TechLaw – Three Seminar Announcements for Mark Grossman

Mark has two speaking engagements next week on November 4th at the American Conference Institute’s event “Software Agreements – Cloud, SaaS, Open Source and Licensing” in San Francisco, CA.

Mark previously announced that he would be participating at 4:30 PM in a panel discussion entitled, “Software as a Service: Avoiding Pitfalls in Contracts for Hosted Applications“.

Just yesterday, Mark was asked to co-host a 3 hour workshop at 9 AM entitled Software Licensing Boot Camp: Drafting Contracts that Meet Current Business Needs While Avoiding Unwanted Outcomes due to another speaker having an emergency cancellation.  Details on this workshop are below.

For more information about the entire ACI event, click here.  Please contact ACI’s Krishna Patel directly at k.patel@americanconference.com to register and mention Mark’s name to receive a $200 discount off the registration fee.

The next day Mark will be conducting a two hour mock negotiation of a software license agreement during the Practicing Law Institute’s Understanding the Intellectual Property License 2013 program in New York City.  For more information, click here.

Here are the details on the agenda for the new 3-hour workshop.

 Software Licensing Boot Camp: Drafting Contracts that Meet Current Business Needs While Avoiding Unwanted Outcomes

9:00-12:00 (registration starts at 8:30 am)

 Through a series of examples of contract language and redlined documents, you will have the opportunity to drill down into licensing fundamentals and nuances with fellow attendees and vanquish problems that face even the most seasoned software licensing professionals.

Workshop highlights include:

-          Drafting a clear and unambiguous license grant

-          scope of uses of the product

-          rights to make or control derivative works

-          rights to modify or continue use of products that are no longer supported

-          Defining ownership, use limitations, and affiliate use restrictions

-          using industry-acceptable terms for a clear and mutually agreeable contract

-          Revisiting standard clauses and what constitutes reasonable or customary contract positions by licensors and licensees

-          adapting to shortened timeframes when deals must be closed faster

-          specific contract terms being impacted by adverse economic factors

-          adequacy of product termination provisions

-          incorporating exit strategies for licensors

-          end of life provisions to protect the buyer and seller

-          payment terms

-          remedies and choice of forum

-          collection and interest on late payments

-          financial viability provisions

-          navigating the interrelationship of contract terms

-          securing additional protections for licensees and licensors

-          protecting access to source code

-          use of third-parties for technology escrow

  • Indemnification, liability, and warranty do’s and dont’s
  • How to address confidentiality and risk assessment concerns
  • Anticipating and incorporating future M&A needs in the present agreement
  • Techniques for engaging in effective mid-contract renegotiations based on changing conditions
  • Overcoming conflicts between legal and business interests
  • Protecting your position when agreements incorporate evolving pricing and licensing models

-          challenges raised by alternative delivery mechanisms

-          anticipating issues stemming from social networking software

-          sub-license rights and subscription models

-          software downloads to mobile devices

-          meeting requirements stemming from use of electronic signatures

-          utilizing appropriate pricing models to achieve your goals

-          facilitating accurate licensing procurement assessments in a world of virtual servers and multi-core processors

-          understanding use of socket, CPU and other pricing models

-          other common pricing floor models

  • Demystifying revenue recognition rules
  • International software licensing and outsourcing considerations
  • Identifying contract hazards to avoid
  • Determining whether to address common problems in the contract or wait until a problem arises

-          OEM; ISV; reseller/Distribution; outsourcing

  • Specifying remedies
  • Establishing and ensuring adherence to an internal protocol to ensure efficiency and consistency across all company licenses and agreements

-          why are certain provisions are open to negotiation?

  • Addressing sub-licensing during contract negotiation – balancing licensee demands with the protection of the licensor’s IP rights
  • Avoiding creating a franchise agreement – a hidden mine field
  • Incorporating additional cost-saving options into your negotiating strategies
  • Examining the implications from recent litigation affecting software licensing

-          analysis of the most common triggers for disputes

 

TechLaw-Negotiating a One-Sided Limitation of Liability

Mark has two speaking engagements coming up in November.

