The High-touch Legal Services® Blog • For Startup Companies

I have wanted to write this post for several months, but until now I have held off because of concern that it would come across as a lawyer saying “buy my services”. Today, though, a conversation with a client drove home how important this topic is.

On several occasions, clients have asked me to dig them out of trouble that occurred because they had entered into agreements without the advice of legal counsel. Some examples:

• Client #1 retained an independent contractor by adapting, with minor revisions, the company’s standard-form employment agreement. The parties had a falling out. The contractor demanded payments to which he was not entitled. The contractor’s counsel pointed out (rightly) that if the contractor were to file a wage claim, he would prevail because of the employment language in the agreement, and Client #1 would end up paying far more than the amount that the contractor was seeking. Client #1 ended up paying tens of thousands of dollars that it would have saved if it had used the proper form of agreement.
• Client #2 bought the assets of a small business in the Midwest pursuant to a letter agreement that set forth only the essential business terms. The seller had told Client #2 that an application to license the properties of a major sports organization had been favorably received and was in process. More than a year later, Client #2 learned that the application already had been denied at the time the assets were acquired. Client #2 had to pay several hundred thousand dollars in past-due royalties and penalties to the sports organization before it would enter into a license agreement with Client #2.
• Client #3 and another company wanted to enter into a joint venture to develop a software product, but negotiations for the joint venture failed. Instead, the parties agreed that Client #3 would develop the software and would grant the other company a license to use it. Client #3 signed a license agreement that had been prepared by the other company. Shortly thereafter, the other company filed a patent application based on technology underlying the software in question, asserting that its employees were co-inventors with the employees of Client #3. Now, the only way Client #3 might be able to stop the other company from receiving a patent is to file its own patent application, resulting in an interference proceeding – but the cost of this approach is so high that that Client #3 may just do nothing, ultimately being unable to use the software that it developed because it infringes the other company’s patent!

Not every agreement need be reviewed by a lawyer. If, for example, there is a great disparity in negotiating power such that the more powerful party can say “take it or leave it”, there may not be a lot that a lawyer can contribute to the process.

But if an agreement is important because of its subject matter, or the amount of money at stake, or because it bears on critical company operations, then the most prudent course is to seek the advice of legal counsel.

This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact an attorney directly.