Tag Archives: misunderstanding

Ten Tips to Technology Contract Drafting

Whether you are an attorney or are thinking of meeting with an attorney, or just going to draft a contract on your own, look out for these areas. The following tips are meant to help people cover over key concepts in drafting, so you don't miss the big issues.

(i) Offer/ Acceptance

Technology or not technology, basic contract principles apply. There needs to be a clear offer, and a clear acceptance. While the courts today are allowing more and more for emails to constitute acceptance, it is still best practice to get together in a room and sign the piece of paper.

Be clear in your terms, and clear in your contract. If there are things that you both expect which you "spoke" about, often referred to as an "oral agreement," both parties will be better served when you write it down on paper.

Ensure that everything is written down as specifically as possible. This includes accepted levels of performance, payment terms, and price.

(ii) Modification

It is important to ensure that there is a plan to modify and adapt the contract in foreseeable ways. It is very common for their to be fluctuation in the market, in the product, or in the supply chain, whether that be data feeds, inconsistent "up-time", delays in development, or increases in costs.

Although it is very common for technology contracts to be a fixed price, or on the traditional "time and expenses" model, it is important to build in the ability to be flexible. This will allow your contract to adapt and change the same way that your business relationship changes with vendors, suppliers, and customers.

(iii) Technology Specification

Ensure that the specifications are part of the contract. It is all too common for the specifications to be outside agreements, or addendum that can easily be changed or considered to not be part of the contract.

Furthemore, ensure that the specification is as specific as possible. Whether it is a guarantee in regards to latency, packet loss, "up-time", a delivery date, data integrity, or parity, it is important to place them in the contract as specific as possible. It is important to realize that leaving specification language out on purpose is not for anyone's benefit. It won't keep a client bound to the contract for longer because the terms of the contract are not as tight, nor will it protect the vendor or supplier from breach of contract.

iv) Intellectual property

Intellectual property goes beyond the standard copyright, trademark, and patent law that is commonly associated. Business practices, just general ideas, discussions should be discussed. Applying language similar to what one would use in a non-disclosure agreement.

Furthermore, anything that is core or key to a business model should be protected either through specific language, licensing language or agreement, and realize that there may be exposure of intellectual property from third parties, whether that be material a business has licensed, acquired, or information that is exchanged in other agreements.

(v) Licensing

It is important to clearly spell out the license and to inform the other party of the license and the rights associated with that license. There is a common misunderstanding that a piece of software, idea, patent, hardware, or section of code is licensed perpetually and for any use.

Not only is this type of licensing model very uncommon, it is rare that an intellectual property owner will "license" their intellectual property for any use at any time in any way. Remember to limit the license not just in regards to time, but also to as to scope. Clearly define how the product is to be used, and for what functions. Discuss with the other party in particularity the application of the intellectual property.

Lastly, do not forget to discuss and define the elements and ways in which the license can be terminated.

(vi) Limitation of liability

Limitation of Liability is the key issue in any supplier or vendor's mind. Review your insurance coverage, ways that the product could be utilized, and how the product could malfunction, including loss of business losses, destruction of hardware or dependent machinery.

There are ways to limit liability, and one key is, even if you feel it may be an egregious or possibly unenforceable limit of liability, if there is a bargain for and exchange for that limitation, whether the customer secures a lower price, longer license, or other feature in exchange for the limitation of liability, then it is a higher likelihood of being enforced, and therefore protecting the licensor.

(vii) Ownership

Label and identify all ideas or intellectual property involved in the exchange and who owns the intellectual property. If you are contracting with another party to develop a product, identify which party shall own the license, copyright or any other right to the deliverables. This includes whether the product can be used in portfolios or any other advertising.

(viii) Product Delivery, Testing, Acceptance, Denial

The optimism and confidence that you have when entering an agreement can quickly disappear as deadlines are missed and promises are not kept. How do you know the work is done? How do you get out of the deal if things don't work out? When should you have termination rights or get refunds? Should the vendor be obligated to help you transition to a new provider?

In most cases, you should be able to get a warranty that deliverables will perform in accordance with specifications. Have you adequately set out your specifications?

(ix) Termination

One of the most important things in any contract is clearly and easily defining how the contract can be terminated, and when it will end. It is rare that contracts are everlasting, although some automatic renewal contracts do seem to continue in existence well past their utility.

Clearly define ways of resolving dispute, how to give notice, and terms and situations which the contract will end. The smoother the exit strategy, the more likely companies will do business with each other in the future, and the less likely a lawyer will have to be involved.

(x) First Draft

It is one of the most strategic points for a lawyer to be the first to pen the agreement. In starting the contract and drafting the first round, a person gains the upper hand in shaping the negotiations, what is up for negotiation, and shaping the entire agreement.

With this upper hand, try and avoid as much as possible, one-sidedness. Obviously, the less debating and the quicker a deal is signed, the sooner business can move forward, generate more revenue, and apply the principles and ideas to running a successful company.