“If the other side doesn’t know what to ask for, it’s not my job to educate them.” That’s one reason a contract drafter might not want to use a PRECUT baseline contract form: the other side would be led to the Curator’s Notes for that form, which would give them a good idea of what to ask for in negotiations.

Sure, it’s hard to give up the advantage of superior knowledge. But:

1. Your notion that you’re the one with superior knowledge might be wishful thinking: The other side could bring in an expert who knows exactly what changes to demand. You might be better off setting the tone with a demonstrably-reasonable contract, and then standing on principle to reject unreasonable change requests.
2. Suppose that the other side’s expertise is indeed lacking. If they’re “good corporate citizens,” chances are you’ll get them to signature faster — and you’ll be laying a foundation for a trusting re­la­tion­ship — if the draft you’re proposing seems fair and balanced.
3. One danger of a clueless contract reviewer is this: The reviewer might make un­rea­son­able demands, but being clueless, s/he won’t know — and can’t be convinced — of their unreasonableness. That could drive the negotiation right into the ditch.

See also: (list is automatically generated)

• Leading off with a “killer” contract form document might be a bad idea
• PRECUT NDA: A free, balanced, multi-purpose, nondisclosure agreement
• How to convince a big customer to use your contract form – and get your sales people to support you in it

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Some say it’s best to start a contract negotiation by sending the other side your “hardball” or “killer” contract form that’s extremely biased toward your side. By doing so (the theory goes), you set the other side’s expectations, and increase the odds that you’ll eventually get more of what you want. Doing so also gives you a batch of potential concessions that you can use for horse-trading.

Certainly there are transactions in which it makes at least some sense to do this. And of course it’s always fun to play “the art of the deal”; it feels just plain good to come out on top when negotiating the legal fine points.

But don’t underestimate the price you’ll pay for these putative benefits:

• in business-staff time, because it’s not just lawyers who have to spend time negotiating legal T&Cs;
• in legal expense (which includes in-house counsel, too);
• in opportunity cost, not just for vendors as the ‘shot clock’ runs down at the end of the fiscal quarter, but also for buyers who likely have other things they could be doing as well (especially in this day and age of increased workloads on those who still have jobs).

So when negotiating a deal, you might want to ask yourself whether “hardball” negotiation of legal T&Cs is really what you want to be spending your time doing.

It might make sense instead to lead off with a balanced contract form that represents a fair, reasonable way of doing business.

That way, perhaps the parties could “just sign it” and get on with their business.

(Adapted from the preface of the Curator’s Notes to the PRECUT Nondisclosure Agreement.)

See also: (list is automatically generated)

• Three reasons to educate the other side’s negotiators what to ask for in the contract
• How to kill a big-company deal in the cradle: Refuse to use the other side’s contract form
• Cramming down a killer contract might give you a wounded tiger to deal with later on

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A couple of hours ago the U.S. Supreme Court handed down its much-anticipated Bilski decision. The Court seems to have left the door open for patenting at least some business methods, but the justices were pretty divided:

• All nine justices agreed that the particular claimed method of hedging risk was not patentable — but that contrary to the Federal Circuit’s view, the machine-or-transformation test was not the exclusive test of potential patentability.
• Justice Kennedy (joined by Roberts, Thomas, and Alito) said in essence that business-method patents were entirely appropriate for a modern information-based economy.
• Retiring Justice Stevens (joined by Ginsburg, Breyer, and Sotomayor) disagreed completely, saying in essence that business methods should be per se unpatentable.
• Justice Scalia didn’t join either of these two sides.

Unfortunately, Justice Kennedy’s opinion didn’t offer much guidance about what distinguished a potentially-patentable business method from an unpatentable one.

The Court’s decision doubtless means more billable hours for lawyers who write and litigate business-method patents.

I’m not sure businesses will be quite so thrilled about the uncertainty left by the decision.

See also: (list is automatically generated)

• Prediction: Spam-filtering patent lawsuit against Apple, Google, etc., will be knocked out early on Bilski “abstract idea” grounds
• Supreme Court nixes expanded judicial review of arbitration awards (but stay tuned ….)
• Quick, patent it! – NY Times editorial

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If you’re an employee of a company, and you sign a company contract as just “John Doe,” you might end up being held personally liable for the company’s obligations. (If you’re the owner of the company as a sole proprietor, or the general partner of a partnership, you probably will be personally liable in any case.)

