Contract Fundamentals Part II

Transcription

1 Contract Fundamentals Part II ACC New to In House Committee Legal Quick Hit Presented by: Evan J. Foster, Esq. Saul Ewing LLP February 17,

2 Agenda for this Presentation Reviewing the ways in which contracts may be presented to your organization Overview of some of the most common and important provisions in any contract Discuss how to address some of these common provisions depending on what side of the transaction you are on Review of some subject matter specific provisions 2

3 So What Is A Valid Contract? Oral Contracts Except in certain limited situations, if you have an offer, acceptance of that offer and some sort of benefit passing between the parties, there is a contract whether or not it is in writing. Proposal or Quotation The vendor s proposal or quotation constitutes an offer, agreeing to the proposal or quotation constitutes acceptance and payment is consideration. Purchase Order Forms Although the hypothetical implies otherwise, the order form constitutes an offer, fulfilling the request constitutes acceptance and payment is consideration. PURCHASE ORDERS ARE CONTRACTS! Battle of the Forms Exchanges of preprinted forms complicate the job of figuring out what the agreed terms actually are, but courts will usually find a sales contract even where the terms conflict. If someone proposes something in an which you agree to and consideration is exchanged, you have a contract. Click-Wrap or Browse-Wrap If implemented correctly, clicking I agree or merely visiting a website can form a contract.

4 What Are the Most Important Provisions in any Contract? Subject of the Contract the goods or services being purchased or sold or the intellectual being licensed in or out Ownership defines who owns the subject goods or services or the intellectual property Payment Terms sets forth how much the purchaser will pay for the goods or services, the cost of shipping, when payment is due. Warranties provides purchaser with certain guarantees regarding the quality of the goods or services. May include warranties of performance against specifications, ownership/right to license and compliance with law or regulations. Seller wants to disclaim implied warranties. Term/ Termination sets forth when the agreement expires and how each party can get out of the contract early

5 What Are the Most Important Provisions in any Contract? Limitations on Liability If a party breaches the contract, it has to pay damages to the other party to compensate them for their loss of the benefit of the bargain. Limitations on liability limit how much one party will owe the other party if it does breach. It also makes the potential gain from litigating an agreement lower and thus discourages lawsuits. Indemnification establishes what each party will pay to protect the other party if certain things goes wrong. Confidentiality/Privacy/Data Protection puts the parties on notice of terms or information they must keep confidential (e.g. trade secrets, customer data).

6 What Are the Most Important Provisions in any Contract? Integration defines the specific document(s) that make up the contract and excludes consideration of other communications. Dispute Resolution how, when, and where disputes will be resolved, both informally (escalation, mediation) and formally (arbitration, litigation)

7 Specific Issues to Consider When Reviewing or Negotiating a Contract: OBLIGATIONS What are you required to do under the Agreement? What is the other party required to do under the Agreement? Does the contract specify everything you need the other side to do in order for this deal to be successful? Are you confident that you can do what the agreement says it will do? If not, revise the agreement otherwise you could find yourself in breach of the contract down the road.

8 Specific Issues to Consider When Reviewing or Negotiating a Contract: PAYMENT Does the Agreement state how much you are paying or getting paid? Does the agreement state when such payments are due? Is payment linked to performance? Deliverables Milestones/acceptance? Pay when paid Is there a penalty for late payments? Can a party withhold payment in the event of a dispute?

9 Specific Issues to Consider When Reviewing or Negotiating a Contract: ACCEPTANCE OF GOODS What constitutes acceptance of the goods or services (i.e. receipt of delivery, receipt of payment, completion of the services?) How and when will the goods be delivered? What happens if the goods are defective or damaged on arrival? What happens if you are unhappy with the services received?

10 Specific Issues to Consider When Reviewing or Negotiating a Contract: BUYER PROTECTIONS Representations and Warranties: For products, the vendor should represent and warrant that the goods are of good quality, that they have no errors or defects etc. For services, the vendor should warrant that the services will be performed in a professional manner, by qualified personnel and in accordance with industry standards and applicable law. (Watch for disclaimers.) Industry standards: industry standard best practices, substantially similar to those of other nationallyrecognized, high-quality commercial providers of technology solutions and services in the United States.

