North Carolina SaaS Agreements: Avoid Costly Disputes

Software-as-a-service agreements bundle licensing, data handling, uptime commitments, and ongoing services into a single contract that can last years. Under North Carolina law, these deals implicate contract doctrines, trade secret protection, and data/security obligations. Because SaaS contracts are long-term and usage-based, unclear terms on performance, data, and termination frequently lead to disputes. Investing in precise drafting, especially around data rights, service levels, and remedies, can significantly reduce litigation risk.

Define the Offering: Scope, Modules, and Changes

Ambiguity about what is included drives scope creep disputes. Clearly describe:

• Specific modules and environments (production, sandbox, disaster recovery)
• Usage metrics (seats, MAUs, transactions, API calls), how they are measured, and exclusions (e.g., test traffic)
• Implementation/configuration services and any deliverables
• Change control: how new features, deprecations, and price changes are communicated and accepted

Only tie promotional statements to the contract if intended to avoid warranty misunderstandings.

Service Levels and Credits

Set measurable uptime and response/restore targets, define planned maintenance windows, and explain how service credits are calculated and applied. Clarify whether credits are exclusive remedies for service level shortfalls or whether other contractual remedies remain available. Include processes for claiming credits, evidence required, and timeframes for notice. For critical systems, consider tiered SLAs by severity with response and resolution targets based on business impact.

Data Ownership, Access, and Exit

Spell out who owns customer data, the vendor’s limited license to process it, and restrictions on secondary use (analytics, model training, product improvement). Provide export formats, assistance, and timing for data return or deletion at termination. Address retention for legal holds and backups, and describe verification (e.g., deletion certificates). Consider negotiated costs for extended extraction support.

Security and Incident Response

Describe the security program (frameworks such as SOC 2, ISO/IEC 27001), encryption practices in transit and at rest, vulnerability management, and third-party audits. Include incident detection, notification triggers, point of contact, and cooperation duties. Align vendor obligations with applicable law and the customer’s industry requirements. Set obligations for subcontractors and hosting providers through flow-down terms and approval/notification rights.

Privacy and North Carolina Data Breach Obligations

Address collection, use, and sharing of personal information, data minimization, and cross-border transfers. For North Carolina residents, ensure the contract supports compliance with North Carolina’s security breach notification law (N.C. Gen. Stat. Chapter 75, Article 2A), including timely notice to affected individuals and, where applicable, to consumer reporting agencies and the Consumer Protection Division. Allocate responsibility and costs for notification, credit monitoring (if offered), and regulatory communications, and require cooperation in investigations.

IP, Licensing, and Usage Restrictions

Confirm that the vendor retains IP in the platform and that the customer receives a limited, non-exclusive right to access and use. Define acceptable use, security testing permissions, and API rate limits. Clarify ownership of customer feedback and deliverables created during implementation or integrations. For third-party components and open-source software, disclose licenses and any copyleft obligations.

Warranties and Disclaimers

Align warranties to the SaaS model: conformity to documentation, reasonable security measures, and no material reduction in functionality. Avoid on-premises software assumptions. Include mutually acceptable exclusions (e.g., force majeure, beta features), and make sure remedies for breach are clear and coordinated with limitation-of-liability provisions.

Limitation of Liability and Risk Allocation

Calibrate caps based on fees and risk profile. Common carve-outs include confidentiality breaches, infringement indemnity, and data security incidents. Avoid internal contradictions by confirming that SLA credits, indemnities, and caps work together. For enterprise customers, consider super-caps for specific harms while maintaining predictability for the provider.

Indemnities: IP, Data, and Third-Party Claims

An IP infringement indemnity should cover claims that the service infringes third-party IP, with vendor options to procure rights, modify, or replace. Customers often seek indemnity for third-party claims arising from the vendor’s data security failures or violations of law. Define procedures for tendering defense, control of settlement, and cooperation. Allocate responsibility where claims result from customer content, misuse, or non-supported configurations.

Payment, Taxes, and Usage Audits

State billing frequency, proration, late-payment remedies, and suspension rights. Clarify tax treatment and exemptions. If usage-based fees apply, include audit rights limited to reasonable frequency, scope, and confidentiality. Address overage pricing and notice before significant charges accrue.

Term, Renewal, and Termination

Specify initial term, renewal mechanics, and termination for convenience (if any). Tie termination for cause to material breach with cure opportunities and include suspension rights for security threats or illegal activity. Coordinate wind-down assistance, data export, and transition services to avoid business disruption.

North Carolina Law: Choice of Law, Venue, and Enforceability

Choice-of-law and forum terms should reflect North Carolina statutes and public policy:

• Choice of NC law (business contracts): Parties may generally select North Carolina law in a business contract under N.C. Gen. Stat. § 1G-2.
• NC forum selection (business contracts): Selecting North Carolina courts as the forum is generally enforceable under N.C. Gen. Stat. § 1G-3.
• Outbound forum limits: Provisions requiring litigation outside North Carolina for claims arising in North Carolina may be void under N.C. Gen. Stat. § 22B-3.

Outside the business-contract statutes, courts typically consider reasonableness and public policy. Align any dispute resolution clause (mediation, arbitration, or court) with the remedies and discovery you may need for technical disputes.

Trade Secrets and Confidentiality

Protect proprietary information with a robust confidentiality clause, identify confidential materials, and set use/disclosure limits. North Carolina recognizes claims for misappropriation of trade secrets under the North Carolina Trade Secrets Protection Act, so clear definitions and security expectations help preserve trade secret status. Include obligations to return or destroy materials at the end of the engagement.

Public Sector and Education Considerations

For contracts with North Carolina public entities or educational institutions, anticipate additional terms such as student data protections, records retention, and audit rights. Build configurable positions that accommodate these requirements without disrupting your standard posture.

Practical Negotiation Tips

Checklist: Provisions That Prevent Disputes

FAQs

Are SLA credits the exclusive remedy for downtime in North Carolina?

Only if the contract says so. If you want SLA credits to be the sole remedy, state that expressly and align it with the limitation-of-liability clause.

Can a North Carolina customer be forced to litigate out of state?

For claims arising in North Carolina, an outbound forum clause may be void under N.C. Gen. Stat. § 22B-3. Choosing North Carolina courts is generally enforceable in business contracts.

Who pays for data breach notifications?

Allocate costs in the agreement. Many customers require the vendor to bear reasonable costs when the vendor’s security failure triggers notice duties under North Carolina’s breach notification law.

Do we need a separate DPA for North Carolina?

Often yes. A data protection addendum that addresses security, processing instructions, subcontractors, and incident response helps operationalize North Carolina and other applicable privacy and security obligations.

Sources

• North Carolina Security Breach Notification Law (N.C. Gen. Stat. Chapter 75, Article 2A)
• Choice of Law in Business Contracts (N.C. Gen. Stat. § 1G-2)
• Choice of Forum in Business Contracts (N.C. Gen. Stat. § 1G-3)
• Contracts Requiring Prosecution in Another State (N.C. Gen. Stat. § 22B-3)
• North Carolina Trade Secrets Protection Act (N.C. Gen. Stat. Chapter 66, Article 24)

Need help tailoring a North Carolina SaaS agreement? Contact our team.

Disclaimer

This blog is for general informational purposes only and is not legal advice. Reading it does not create an attorney-client relationship. It summarizes North Carolina law as of the date above; requirements may change and other jurisdictions’ laws may differ. Consult counsel about your specific circumstances.