Liability with Third Party Software

How do you negotiate liability when the #SaaS supplier is providing third-party software (TPS) as an integral part of its functionality?

In the spirit of each supplier not reinventing the wheel, TPS is becoming ubiquitous in software. Many SaaS applications have TPS providing critical features such as hosting, payment processing, and text messaging – features that are rife with legal risk.

So how do the parties allocate the risk?

Elizabeth Chang pointed out that many TPS are provided by leading companies in their niche who provide the average SaaS supplier less-than-favorable terms when it comes to protection against liability. It doesn’t make sense for the supplier to take on liability resulting from such TPS failure. As the supplier’s counsel, I whole-heartedly agree. However, as the customer’s counsel, my reasoning is that the customer is paying the supplier for its offering and it expects the supplier to take on responsibility for the offering as a whole, including the TPS that’s included with it. It’s one of those hard-to-meet-in-the-middle scenarios in contract negotiation.

How do you deal with this, whichever side of the table you represent?

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