November 4, 2013
San Francisco, CA, American Conference Institute (ACI)

Mark will be participating in a panel discussion entitled, “Software as a Service: Avoiding Pitfalls in Contracts for Hosted Applications”. For more information, click here.

November 5, 2013
New York, NY, Practicing Law Institute (PLI)

Mark will be conducting a two hour mock negotiation of a software license agreement during the Practicing Law Institute’s Understanding the Intellectual Property License 2013 program. For more information, click here.
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Mark had one of his articles recently published in “Inside,” a publication of the Corporate Counsel Section of the New York State Bar Association. Inside’s editors asked Mark to write an overview article on “Negotiating a One-Sided Limitation of Liability.”

Below you will find his article. While written for an audience of in-house lawyers, Mark thinks everyone will find the content of the article informative.
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When clients come to me asking for an evaluation of their remedies because their tech deal has gone sour, the single worst remedy and lawsuit killer I often find in existing tech contracts is that “standard” limitation of liability clause. It never ceases to amaze me how people do not pay attention to these provisions as they blithely sign-off on a one-sided agreement. It’s just one little clause and yet it can cause so much damage.

Here is an example of the type of a limitation of liability provision that you will find in tech agreements—this one is from a software as a service agreement:

Vendor shall have no liability with respect to Vendor’s obligations under this agreement or otherwise for consequential, exemplary, special, incidental, or punitive damages even if Vendor has been advised of the possibility of such damages. In any event, the liability of Vendor to Customer for any reason and upon any cause of action shall be limited to the lesser of the amount paid to Vendor under this Agreement or $_____. This limitation applies to all causes of action in the aggregate, including without limitation to breach of contract, breach of warranty, negligence, strict liability, misrepresentations, and other torts.

No Tricks Up My Sleeve

Now, if your client signed-off on a provision like that because they figured that you would find some technicality to overcome it if necessary, I think they have made a serious mistake. As a generalization, limitation of liability provisions mean what they say and say what they mean. Judges can read, and a judge would more than likely enforce it as written in a contract between two sophisticated parties. I think courts correctly read these provisions as allocation of risk provisions that the court should enforce as written.

While the sample provision above was clearly one-sided, courts are not in the business of rewriting deals to make them fairer. Simply put, that is the purpose of the negotiation. If your client failed to negotiate a more balanced limitation of liability provision, they will almost certainly have to live with the consequences of their failure if there is a dispute down the road.

It’s the Norm

When you negotiate your client’s agreement and tell the vendor that the limit of liability has to go, you are likely to get a blank look. You know, it is the same one you get from your kids when you remind them that they have not given you your change.

I know what I say because when I represent the seller of tech services I say things like: “Limits of liability are the norm.” “Everybody uses them.” “We have never done a deal without one.” “We would have to increase the price dramatically because of the additional risk we would be assuming.”

Ironically, all of this is true. So, we are done, right? Wrong. A skilled and experienced negotiator can make all the difference here. This is where you as the lawyer on the deal can make a meaningful difference. (A difference your client may not appreciate, but that is a different discussion.)

While it is the norm to see limits of liability in deals like software as a service, cloud computing, licensing, telecom and outsourcing deals it is not necessarily true that they are all as onerous as my example. While getting the other side to remove a limit of liability completely may be like climbing Everest and wholly unrealistic, making it fairer is not necessarily so hard if you ask for the right things.

The Negotiation

If the vendor will not eliminate the limit of liability provision, which no well-represented and solvent tech, telecom, or outsourcing company would, you have to start pecking at the provision to put a chink their armor. So let us go back to my example where the vendor’s liability is “limited to the lesser of the amount paid to Vendor under this Agreement or $_____” (emphasis added) and look at some ways to start pecking at it.

