Whether you are selling specialty shoes or have a cool new SaaS product, your startup will need a good terms of service for your website, product, or app.
Your terms of service should be like any other contract you would have with a customer: it should define the business and legal relationship between your company and the customer.
Here are 5 things that any terms of service should have.
5 things you need for your startups terms of service.
1. Clear definition of who you are.
Let's say your company name is AcmeCorp, Inc, and your SaaS application is called Acme.io. Many startups would say something like this in their terms of service:
This Terms of Service is intended to be a binding legal agreement between you and Acme.io.
However, this is incorrect because a website/domain name can't be a party to a contract, in the same way you can't enter into a contract with your shoes and make them promise not to tear up your feet. The better practice would be to clearly identify AcmeCorp, Inc as the party to the agreement:
This Terms of Service is intended to be a binding legal agreement between you and AcmeCorp, Inc, a Delaware corporation.
Without this, someone might claim that by using the website they are doing business with an individual (rather than the company), and that’s a can of worms you would rather avoid upfront.
2. Forum selection clause
Essentially, you want to clearly define where you are doing business and what state's or country's laws will apply to your business.
Doing business over the web gives you a storefront that is accessible to the world. That's great for business, but not so great if you are getting sued all over the world and you are forced to defend yourself in courts all over the world.
Keep the fight close to home by 1) clearly stating where you operate and 2) including a "forum selection" clause. Those would look something like this:
AcmeCorp, Inc operates the Acme.io Service from its offices in Palo Alto, California, and this Agreement shall be treated as though executed and performed in Palo Alto California, and shall be governed by the laws of California. You submit to the personal jurisdiction of, and agree that any claim or dispute you may have against AcmeCorp must be resolved by, the courts located in Santa Clara County, California.
3. Definition of what will be exchanged between you and your customers
This one can be really a bit tricky. Most of the time, your terms of service do not spell out the exact details of the service you are providing to the customer — i.e. price, renewal terms, and features. What your terms of service should include is a general description of the services, similar to this:
"Services" means the content wizard application provided by AcmeCorp via Acme.io and further described in your Service Plan, and any accompanying or related documentation, source code, executable applications, and other materials made available by AceCorp. Any new or modified features added to the Service are also subject to this Agreement.
The “Service Plan” referenced there is what allows you to incorporate pricing, features, etc. into the definition of the services you provide. Service Plans on a website usually look something like this:
Then you could define your Service Plan like this:
"Service Plan" means the service plan chosen by you during, or subsequent to, the registration process.
The trick here is making sure that you keep track of what plan they select, and what that plan included at the time they selected it.
4. A plan for modifying your terms of service
This is a big one that you (and your lawyer) might actually get wrong. It has become all too common for businesses to include language like this in their Terms of Service:
We reserve the right to modify our Terms of Service at any time. Your continued use of the Services will constitute your acceptance of the modified Terms of Service.
This is not the way to do it.
The better practice is to indeed give yourself a right to change your terms of service at any time, but don't make it a “take it or leave it” proposition to existing customers. Instead, tie it to the actual term / renewal terms of the agreement created when they first accept your terms of service, and give them reasonable notice of the change. Something like this:
AcmeCorp may modify the terms of this Agreement upon 30 days prior written notice to you. You will have an opportunity to review and accept the modified Agreement. If you fail to accept such modified Agreement, AcmeCorp reserves the right to terminate your access and use of the Service and API upon the termination of your Subscription Term, or next renewal term, as applicable.
5. An arbitration clause to avoid a potential class action
A class action lawsuit is the great equalizer when it comes to a consumer trying to sue a trillion dollar company. It allows consumers to band together rather than sue a business with resources that seem nearly infinite when compared to a single consumer. No business ever wants to deal with a class action, and the best way to avoid one (besides not doing stuff that gets you sued by lots of people), is to:
1) have customers waive their right to form a class action and
2) require that any legal disputes related to the Services be settled in front of an arbitrator.
You can learn more about class actions and arbitration provisions here.
To be clear: this is no legal advice. Of course, there are many other provisions that should be included in your terms of service, and you should consult a lawyer. Also make sure to keep good records regarding pretty much everything to do with your terms of service (version, modifications, acceptance data, etc).
If your terms of service have you at a loss, giving some TLC to these 5 areas is a good place to start.
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