Selecting Business Names and Intellectual Property Law

Whether a software license agreement is properly constructed for a transaction depends on a range of factors. Of course, management of intellectual property rights for the copyright owner is a key area for close consideration. This entails defining the territory – usually countries – for the use of the software.

Software Development Contracts

A key indicator for complexity is whether the software licence is or will be part of a larger agreement to develop software from scratch – that old-fashioned word bespoke may ring a few bells. When computer software is developed under a contract, the proper advice is that a document specifying what the software will do at the end of the day should be incorporated into the agreement. Whether it is referred to as the functional specification, functional requirements or the requirements document is immaterial. What is important is that it defines with reasonable clarity what the software will do; and of course on a functional level.

Packaged Software Contracts

On the other end of the spectrum is a software licence for packaged software. In this case, the software is not to be built to any person’s particular specification, but rather the software supplier has gone to trouble of identifying a need in a market and constructed the software to fill the gap in the market. Sometimes – and more frequently – niche software is built with configuration options to deal with a broad array of configurations to suit different flavours of businesses. So, an accountancy package may be tailored to businesses from 10 people to 1,000 people. The point is this: software of this nature is fundamentally packaged and is sold as it is. There may be a requirement for extended configuration to suit the particular client’s needs, but in the end it is packaged and not software built to anyone’s particular specification, as is the case with software development contracts.

The difference may be obvious in this regard, but time and time again the wrong contract is used due to misconception as to the fundamental nature of what is being delivered.

After determining the fundamental nature of the software, some of the other matters that are frequently dealt with in so called software license agreements are:

1. The provision of maintenance and support service

2. Installation and testing

3. Service level agreements, delivery of improvements (whether they are updates or upgrades, rather than hot fixes). The software related services may be agreed in a separate document or they may be incorporated into the same agreement as the software licence. We return to these below.

Intellectual Property Rights

Terms of License

Assuming that the software supplier does not intend to assign the copyright in the software to the licensee, the terms of the licence are of crucial importance to software suppliers’ further exploitation of the software.

On the most generic level, there are 3 types of licences that may be granted: non-exclusive licences, sole licences and exclusive licences. Licences though, as they are only ‘permissions’ may be framed in anyway the parties wish. A software supplier will often wish to licence their software to a number of clients. In this case, the licence will be a non-exclusive licence as the software supplier grants a non-exclusive right to the licensee to use the software. Sole licences do not appear too often, and they simply mean that the licensor (the software supplier) grants a single licence to a party to use the software, and they retain the right to use the software themselves. On the other end of the licensing spectrum is the exclusive licence. In the event that a software supplier wishes to grant the licensee the right to use the software to the exclusion of all others, an exclusive licence is granted. Some care needs to be taken when granting exclusive licences, as courts will look at the terms of the exclusive licence and decide whether it is in substance an assignment. If it is, then a court will order that the licence term was not at law a licence at all, but rather an assignment and thus divesting the software supplier of all rights in the software.

Here is a brief example of the complexity that can be introduced in granting licences.

Suppose a supplier designs and constructs software that manages couriering of documents from office to office of business. It is possible for the software supplier to grant non-exclusive licences to businesses in a particular trade, say banking to use the software. Those licences may be restricted to use in a particular geographic region such as the City of London. The software supplier may then grant non-exclusive licences to businesses in the financial sector in Manchester to use the software. Further, the software supplier may grant an exclusive licence to a person to develop the source code to perform additional functions. This exclusive licence would deprive the software supplier from further developing the source code himself. So licensors of software are able to flexibly grant permissions to use the software, and restrict its use geographically, by industry and any other basis that appeals to them.

Extensions of these types of licensing are non-transferable and non-assignable licences, which effectively prevent licensors from selling or licensing others to use the software. One of the exclusive rights of the copyright owner is the distribution right – the right to licence others to distribute software. This is the foundation of the reseller agreements, whereby third parties are authorised to licence software on the software suppliers’ behalf. Most software licences do not grant the licensee the right exercise the distribution right as it would allow them to sell licences for the software.