Let us say your client has a five-million dollar deal cooking, which calls for five equal payments over five months as work progresses. Let us say that after the first month it becomes clear that the work the vendor is doing is causing more harm than good, so your client rightly refuses to make your second one-million dollar payment. Finally, let us say that the vendor has somehow caused your client damages valued at two-million dollars.

Your client might naïvely think that you could easily obtain a judgment for their two-million dollars. However, you are not likely to achieve what your client might think is the fair result because the limitation of liability provision limited their recovery to the amount they paid – i.e. a refund. Therefore, as written, no matter what the vendor does and no bad how bad it is, the most your client gets is a refund of the one-million dollar they have paid to date. The vendor risked nothing!

My first attempt to chink their armor would be to ask them to agree to a limit of liability of an amount equal to the total value of the contract to them (five-million dollars) and not the amount paid to date. Failing that, I might ask for some multiple of the amount paid to date.

As an aside, in the world of service deals like software as a service, a typical limitation of liability is equal to the fees paid by your client to the vendor over some relatively short period. In my experience, vendors typically start with three to six months of fees as their limitation of liability. I can usually get that up to 12 to 18 months, but my goal every time is at least 24 months.

When your contract bases the limitation of liability provision on fees over a certain period, you must be sure to draft the provision to deal with the situation of a breach occurring before the contract has been in place for as long as that certain period.

So for example, if your contract bases the limitation of liability on the fees paid over the last 24 months and the breach occurs in the fifth month, your contract should include the concept that if the breach occurs before the 24th month of the contract term, then the limitation of liability would be the average monthly fee up until the time of the breach times 24 months.

Another approach to chinking the vendor’s armor is “reciprocity.” In fact, I would say that no single word is more important in moving a one-sided agreement toward the middle than reciprocity. What is good for the vendor is good for your client. Do not be embarrassed to ask. They certainly were not embarrassed to make the provision one-sided to their advantage.

The idea is that the most that the vendor could ever recover from your client is equal to the most your client could recover from the vendor. Why should the vendor have a protective limit, but not your client? The vendor will not like that, but it is hard to argue against the proposal’s inherent fairness.

Yet another approach would be to carve out an exception if the vendor infringes the intellectual property rights of a third party. In the example as written, if they “created” software for your client and your client is sued for millions for infringing some third party’s copyright, your client could end up with millions in liability. Still, your client could only recover up to the amount of the limitation of liability from the vendor as the party who really caused the infringement. Again, the provision is simply not fair nor is it a fair allocation of risk. Therefore, my position is that liability for indemnification arising from the infringement of intellectual property should be excluded from the limitation of liability.

Then, I go farther on all third-party indemnification issues and take the position that vendor should be fully responsible for all third-party damages of every kind and nature including third party’s property damage and bodily injury claims. As with the copyright situation, it seems inherently unfair that your client should pay unlimited amounts of money to a third party because of something your vendor did.

A few other items that I want excluded from a limitation of liability include willful or intentional torts, claims arising from the vendor’s breach of a confidentiality provision, a claim arising from the vendor’s improper use of personal identifiable information, any claim for indemnification other than for IP which we discussed above, claims arising from the vendor’s failure to comply with the law, and vendor’s intentional breach of contract.

It is almost a waste of time to put effort into negotiating a contract to have it emasculated by a one-sided limitation of liability provision. Do not let that happen to your client. While it may be true that these types of provisions are “normal,” do not assume that the one in the vendor’s proposed agreement has dropped from the heavens as the only way it can be.

TechLaw – Mark’s upcoming seminar

Society for Information Management

Society for Information Management (Photo credit: Wikipedia)

Best Practices for IT Agreements:  What Lawyers Can Tell Us

Mark is on a panel of experienced IT lawyers discussing “Best Practices for IT Agreements:   What Lawyers Can Tell Us” on Wednesday, May 29th at the monthly chapter meeting of the New York Chapter of the Society for Information Management (SIM).  The event is at the 21 Club at 21 W 52nd St in Manhattan.