A better way to sign a company contract is to have the signature block:

• clearly indicate that it’s the company, not you personally, that is agreeing to the contract, and that you’re simply signing on its behalf; and
• stating your title.

The wrong way to sign a company contract

A better way

Further reading

• Protecting the Deal Professional from Personal Liability for Contract-Related Claims, by Glen D. West, of the Weil Gotshal firm.

See also: (list is automatically generated)

• Note-taking in meetings and phone calls: Three easy habits your lawyer will love you for
• Clients seem to like Webcam video conferences, with on-line document sharing, better than traditional on-site meetings
• An oral understanding might not get you off the hook for a written contractual obligation

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Chances are that at some point in your career, a lawyer — yours, or someone else’s — will want to review notes you took at a meeting or during a phone conversation. So thinking ahead to that possibility, whenever you take notes, you should routinely do as many of the fol­low­ing things as you can remember, especially the first three things, to increase the odds that a later reviewer will get an ac­cur­ate picture of the event. It will help you stay out of un­de­served trouble and save money on legal fees

1. Indicate who said what you’re writing down.  Unless you want to risk having someone else’s statements mistakenly attributed to you, indicate in your notes just who has said what.  EXAMPLE:  Suppose that John Doe says in a meeting that your company’s off­shore oil-well drilling project can skip certain safety checks. Re­mem­ber­ing the BP drilling disaster in the Gulf of Mexico, you don’t want anyone to think you were the guy who sug­ges­ted this. So your notes might say, for example, "JD: Let’s skip safety checks,"; if you omitted John Doe’s initials, it wouldn’t be clear that you weren’t the one who made his suggestion.
2. On every page, write the meeting date and time, the subject, and the page number. The rea­son: Your lawyer will probably want to build a chronology of events; you can help her put the meeting in­to the proper context by “timestamping” your notes. This will also reduce the risk that an unfriendly party might try to quote your notes out of context.
3. If a lawyer is participating, indicate this.  That will help your lawyer sep­ar­ate out documents that might be protected by the attorney-client privilege. EXAMPLE:  “Partici­pants:  John Doe (CEO); Ron Roe (ABC Consulting, Inc.); Jane Joe (general counsel).”
4. Start with a clean sheet of paper.  When copies of documents are provided to opposing counsel, in a lawsuit or other investigation, it’s better if a given page of notes doesn’t have un­re­la­ted in­for­ma­tion on it.  This goes for people who take notes in bound paper note­books too: It’s best to start notes for each meeting or phone call on a new page, even though this means you’ll use up your note­books more quickly.
5. Write in pen for easier photocopying and/or scanning, and also because pencil notes might make a reviewer (for example, as an opposing counsel) wonder whether you might have erased anything, and perhaps falsely ac­cuse you of having done so.
6. Write “CONFIDENTIAL” at the top of each page of confidential notes. That will help preserve any applicable trade-secret rights; it will also help your lawyer segregate such notes for possible special handling in the lawsuit or other investigation.
7. List the participants. Listing the participants serves as a key to the initials you’ll be using, as discussed in item 1 above.  It can also refresh your recollection if you ever have to testify about the meet­ing. If some people are participating in an in-person meeting by phone, indicate that. Indicate each participant’s role if isn’t ob­vi­ous or well-known – remember, you might know who someone is, but a later reader likely won’t.  EXAMPLE:  “Partici­pants:  John Doe (CEO); Ron Roe (ABC Consulting, Inc.); Chris Coe (marketing).”
8. Indicate the time someone joins or leaves the meeting, es­pe­ci­al­ly if it’s you (so that you’re not later accused of having still been there if something bad happened after you left).
9. Write down the stop time of the meeting. This usually isn’t a big deal, but it’s nice to have for completeness.

See also: (list is automatically generated)

• How to sign a company contract without incurring personal liability
• Clients seem to like Webcam video conferences, with on-line document sharing, better than traditional on-site meetings
• Forget short contracts – focus instead on short clauses

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In one of those smack-your-forehead moments, I realized that there’s an obvious fifth ques­tion to be added to yesterday’s list of four ques­tions that should be asked at every business meeting (which as a re­sult would now have the acronym GPPPA):

• Goals: What are we trying to achieve in this project or relationship, and why? [In some circumstances, Toyota's Five Whys drill-down analysis might be helpful.]

I’ve updated the original posting accordingly.

