With this post I am inaugurating a new feature that I expect will appear from time to time: Ridiculous contract provisions that I have run across. Today’s post is based on an agreement that I recently reviewed for a client.

The agreement provides standard terms and conditions by which a large utility in the Eastern United States works with its suppliers of products and services. The sentence in question says:

No change, amendment or modification of any of the provisions of this Contract will be binding unless in writing that identifies itself as an amendment to this Contract and that is issued by Company.

In other words, the Company apparently believes that the only requirement for an amendment should be that the Company issued it – irrespective of whether the supplier agrees to the change! Enough said….

Photo credit: iStockphoto

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

Today I answered a Quora question about what a letter of intent is and what it should contain. The question and my answer (each edited slightly) are reproduced below.

Q. What is a letter of intent? What are the legal implications of a letter of intent? What is the purpose? Which elements minimally comprise a letter of intent?

A. A letter of intent usually provides a relatively brief summary of a relationship into which the parties intend to enter, and specifies that they will enter into good-faith negotiations leading to a definitive agreement governing that relationship.

As concerns what should be included, in my opinion…

• Most important (and most overlooked when the letter is prepared by non-lawyers): Specify which provisions are binding and which are non-binding.
• Second most important (and often overlooked when the letter is prepared by non-lawyers): A provision stating that neither party need execute a definitive agreement until and unless the party is satisfied that the agreement meets its needs.

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

I’m not a big fan of mandatory arbitration clauses in contracts: Although arbitration is likely to proceed more quickly than litigation (other than small-claims cases), it is not necessarily less expensive. However, I recently saw an arbitration clause that I like quite a bit.

Linden Research, Inc., developer of the Second Life multi-user online service, includes the following in its Terms of Service (emphasis added):

Our goal is to provide you with a neutral and cost-effective means of resolving the dispute quickly.

Thus, for any claim related to this Agreement or our Service, excluding claims for injunctive or other equitable relief, where the total amount sought is less than ten thousand U.S. Dollars ($10,000.00 USD), either we or you may elect at any point in or during a dispute or proceeding to resolve the claim through binding non-appearance-based arbitration. A party electing arbitration shall initiate it through an established alternative dispute resolution (“ADR”) provider mutually agreed upon by the parties. The ADR provider and the parties must comply with the following rules: (a) the arbitration shall be conducted, at the option of the party seeking relief, by telephone, online, or based solely on written submissions; (b) the arbitration shall not involve any personal appearance by the parties or witnesses unless otherwise mutually agreed by the parties; and (c) any judgment on the award rendered by the arbitrator may be entered in any court of competent jurisdiction.

By allowing for arbitration to proceed without personal appearances, based on telephone, online or written submissions, these provisions make it highly likely arbitration will be quick and cost-effective – an outcome that anyone should welcome.

Related post: Which Protections Should be Included in Online Terms of Use?

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

A client had been using a form of independent contractor agreement for years and was concerned that the existing agreement did not fully meet the client’s legal needs. I said that I could adapt my form of agreement more cost-effectively than I could fix the client’s agreement. When I did so, I realized that the agreement I provided was much easier to read (aside from being legally tighter and more complete).

What makes the new agreement easier to read? First, it has about 20% fewer words, because I try to make each point once, avoiding the needlessly repetitive words and phrases that lawyers traditionally have delivered.

Second, it has only half as many pages, so the reader can see more at a single glance, thus better grasping scope and context. Although the shortening is accomplished by using a smaller font, lots of white space enhances readability.

Third, paragraphs are short, allowing the reader to understand concepts quickly and avoid the fatigue that comes with long paragraphs.

Finally, a bold heading on every section and subsection tells the reader what to expect in the following text.

In summary, when one prepares a contract, it shouldn’t just do the job from the legal perspective – it also should make reading as easy as possible.

Photo credit: Kriss Szkurlatowski via stock.xchng.

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

Many people (indeed, too many lawyers) are not aware of the difference between termination of an agreement and expiration of an agreement. This post explains that difference and discusses why it matters.

Expiration is the ending of an agreement pursuant to its terms without any action by a party to the agreement. Expiration commonly occurs at the end of a defined period of time – for example, a lease may expire at the end of one year.  Expiration may be linked to other events, however. For example, a patent license agreement may expire when the underlying patent expires.

Termination is the ending of an agreement as the result of an action taken by a party to the agreement. For example, an agreement may provide that either party may terminate it upon ten days’ written notice if the other party breaches the agreement and does not cure the breach during the ten-day notice period.

Why the difference matters: A carefully-drafted agreement may specify that a party’s rights after expiration differ from its rights after termination. For example, one of my clients has a license agreement under which  the client incorporates pieces from a popular board game into jewelry. If the agreement expires, the client may sell off any remaining inventory during the 60-day period following expiration. In contrast, if the agreement is terminated by the licensor for breach by the licensee, there is no sell-off period.

