Legal Risks in Software License Agreements: Negotiation Points

As companies' daily operations become increasingly dependent on software solutions, software license agreements have started to form a critical legal area. Most businesses, when faced with a long English text in a SaaS contract, treat it as "standard" and sign; however, in subsequent stages, serious problems arise in pricing, usage rights, liability, or exit procedures. Drawing on the experience of our Antalya law firm serving both software vendor and software user companies, this guide addresses the main risk points of software license agreements.

Software License Types

The model in which software is offered affects all contract provisions:

1. On-Premise License

Classic model where software is installed and used on customer servers. Generally:

• One-time license fee + annual maintenance/support fee,
• User count, core count, or transaction-based limitations,
• Whether new version updates are included in support fee.

2. SaaS (Software as a Service)

Model where software is offered in cloud, accessed by users via internet. Typical features:

• Monthly or annual subscription pricing,
• Auto-renewal provisions,
• Service level commitments (Service Level Agreement / SLA),
• Data residence and transfer.

3. Custom Software (Custom Development)

Software developed specifically for customer needs. Evaluated alongside a work contract rather than just a license:

• Who retains intellectual property rights?
• Who keeps source code?
• Can customer develop the software for their own needs?

Critical Provisions to Negotiate

1. Scope of Usage Right

Whether license is exclusive or non-exclusive, user count limit, and geographic limits must be clearly determined. From customer perspective:

• Are company's affiliates included in usage scope?
• Does right to transfer and sublicense exist?
• Is user count definition clear (concurrent vs. registered)?

2. Duration and Renewal

Common trap in SaaS contracts: auto-renewal provisions. When customer doesn't notify non-renewal a specific period before end of term, contract extends one more year and price increase applies.

When signing contract:

• Renewal notice period should be kept short,
• Price increase ceiling should be set (e.g., not exceeding annual PPI),
• Conditions allowing customer's unilateral termination should be examined.

3. Liability Limitations

Most software vendors place broad liability limitations in contracts. These provisions typically:

• Limit vendor's liability to a multiple of annual subscription fee,
• Exclude indirect damages (lost profits, business interruption),
• Lift limits only for intentional and gross fault.

These limits aren't always valid under Turkish law; in case of intent and gross fault, no limitation can be made. Nevertheless, well-negotiated upfront is more functional than after dispute arises.

4. Service Level Commitments (SLA)

In SaaS contracts, uptime commitments, response times, and discounts on breach are regulated. In SLA:

• Monthly uptime commitment should be clear (99.9%, etc.),
• Measurement method should be specified,
• Refund or discount on breach should be concrete,
• "Force majeure" definition should be kept narrow.

5. Data Ownership and Exit Rights

Perhaps the most important matter in SaaS contracts: clearly protecting customer's rights over their own data. In contract:

• Vendor will have no ownership claim over customer data,
• At end of contract, customer can take their data in standard format,
• Vendor's data deletion obligation and proof mechanism,
• Data retention period

must be clearly stated. SaaS contracts with poorly-regulated exit mechanism are a trap binding customer to vendor.

6. KVKK and Data Protection Provisions

If software vendor will process personal data, data protection agreement (DPA) must be a contract requirement. In this agreement:

• Data controller and processor roles must be set,
• Cross-border data transfer must be regulated,
• Approval mechanism for sub-data processors must be established,
• Notification periods on data breach must be specified.

SaaS contracts signed without KVKK-compliant DPA create additional legal risk for customer.

7. Intellectual Property and Copyright

In contract:

• Software's intellectual property must clearly belong to vendor,
• Ownership of developments made per customer's specific requests must be clarified,
• Indemnity undertaking must exist for third-party copyright infringement.

Open source component usage is critical in license compatibility; supplier's use of copyleft-licensed code like GPL can transfer risk to customer.

8. Exit Procedure and Migration Assistance

When contract ends:

• How long does customer have to retrieve data?
• Will vendor provide migration assistance?
• Will migration assistance be charged extra?

These questions must be answered at contract start; exit must be smooth.

In Custom Software Development Contracts

Additionally for software developed specifically for customer:

• Acceptance criteria and test processes must be defined,
• Source code escrow (entrusting source code to a third-party institution) can be arranged,
• Intellectual property ownership (who owns the deliverables — does the customer have a usage licence or full ownership?) must be clear.

Foreign Jurisdiction and Choice of Law

In international software vendor contracts, typically:

• US or UK courts as competent court,
• Delaware, New York, or English law as applicable law

are foreseen. For Turkish customer, this situation:

• Litigation becomes difficult,
• Costs increase,
• Legal uncertainty rises.

During negotiation, Turkish law and Turkish courts or a neutral arbitration centre can be preferred.

Legal Support

For software licensing, SaaS subscription, and custom software development contracts in Antalya, MONA HUKUK provides negotiation support, contract drafting, and dispute management. With our expertise in IT law and KVKK fields, we protect rights of technology companies and software-user businesses; building legal foundations of sustainable commercial relationships.

Contact us at contact@monahukuk.com or call +90 (242) 606 14 32 to schedule a consultation in Antalya.