See also: (list is automatically generated)

• G-PP-AA: Five questions to ask at every business meeting you ever attend

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[Updated 2010-08-19] It’s been my impression that many business-contract disputes could be avoided if the participants would just talk with each other regularly about five things. This makes me think that in almost any business meeting concerning a project or re­la­tion­ship, it’s a good idea to ask about those five things, with the acronym G-PP-AA:

• Goals: What are we trying to achieve in this project or relationship, and why? [In some circumstances, Toyota's famous Five Whys drill-down analysis might be helpful.]
• Progress: What have we accomplished so far in achieving the goal(s)?
• Problems encountered or anticipated: What if anything has gone wrong,and why? What could go wrong in the future? [The Five Whys might be helpful here, too.]
• Action plans for the future: What is going to be done, by whom, when, to continue progress, and/or to address problems?
• Assumptions: What are we implicitly or explicitly assuming, that might not be true?

This is just Management-101 stuff, to be sure. But it’s often over­looked, especially when things get busy or stressed.

That’s why, when I’m helping to negotiate contracts for on-going projects or re­la­tion­ships, I like to ask for a provision for periodic status-review con­fer­en­ces, with a reminder that these five GPPPA factors should be part of the agenda.

Here’s one version of such a contract provision, with extra para­graph­ing added for readability:

Notes:

• Some of this language isn’t strictly required, but is included to re­assure the parties that the provision isn’t going to be expensive or burdensome.  For example, under this language, if neither party ever asks for a status-review conference, none is required.  As another example, under clause 1, all conferences are by phone unless the parties agree otherwise.
• Clause 2 intentionally doesn’t require the GPPPA factors to be dis­cussed; the reminder of those factors should be helpful.
• Clause 4 provides for written minutes if requested. Meeting minutes can be especially important in documenting specific to-do as­sign­ments. Meet­ing minutes can can also help litigation counsel re­con­struct "what hap­pened, when, and why," if things go wrong.
• In clause 4, the term seasonably is taken from section 1-204 of the Uniform Commercial Code, which defines the term thusly: An action is taken "seasonably" when it is taken at or within the time agreed or if no time is agreed at or within a reasonable time.

See also: (list is automatically generated)

• A fifth question to ask at every business meeting you attend
• Six tips for negotiating best-efforts obligations

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When technology deals go bad and everyone starts pointing fingers, claims of fraudulent misrepresentation are often a weapon of choice for customers’ lawyers in suing vendors. We saw that in two recent cases involving world-renowned software- and services vendors.

To help preclude such customer claims, vendors should consider in­clu­ding a ‘no-reliance clause’ in their contracts. Such clauses typically say that the customer is not relying, and will not rely, on any rep­re­sen­ta­tions by the vendor or its personnel outside the four corners of the con­tract and the materials referenced by the con­tract.

In theory, such a no-reliance clause should kill a customer’s ability to claim fraudulent misrepresentation. That’s because, to succeed in such a claim, the cust­om­er normally must prove, not only that the vendor made a material misrepresentation or omission, but that the customer justifiably relied on the misstatement. If the customer represented in the contract that it was not so relying, and promised that it would not so rely, then it’d be tough for the customer later to claim fraud without being guilty of mis­rep­re­sen­ta­tion itself.

Courts have often upheld such clauses. But if it looked like the vendor lied or cheated, a court might very well look for ways to disregard the no-reliance clause. See generally Allen Blair, A Matter Of Trust:  Should No-Reliance Clauses Bar Claims for Fraudulent Inducement of Contract?, 92 Marquette L. Rev. 423 (2009).

Related posts

• Why the fraud claim is the lawyer’s weapon of choice in lawsuits over failed technology projects
• Why tech vendors should consider providing a written risk-factors disclosure sheet
• Lawsuit-defense tip for software vendors: Clearly label demos and mock-ups as such

See also: (list is automatically generated)

• Lawsuit-defense tip for software vendors: Clearly label demos and mock-ups as such
• Why tech vendors should consider providing a written risk-factors disclosure sheet
• Nonreliance

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In making a sales pitch, it’s not uncommon for a software vendor to put together a non-working demo or mock-up of what the customer might see in the final, customized software imp­le­men­ta­tion.

Such demos can be great sales aids. But they can also give rise to fraud allegations if the customer later claims, "you never told us it was just a demo!"