Photo credit: Lars Sundstrom via stock.xchng

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

I have written, on several occasions, about the importance of assigning copyrights (and other intellectual property rights) when work is done by an independent contractor. (See, e.g., Independent Contractors: How to Assign Copyrights.) Sometimes, however – as suggested in a comment to What is a Derivative Work, and Why should I Care? – it is appropriate not to assign all rights.

This situation arises frequently in the case of custom software development. The reason: Over time, developers collect portions of code that they can re-use on other projects, saving their customers development time and money. This approach works, though, only to the extent that the developer retains ownership of the code; the customer, then, must be granted a license permitting use of (and perhaps other rights to) developer-owned code. The following is a typical provision for this type of situation adapted from an Independent Contractor Agreement:

“Contractor Intellectual Property” means inventions, designs, mask works, processes, methodologies, literary works and works of authorship that: are so identified in the applicable SOW; and Contractor developed or acquired from a third party, but in neither case at Customer’s expense, before providing Services under the applicable SOW; and are used or delivered in connection with Contractor’s performance under the SOW; and are not Customer Intellectual Property, Customer’s Confidential Information or Deliverables.

Contractor will not incorporate any Contractor Intellectual Property into any Deliverable except as may be expressly specified in the applicable SOW. Contractor hereby grants to Customer a perpetual, irrevocable, worldwide, nonexclusive, nontransferable, royalty-free license to use, operate, maintain, copy, modify and create derivative works of, and to grant to third parties the right to use, operate, maintain, copy, modify and create derivative works of, Contractor Intellectual Property contained in any Deliverable for the purposes of the applicable SOW.

Photo credit: iStockphoto

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

Twice during the past week clients have asked me to review (someone else’s) nondisclosure agreements (NDAs) that contain a stupid provision of a type that I had not seen for years. That provision is as follows:

RECIPIENT shall not be liable for inadvertent disclosure or use of CONFIDENTIAL INFORMATION nor for unauthorized disclosure or use by persons who are or who have been in its employ or with whom it has contracted provided that it uses the same degree of care in safeguarding such CONFIDENTIAL INFORMATION as it uses for its own CONFIDENTIAL INFORMATION of like importance.

I consider the provision stupid for the following reasons:

• A recipient should be obligated to maintain the confidentiality of confidential information. Exercising some degree of care should be necessary, but not sufficient. This is an area where results matter more than process.
• Even worse, the recipient is not obligated to exercise a reasonable degree of care – just the degree of care that it uses for its own similar information. So if a recipient is careless with its own confidential information, it is entitled to be careless with the other party’s confidential information, too!

Check out all posts about NDAs.

Photo credit: iStockphoto

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

In routine commercial transactions, at least one of the parties typically presents a standard-form agreement. But in other situations – perhaps a one-off business relationship, or settlement of a dispute – a new contract must be developed. A question then arises: Which party should prepare the contract?

This is what I tell my clients:

• The advantage of preparing the contract is that you get to tilt the first version in your favor.
• The disadvantage of preparing the contract is that you will pay more in legal fees than if you let the other party prepare it (revising an agreement prepared by the other party takes less time).

In my experience, if one party has significantly greater financial strength and negotiating power, it usually prepares the contract. And if the parties are of roughly comparable stature, the party that cares more about the outcome will prepare the first draft.

Photo credit: iStockphoto

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

Flag of England (Yes, fellow Americans, there is an English flag separate from the UK flag - do you see the relationship?)

This post reproduces, almost verbatim, a Quora question and my answer. Q. How effective and enforceable are contracts between parties located in the United States and England?

A. Such agreements can be effective and enforced – agreements between parties in different countries are entered into routinely.

The stickiest issue during negotiations may be selection of venue and jurisdiction and choice of law. These, in turn, will have a bearing on how certain provisions should be drafted.

Depending on the subject matter of the agreement, you may need to think about whether the United Nations Convention on Contracts for the International Sale of Goods will be applicable and, if so, whether it should be disclaimed.

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

Many startups have software developed offshore to save money.  There is good reason to be concerned, however, about loss of money or, even worse, loss of intellectual property when a developer is located half-way around the world. This post discusses ways to minimize those concerns.

I recommend the following:

1. Ensure that the agreement with your overseas developer assigns all rights to the software (including all intellectual property rights) to you.
2. Don’t send your “family jewels” offshore. For any portion of the development that requires disclosure of your most important trade secrets, use a local developer.
3. Time deliverables and payments such that you never will be too severely financially exposed. If your relationship with the developer sours, you can go somewhere else without a catastrophic financial loss.

If you take care of these three points properly, everything else should be pretty routine.

Photo credit: Rajesh Sundaram via stock.xchng

Dana H. Shultz, Attorney at Law  +1 510 547-0545  dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.