11 Specific Issues to Consider When Reviewing or Negotiating a Contract: INDEMNIFICATION Indemnification: As the purchaser or licensee, you will want the vendor to indemnify and defend you against all claims or damages resulting from the goods or services. In particular, in technology agreements, you will want to be indemnified for claims that a product or service infringes on the intellectual property rights of a third party. As the seller or licensor, you will want to limit your obligation to indemnify and defend the customer to the fullest extent possible. Also, you will want to ensure that your insurance extends to indemnity obligations

12 Specific Issues to Consider When Reviewing or Negotiating a Contract: LIMITATIONS ON LIABILITY Limitation on Liability: The vendor will always try to disclaim all incidental, consequential, indirect, special, exemplary, and punitive damages. (Sometimes even direct damages!) Other limitations like dollar cap, no liability for lost data, lost revenue/profit. A broad disclaimer is not always appropriate. There may be situations where the vendor should be responsible for all damages that you may incur (e.g. intellectual property infringement or a breach of confidentiality). Often presented as limitations only on vendor s liability. If a vendor, you will need to weigh the balance the risk vs. reward in setting and negotiating limitations

13 Specific Issues to Consider When Reviewing or Negotiating a Contract: CONFIDENTIALITY Confidentiality: The agreement should provide that all confidential information of each party will be protected and that confidentiality will survive termination of the agreement. As a vendor, you may want to limit the confidential information it receives and the duration of its obligation. If a customer, prohibit vendor s use of your or your customers data: Except as required to perform the Services for Newco, in no event shall Vendor be permitted to create, use, publish, transmit, store, market, promote or display any Newco Data (including any aggregated or derivative data from Newco Data), without Newco s prior written permission.

14 Specific Issues to Consider When Reviewing or Negotiating a Contract: INTEGRATION CLAUSE Integration or Entire Agreement: Language that establishes what document(s) make up the Contract, and conversely, what is excluded from the Contract. May be in boilerplate, definition of Agreement, Documentation, or elsewhere (e.g. P.O. language) It may not matter what the sales team told you, what was on the vendor s website, in their demo or in their RFP response. Err on the side of over inclusion. If the vendor said it or provided it in writing, consider incorporating it into the agreement. If a vendor, realize that every piece of information that you provide to a customer, from an to RFP response to marketing brochure, can wind up as part of the contract. Beware of moving targets, such as terms contained on a website or policies that are subject to change.

15 Specific Issues to Consider When Reviewing or Negotiating a Contract: DISPUTE RESOLUTION CLAUSES How will disputes between the parties be resolved? Escalation/Mediation first? Arbitration/Litigation? Location Attorneys fees?

16 Subject Matter Specific Provisions

17 Special Provisions in Software Licenses Confirm that the boundaries of the right to use the software match expectations and reality: Where? Global vs. campus vs. single computer For what? Mission critical vs. Solitaire How much? One time fee vs. periodic vs. per use/user How long? Perpetual vs. limited term What form? Source code vs. object code

18 Special Provisions in IP Development Agreements Ownership of work product Just because you pay for it, doesn t mean you own it! Work made for hire - must be in writing or else author retains ownership Assignment- work made for hire is limited Residual rights

19 Special Provisions in Purchase Agreements Acceptance test the total package of goods and services as an integrated unit Maintenance/support consider a supply of spare parts vs. onsite repair, whether refurbished parts are acceptable, and passthrough warranties Obsolescence understand the vendor s product lifecycle and negotiate for free upgrades Embedded software can software be updated without changing hardware? Delivery terms, transfer of title & risk of loss

20 Contract Fundamentals Parts III Part III March 16th Strategies for managing the contracting process Tips on contract negotiations 20

21 Questions? 21

22 DISCLAIMER The content of this presentation and the associated materials have been prepared by Saul Ewing for information purposes only. The provision and receipt of the information in this presentation and the presentation materials should not be considered legal advice, does not create a lawyer-client relationship, and should not be acted on without seeking professional counsel who have been informed of the specific facts. Should you wish to contact a presenter to obtain more information regarding your company's particular circumstances, it may be necessary to enter into an attorney/ client relationship. 22

23 Evan J. Foster, Esq. Saul Ewing LLP Chesterbrook Office Contact: 1200 Liberty Ridge Drive, Suite 200 Wayne PA Phone: (610)

24 Baltimore Lockwood Place 500 East Pratt Street, Suite 900 Baltimore, MD (tel) (fax) Boston 131 Dartmouth Street, Suite 501 Boston, MA (tel) (fax) Chesterbrook 1200 Liberty Ridge Drive, Suite 200 Wayne, PA (tel) (fax) Harrisburg Penn National Insurance Plaza 2 North Second Street, 7th Floor Harrisburg, PA (tel) (fax) New York 555 Fifth Avenue, Suite 1700 New York, NY (tel) (fax) Newark One Riverfront Plaza Newark, NJ (tel) (fax) Philadelphia Centre Square West 1500 Market Street, 38th Floor Philadelphia, PA (tel) (fax) Pittsburgh One Oxford Centre 301 Grant Street, Suite 4300 Pittsburgh, PA (tel) (fax) Princeton 750 College Road East, Suite 100 Princeton, NJ (tel) (fax) Washington 1919 Pennsylvania Avenue, N.W. Suite 550 Washington, DC (tel) (fax) Wilmington 222 Delaware Avenue, Suite 1200 P.O. Box 1266 Wilmington, DE (tel) (fax)