Strange as it may sound, this does happen in real life; when tech proj­ects blow up, customers’ lawyers almost always look for op­por­tu­ni­ties to make fraud claims against the vendor. As Chris Kanar­a­cus reported in 2008 about the recently-settled Waste Man­age­ment, Inc., vs. SAP lawsuit:

"At that meeting, SAP AG executives and engineers represented that the software was a mature solution and conducted a dem­on­stra­tion consisting of what they represented was the actual SAP Waste and Recycling software," the complaint states.

The company later discovered [sic] that the software was a "mock-up version of that software intended to deceive Waste Management," according to the complaint.

SAP has admitted to this in "internal documents," the complaint states.

SAP also demonstrated the "fake software" at subsequent sales presentations, according to the complaint.

[Emphasis and extra paragraphing added.]

If you’re a vendor, you can easily give your lawyers ammunition to shoot down this particular type of fraud al­leg­a­tion: Clearly label every screen of your demo as such.

The label could read something like this, in a footer: Note: Some significant features shown in this demo are not currently implemented.

That kind of label could help dissuade the customer from making a fraud claim at all, or perhaps allow the vendor to move for summary judgment dismissing the claim without a trial.

Related posts

• Why the fraud claim is the lawyer’s weapon of choice in lawsuits over failed technology projects
• Why tech vendors should consider providing a written risk-factors disclosure sheet
• Vendors, consider a no-reliance clause for your sales contracts, to help forestall claims of fraudulent misrepresentation

See also: (list is automatically generated)

• Vendors, consider a no-reliance clause for your sales contracts, to help forestall claims of fraudulent misrepresentation
• Why the fraud claim is the lawyer’s weapon of choice in lawsuits over failed technology projects
• Why tech vendors should consider providing a written risk-factors disclosure sheet

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Two recent examples

When a big technology implementation proj­ect fails, the cust­om­er’s law­yers will pretty much always try hard to find opportunities to ac­cuse the vendor of having lied.

Why do customer lawyers do this? Because it can work, sometimes spectacularly well.

We see an example in a case I blogged about a few weeks ago: British Sky Broad­casting contracted with EDS to de­vel­op a customer rela­tion­ship management (CRM) soft­ware system, and eventually filed suit when the project went seriously awry. The judge con­clu­ded that EDS made fraudulent mis­rep­re­sen­ta­tions when one of its senior UK executives lied to Sky about EDS’s analy­sis of the amount of elapsed time needed to complete the initial delivery and go-live of the system. After the de­ci­sion was handed down, Sky announced that it expected the damage award against EDS to be at least £200 million.

Another example is Waste Management, Inc.’s lawsuit against SAP over a failed enterprise resource planning (ERP) software implementation, re­por­ted earlier this week to have settled for an undisclosed sum. At the heart of Waste Management’s case was its allegation, not just that SAP had breached the contract, but that it was guilty of fraudulent in­duce­ment, fraud, and negligent mis­rep­re­sen­ta­tion.

"They lied!" is an easier sell in court

Litigation counsel know that jurors typically won’t un­der­stand whatever tech­nol­o­gy is involved.  (In fact, the customer’s lawyers might well try to exclude any prospective juror who knows even a little about the technology.)

That can make it hard for customers to win such cases on garden-variety ‘technical’ grounds such as breach of contract or breach of warranty.

Judges and jurors absolutely do get it, on the other hand, when it appears some­one lied or cheated. 

The threat of punitive damages raises the stakes

If a customer’s lawyers can prove fraud by the ven­dor, then the cust­om­er may be able to recover not just ‘benefit of the bargain’ contract dam­ag­es, but possibly punitive damages as well.  This is important because “punis” ordinarily aren’t available in garden-variety contract cases. 

For that reason, even when evidence of fraud is weak, the mere threat of punitive damages can give the customer more leverage in making set­tle­ment demands.

Related posts

• Why tech vendors should consider providing a written risk-factors disclosure sheet
• Vendors, consider a no-reliance clause for your sales contracts, to help forestall claims of fraudulent misrepresentation
• Lawsuit-defense tip for software vendors: Clearly label demos and mock-ups as such

See also: (list is automatically generated)

• Lawsuit-defense tip for software vendors: Clearly label demos and mock-ups as such
• Vendors, consider a no-reliance clause for your sales contracts, to help forestall claims of fraudulent misrepresentation
• Misstatements during contract talks might cost EDS an extra $270 million

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