Reed Smith Client Alerts

Containment measures taken in France in order to combat COVID-19 keep being extended. Businesses are being put under tremendous pressure and are trying to cut all unnecessary expenses in order to keep their heads above water. Much analysis has focused on advising whether 'force majeure' covers situations arising from COVID-19, and it is important to point out that any unfair use of 'force majeure' could be severely sanctioned.

SaaS providers are already taking the initiative in order to highlight this simple principle and to stress they will not go down without a fight.

Authors: Sophie Goossens

Creative glowing circuit chip

Tech In France, a representative body of French software developers, recently surveyed its members to assess their economic and financial situations in the context of the COVID-19 pandemic. It has found that:

  • The majority of smaller vendors only have cash reserves for three to six months of operating expenses, making them vulnerable to a potential downturn 
  • A number of SaaS customers are exerting pressure on vendors to cancel their subscriptions, invoking either statutory or contractual force majeure provisions

Tech In France has issued a warning in the form of a press release highlighting that force majeure should not be used as an excuse to obtain more favorable terms of service, or to postpone or cancel SaaS subscriptions that customers no longer wish to make use of. Tech In France’s president has said the lobby would provide assistance to SaaS vendors faced with forceful renegotiations or terminations. He has also warned that the lobby would report any abusive use of force majeure to the French Ministry of the Economy and Finance.

Smaller vendors are currently relying on ongoing subscriptions to maintain a positive cash flow during the pandemic. The French Minister of the Economy has stressed the importance of collective solidarity and stated that the government would not allow companies to profit from the crisis, and it is likely that public opinion would widely approve of a tough stance being taken. As a general rule, French law imposes sanctions for the abusive termination of established commercial relations: in accordance with the French Commercial Code, a customer who abusively terminates a SaaS agreement without sufficient notice could be ordered by a French court to pay damages to the vendor.