Furthermore licences may be set for a fixed term or the grant of licence may be perpetual – allowing the licensee to use the software forever subject to any other conditions imposed by the licensor.

Tracking Licences

When the software is licensed on a per use basis, it is a good idea to provide that a register be maintained of copies made of the software, in addition to monitoring software use by Active Directory on Windows systems. Such implementations facilitate denying software use by electronic means. If this is to be done however, the licensor must be informed in the contract document.

Intellectual Property Rights Indemnities

In software licence agreements, these indemnities are geared to protect the licensee from primary liability for infringement where their use of the developed software would infringe patent rights or copyright. As innocence is no defence to infringement, a user of the software infringes intellectual property rights simply by using it. It is worthwhile to note however that the innocence may be taken into account in the assessment of damages. These indemnities are becoming more important to licensees as an incidental effect of the popularity in obtaining patent rights. Patented inventions may be combined with other inventions, and although in patent cases infringement may be difficult to prove in the absence of great expense, the existence of patent rights in software is the best form of protection, because there is no defence that the software was independently created. That defence is only available in copyright infringement cases.

In order to claim the benefit of an indemnity, the indemnifier should require that they have conduct of the defence of the infringement defence proceedings and insist on the cooperation and assistance of the indemnified party in defending the claim. This to some extent allows the indemnifier to control their costs and run the defence in their best interests. The software supplier is in the best position to run the defence in any event due to their knowledge of the development of the software and the sources drawn on in developing it.

Usually accompanying intellectual property indemnities are provisions requiring the software supplier to replace infringing aspects of the source code and failing this, pay the expenses of the licensee in doing so.

Payment for Licences

Owing to the nature of the rights of the licensor in granting software licenses, the licensor is able to structure the payment for licences to build in flexibility to payment structures.

Restrictions may also be placed on the use of software over a network, per machine, single use, on specified equipment, per user, per site, worldwide, by territory or any combination of these.

The most basic form of licence seems to be a fixed sum for an organisation. Extensions of this form of licence may be for a set number of users with additional licences incurring an additional fee for a fixed period. For multifaceted software, different fees may be applied for different the types of licences required. For instance, an organisation may require additional administration licences or data processing licences each of which would attract a different price point.

Where licences granted are not intended to be perpetual, the timing of renewal payments should be set out and the method of calculation of the sum falling due. Properly drafted contracts should allow for price rises over the course of the licensing period together with price rises in materials and human resources. Also, the parties should consider whether they want the licence to renew automatically, or to automatically lapse.

It is worthwhile providing for interest rates where payments are late, but failing that the Late Payments of Commercial Debts (Interest) Act 1998 will apply for those late payments.

Other Payments

Where software has been commissioned, there may well be hardware requirements to host the software or other expenses such as staff costs, other materials and travel expenses that should be dealt with in the agreement. For clarity, whether the prices are inclusive or exclusive of VAT it should be made clear to avoid doubt as to who will be liable for the tax in the event it becomes payable in unexpected circumstances.

Additional Services and Improvements (Upgrade Services)

Provision may be made in software license agreements for further development and/or customisations by the software supplier. These are commonly dealt with in two ways. Firstly, the supplier may be required to provide a quote for the development services requested by the licensee or alternatively the software supplier may be granted entitlement to charge time and materials at published rates. It is rare in this day and age for suppliers to be given a blank cheque to perform further services for licensors wishing to improve the functionality of the software.

In packaged software and commissioned software licence agreements, especially in the case where the software is licensed on a non-exclusive basis and constantly improved and developed, licences often entitle the licensee to improvements for a fixed period. In the case that a licensor has uniquely funded the development but receives the software at a reduced price, more favourable rights to receive improvements are commonly encountered.

Change Control

Effective change control provisions are imperative to prevent scope creep, but in order to be effective, a functional specification or other document must be incorporated into the agreement to provide a point of reference for change control. Change Control provisions also allow an elegant mechanism for the software supplier to extend the delivery time scales. Where scope creep occurs, the supplier may not have a problem performing the additional work, but to perform the work in the same timeframe as original work is unrealistic. The focus in this sense is contract management: managing the deliverables, and when they are to be delivered. Change control is not to be underestimated.

