In today’s digital age, APIs (Application Programming Interfaces) are essential to software development. They allow different software systems to communicate and share data, making building new applications and services easier. But when it comes to APIs, a significant legal component is the API agreement.

This post describes API agreements, explains why you need one, and then explores the legal, commercial, and technical considerations of these agreements.

What are API agreements?

They are contracts that define the terms and conditions under which you can use an API.

API agreements cover everything from data access and usage rights to liability and indemnification. In short, they are essential to protect the interests of both API providers and API customers.

Types of API agreements

Typically, you’d get API licence agreements (for on-premise APIs) or API as a Service agreements (for cloud-based API services).

On-premise

An on-premise API refers to an API that the customer hosts and manages on their own servers, hardware, and software infrastructure.

By implication, the customer is responsible for the maintenance, upgrades, and security of the API and typically requires a dedicated IT team to manage the infrastructure.

API as a Service

API as a service, alternatively, refers to an API that an API provider hosts and manages.

The provider manages the infrastructure, upgrades, and security of the API, and the customer simply consumes the API as a Service. This means that the customer does not need to worry about the infrastructure or maintenance of the API and can focus on integrating it into their own applications.

The reasons you need one

If you’re an API provider, you need a solid API agreement to protect your intellectual property, limit liability, and ensure your API is used responsibly.

Whereas, if you’re an API customer, you need to make sure that you have the right to use the API, understand the terms and conditions, and not expose yourself to unnecessary risk.

Creating an API agreement

But creating an API agreement can be complex and time-consuming. Plus, you must keep many legal, commercial, and technical considerations in mind. The reality is that getting them wrong can have severe consequences.

Let’s explore these considerations.

Legal considerations

  1. Intellectual property rights: API providers must protect their intellectual property rights. This includes copyrights, patents, trademarks, and trade secrets. The API agreement should clearly define who owns what intellectual property and how you can use it.
  2. Liability: API providers need to limit their liability as much as possible. This can include determining the damages that can be claimed, disclaiming certain warranties, and restricting the scope of indemnification.
  3. Data protection: Data protection laws, such as GDPR and POPIA, have specific requirements for data processing. API agreements must comply with these regulations, especially involving personal data.

Commercial considerations

  1. Usage limits: Providers need to define the usage limits of their APIs to ensure customers don’t overuse or abuse them. These limits include:
    • restricting the number of API calls allowed per day,
    • setting the maximum data usage, and
    • determining any other relevant usage limits.
  2. Payment terms: The agreement must clearly define the payment terms if the API is a paid service. These terms include the payment amount, frequency, and any penalties for late payments.
  3. Service levels: Service level agreements (SLAs) define the level of service that the API provider will deliver to the customer, such as uptime guarantees, response times, and other service-related metrics.

Technical considerations

  1. API specification: The API specification defines how to access and use the API. Ensuring the API specification is clear, concise, and adheres to industry standards is essential.
  2. Data format: The agreement should specify the data format that the system will use to transfer data between the API provider and customer, including defining the encoding format, data types, and any other relevant information.
  3. Authentication and authorisation: The agreement should also specify the authentication and authorisation mechanisms the customer should use to access the API, such as:
    • defining how users will authenticate themselves,
    • explaining the information the customer will use for authentication, and
    • deciding what permissions the software will grant to users.
  4. Rate limiting: Providers typically use rate limiting to prevent API abuse by restricting the number of requests a user can make over a certain period. The API agreement should specify the rate limits and the provider’s actions if the customer exceeds the rate limits.
  5. Versioning: APIs change over time, which can cause issues for API customers. So, the API agreement should specify how the parties will handle changes to the API, like versioning and backward compatibility.
  6. Security: The API agreement should specify the security measures the provider and customer will use to protect the API and the data it accesses. This process includes defining:
    • how data will be encrypted,
    • how access will be restricted, and
    • how data breaches will be handled.

Actions you can take next

  • Manage your API relationships by asking us to draft an API agreement for you.
  • Ensure your API agreements comply with applicable laws by asking us to review them.
  • Navigate the platform risks of API by asking us to draft an acceptable use policy.
  • Comply with data protection law by joining our data protection programme.