Registration is required.  To register and for more information please visit:  http://www.nysim.org/events/next-event-details

The panel will discuss:

  • Traps for the unwary in contract negotiations and what to do about them
  • Optimizing the role of the IT staff in creating agreements
  • Why owning IP you pay for may create the wrong incentives for the vendor
  • Coordinating the work of external counsel, internal counsel and the company’s project owner to save time and speed implantation
  • How to structure agreements as an “Early Warning System”
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TechLaw – Letters of Intent

After almost two decades of practicing law, I’m still amazed at the number of legal fallacies that even sophisticated business people have about doing deals and properly documenting them. It doesn’t matter what kind of deal–software as a service, licensing, cloud deal, or whatever.  I see these fallacies constantly.  One of the most prominent fallacies is that Letters of Intent (LOI) are always nonbinding.

I suppose that the misconception arises because — well — it does say “Letter of Intent” and not “Contract” at the top of the page.

Do yourself a favor and press the “I Believe” button on this one when I tell you that LOIs can be binding agreements.  You need to take them seriously and your lawyer needs to write them.

As a person who does other people’s technology, telecom, and outsourcing negotiations, I understand and still get the adrenaline rush of getting close to wrapping the big deal.  Still, these are the moments where you need to take a deep breath and make sure that you get the documentation right.

LOIs go by many names, such as Memorandum of Understanding, Agreement in Principle, and Term Sheet, among other things. Whatever you call them, they can and will bite you if you’re not properly circumspect about the things you sign.

Yes, it’s exciting when your big deal is making big time progress.  I know that when the other side mentions the LOI, it’s a Right Guard moment.  Just understand that once you sign that LOI, you may be blurring the line between engagement and marriage.

If you never close your deal because you never could work out all the details, you may find that LOI under lots of scrutiny. LOIs can and do find their way into courtrooms. The essence of the lawsuit is often plain ol’ “breach of contract.”

It really comes down to non-lawyers are often under the misconception that the title of the document absolutely governs the situation.

If the language in your LOI reads like a binding contract, it’s probably a binding contract. Don’t make the mistake of thinking that just because not every detail of your deal is in the LOI that this necessarily means you would win if sued.

The starting point in drafting an LOI is to remember its purpose. Usually, parties are looking to summarize their deal as a prelude to negotiating the details. Sometime they want to start a project moving before all the details are fully negotiated. Either way, it’s usually intended to be superseded by a more formal and lengthy document.

Further, the parties don’t intend many of the terms to be binding if they never sign a more formal contract that includes all the details.

However, the parties usually have terms they do expect to be binding even if they never close the deal. Some examples would include the part about starting the project, how much that will cost, a confidentiality provision and a provision that says each party is responsible for their own attorneys’ fees and other expenses in connection with the negotiation of the deal.

If your LOI isn’t specific about whether it’s really a contract or a nonbinding summary of the state of your negotiations, you could be creating an unpredictable mess for yourself. If there’s ever a dispute about the LOI, you’re forcing a court to look at the document as a whole, accept testimony with those who participated in the LOI creation process, and then make an educated guess as to the intent of the parties.

In this situation, the fact that it says, “Letter of Intent” at the top is just a single piece of evidence that a court will use to find the parties’ intent. If everything below the title reads like a binding agreement, the court may find that you have a contract and not just the simple outline of terms to be negotiated that you thought you had.

In some ways, if your lawyer does it right, this can be simple. A well-drawn LOI has a provision that specifically states to what extent the parties intend it to be a binding agreement. A typical provision will say that the LOI in fact has provisions that the parties intend to be binding even if they never sign another document. It will then go on to specify those provisions.

Whatever you do, just remember that an LOI is a legal document that you should have your lawyer write. If you think that you are up to the task, let me give you some perspective: As somebody who mentors young lawyers, I’ve yet to find one who fell out of law school with an innate ability to draft legal documents. It takes years of mentoring and training for a young lawyer to master the art of legal writing. I just ask, “Who mentored you?”

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