are some sample questions SaaS providers should think about:


-- How would a hurricane, tornado, flood, earthquake, or other natural disaster potentially affect the application’s availability, functionality, performance, security, or operation?

-- How would a persistent widespread shortage or outage of power or the internet potentially affect the application’s availability, functionality, performance, security, or operation?

-- Is there a business continuity or disaster recovery plan in place that outlines the procedures for data backup, failover mechanisms, load balancing, and recovery strategies to restore the application’s operation?  

-- If a key vendor supporting the infrastructure of the application suffers a disruption in the vendor’s services or in the availability of the vendor's components, how would the disruption potentially affect the application’s availability, functionality, performance, security, or operation?  

-- Is there a contingency plan in place that lists backup third-party services or components in case any of the currently used third-party services or components become limited or unavailable?

-- If there was a change in laws or regulations that prohibited performance of certain contract terms, what rights and obligations should be specified to set clear expectations as to what would occur?  


By considering these and other potential unexpected events, SaaS providers can better clarify their rights and obligations during a force majeure event to help mitigate the risk of potential disputes.


 

The information provided here is for general informational purposes only and not intended as legal advice or opinion for any individual matter. Changes in laws or regulations may occur in the future and this content may not be the most up-to-date legal or other information. You should consult your own attorney for any legal advice you may require.


If you do not have an attorney and would like to explore how Venus Caruso can assist you with your B2B SaaS agreement, you can contact Venus by using the website’s contact form or by emailing her at venus@carusolawoffice.com



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