Spross & Associates, PLLC

Double Negatives in Contracts

I realized today that I have a pet peeve in contracts related to double negatives.  Legal agreements are already hard to understand and seldom in plain English.  It makes it even worse when there are double negatives in the middle of a run on sentence.  For instance I just read this, "the website is not unsuitable".  How about, "the website is suitable"?

I would love to see attorneys go with more plain language.

Contract Rescission

Does anyone remember the traveling door to door salesmen of the 1940s and 1950s?  I don’t, but I’ve read about them.  To counter the forceful selling pressure of someone at your door, many states enacted cooling off statutes that were designed to allow someone to rescind a contract within 72 hours of “buying”.  Interestingly, I have now run across people attempting to use this tactic to rescind commercial contracts between two business entities.  It is not a valid tactic in my opinion and as a business, you are within your right to uphold the contract and not allow the rescission.  I do not think courts have taken up the issue, but I certainly do not think a court will allow rescission between two commercial entities because the sale was over the internet and did not take place “at the seller’s place of business”.

Mutual Waiver Provision in Contracts

I am not sure where this came from, but in the last month or so I have seen more one way waiver provisions in contracts than I have seen in the last 5 years.  Make sure a waiver provision is mutual unless there is a defendable reason not to make it so.  And if there is no reason, then when you are caught on it, just give in.  Don't use the "it's standard" argument.  

For anyone that is wondering, the waiver provision in an agreement is the provision that says any waiver of any provision of an agreement must be in writing.

Mutual Indemnification

Many agreements have indemnification provisions.  Most of the time the indemnification only protects the party that created the agreement.  You must think carefully about just "making the indemnification mutual".  Many times that does not make sense.  Just making it mutual does not take into account the things that might come up that require indemnification.  For instance, if the indemnification is for "breach of warranties", but one of the parties has not provided any warranties, making it "mutual" is irrelevant. 

One of the most common things that I see is a warranty that has a "knowledge" qualifier and then indemnification is for breach of warranty as opposed to for claims of intellectual property infringement.  If you are the party receiving the technology, you have a hole in your protection for potential third party liability if you just made the indemnification mutual.

Google Interest-Based Advertising and Privacy Policies

Google is in the process of launching interest-based advertising.  As part of that launch, you should update the piece of your Privacy Policy regarding third party advertisers.  Google does not suggest language exactly because everyone’s state laws are different.  However, below is some suggested language that you can tweak for your own purposes.  Make sure you check with your counsel before using this language or any legal language.

We use third-party advertising companies to serve ads when you visit our website.  These companies may use information (not including your name, address, email address, or telephone number) about your visits to this and other websites in order to provide advertisements about goods and services of interest to you.  If you would like more information about this practice and to know your choices about not having this information used by these companies please contact us.  In addition, Google, as a third party vendor, uses cookies to serve ads on the Site.  Google's use of the DART cookie enables it to serve ads based on the users visit to the Site and other sites on the Internet.  Users may opt out of the use of the DART cookie by visiting the Google ad and content network privacy policy on Google’s website.

Conflicts of Laws Provisions

Everyone has seen it in their contracts and wondered what it means.  It is always in the miscellaneous section at the end of agreements.  It usually says something like, “without regard to the conflicts of law provisions therein.”  The full text is “This Agreement shall be governed by the laws of the State of Texas, without regard to the conflicts of laws provisions therein.”  Why is it included?

 

This provision is used to take interpretation of an agreement outside of the state law where a cause of action occurs.  For instance, if you have an agreement with a company that is in California there could be a cause of action that arises in California.  However, you want the laws of Texas to apply.  You have added a “choice of law” provision for that very reason.  Unfortunately, most states have a rule that says the law of the state where the cause of action arose governs that cause of action.  This would mean that if the cause of action happened in California, even if you said you wanted Texas law to apply, Texas law would point back to California.  By adding the “without regard to the conflicts of law provision” we are able to negate the Texas law that points back to California.  That is why most choice of law provisions contain the described clause and you should think about verifying that yours does too.

Assignment of Deliverables Upon Payment

This is a topic that comes up quite a bit in negotiations with consultants.  The consultant wants the ownership of any deliverables or other intellectual property (IP) assigned upon payment and the customer wants the ownership assigned upon delivery or creation. 

 

If you are the consultant, having the IP assigned on payment is a huge hammer to hold when trying to collect payment.  If the customer does not pay, they will not have rights to the IP which can be very dangerous.  The customer usually does not have many obligations except payment and if they do not fulfill that obligation it is only fair that the customer does not get the fruits of the consultant’s labor.

 

On the other hand, as a customer, I will not have my IP rights tainted for any reason, including payment.  Tainted IP is a very dangerous problem for companies.  It can lead to acquisitions or funding falling apart or potential litigation problems.  The consultant has legal remedies for nonpayment (i.e. litigation); however, the customer is in a bind if their IP is tainted.

Why Your Attorney should Review NDAs

You receive multiple Nondisclosure Agreements (“NDAs”) for your business and they all look relatively the same; however, your attorney should review all of your NDAs because there are some dangers lurking.  You would think that NDAs would be uniform, but they are not.  Below are five things to look out for.

1. Residuals Clauses – These are clauses that say the Recipient can reuse what is retained in their unaided memory.  There are certainly situations where this is appropriate; however, they must be drafted properly.
2. Assignment – The famous one-way assignment where only one party can assign the agreement.  Do you really want your NDA assigned to your competitor?  That doesn’t make sense to me.
3. Independent Development Exclusion – Most NDAs have exclusions to what is confidential.  Many times, the “independent development” exclusion is left out.
4. Reverse Engineering – Did you know that by law reverse engineering is legal in certain circumstances?  Therefore, you need to have a contractual “no reverse engineering” provision.
5. Severability – There is some bad case law in my opinion that says if you do not have a severability provision in your NDA and one of the provisions is invalid, the whole NDA is invalid; therefore, you must have a severability clause.

The five items listed above are just a handful of things that your attorney looks for when reviewing NDAs.

Open Source in Deliverables

If you are a buyer of coding services, why should open source in the Deliverables concern you and what can you do to protect yourself?

 

Open source code in your deliverables can be a major problem.  It may open you up to potential intellectual property infringement actions or, during due diligence, it may torpedo an acquisition.

 

So, what do you do in your consulting agreements?

 

First, request a representation and warranty stating that there is no open source in the Deliverables.  More specifically, I like to say that there is no code that is governed by viral license agreements.

 

Second, I do not distinguish open source contained in the Deliverables from the Deliverables themselves.  When I ask for warranties and indemnification, they apply to “Deliverables” and everything included in those Deliverables.  That way, the consultant is on the hook for the entire Deliverable.

 

If the consultant is unwilling to provide the warranty and/or the indemnification, then I require that any open source and other third party code must be preapproved in writing before being included in a Deliverable.  Absent your written approval, the source code is treated as part of the Deliverable and, therefore, not excluded from the warranty or indemnity under any circumstances.  If open source is included in the Deliverables, make sure that you also get a copy of the applicable open source license and have it reviewed.

Fax/Scan the Whole Document

There are a lot of folks that like to only fax or scan a signature page or the first page and a signature page when returning an agreement.  I know, it saves paper and fax time and disk space.  That is not a good enough reason not to send the whole document.  Think about how easy it is to slip in another page 2 that contains provisions that you did not agree to.  Even easier and almost undetectable is adding or removing a “not”.  That can be a disaster down the road.

Do not take the easy path on this one.  Scan or fax the entire document.