Factory Acceptance Testing

In order for a software supplier to ensure their products are fit for purpose, factory acceptance testing must take place before a software product is released.

For off the shelf products the onus is solely on the software supplier to ensure the product meets the functional requirements and is bug free to avoid having to patch copies of software already released to market.

However, in more bespoke or customisable solutions the responsibility for successful factory acceptance testing prior to release falls on both parties. The majority of the responsibility falls on the software supplier to ensure that the product is tested in house prior to release.

Time pressure to deliver often reduces the actual time spent on this phase of software development to a minimum. This is a cause of a far greater number of faults being reported in the user acceptance testing phase which is a more costly exercise for both parties.

To ensure factory acceptance testing occurs and is performed adequately obligations must be placed upon the software supplier to deliver test documentation to the customer for review prior to the customer signing off to receive a release. The test results should contain certain numbers of test iterations across the whole software suite.

Obligations must also be placed upon the customer to deliver in a timely manner items such as a suite of test data and test scripts to the software supplier. Forcing this co-operation through contractual agreement creates a balance in the contract to focus the parties minds on the job in hand thereby reducing the time spent user acceptance testing on a customer’s site thereby reducing cost.

User Acceptance Testing

Released software invariably involves some degree of acceptance testing and the methods of conducting it are more or less onerous on the software supplier. To properly conduct acceptance testing, the purchaser should be given the opportunity to prepare their own test data and test scripts. The acceptance testing should be conducted in the presence of the software supplier so that instances of apparent defects may be dealt with immediately, and if the tests are successful obtain the acceptance certificate immediately, as acceptance certificates are the precursor to payment. Provision for retesting should be set out to allow a speedy process in the event that a genuine defect is identified during acceptance testing process. Warranty periods for software maintenance arising from defects should run from the acceptance date and not before.

Documentation Requirements

As businesses become more sophisticated in respect to the delivery of computer software, so does the requirement for cogent user documentation.

This is a minimum requirement for packaged and commissioned software. In the event that the intellectual property rights are to be assigned to the commissioner of the software, delivery of design documents, project management documents and user requirements documents are likely to be required to be delivered at the conclusion of the development project, to enable the commissioner of the software to develop the software in its own right.

Usually there is no commercial reason to grant rights to access these development documents where the software is subject to a package licence, or where the licensee is simply entitled to use the software.

Training

Training may take a variety of forms. In the case of commissioned software, the software supplier may need to ‘train the trainer’ of the licensee as a minimum requirement, or for additional fees, conduct formal training sessions for end users. Much depends on the complexity of the software and computer literacy of the intended user base.

Escrow Arrangements

Escrow agreements are geared to protect the licensee paying a software supplier to design and construct software that meets their particular needs. These agreements are relied upon when the software house loses the means to continue to support the software whether through liquidation or lack of will. Escrow contracts are premised on the state of affairs that the licensee is never in possession of the source code, and to that extent, the licensee is exposed to the risk that if the software supplier or software house fails, they have recourse to the source to maintain and develop that source code. The conditions for release of the software to the licensee may be made as particular as the parties wish to make them. The more formal flavour of escrow agreements involves an independent trusted third party who specialise in providing escrow services. They take possession of the source code for the software, and undertake by contract to release the source code to the licensee only in the specified circumstances. The licensee gains some comfort in managing their risk in investing in the software development in the first instance.

Penalty Payments for Failure to Deliver

Rather than be forced to commence litigation in order to recover damages and to reduce the administrative cost of contract management, incorporation of penalty payments (liquidated damages) clauses into software license agreements is increasingly commonplace. Already, liquidated damages clauses are frequently used as the means for recovery for failure to meet agreed service levels. These liquidated damages payments come in the form of service level credits. The difficulty with liquidated damages clauses to setting the damages to be paid in the event of breach or non-performance to a level that does not qualify as a penalty or a forfeiture, which are unenforceable in the English legal system. The linchpin in determining whether a liquidated damages clause will be considered a penalty or forfeiture is whether the sum of liquidated damage is a genuine pre-estimate of the loss that will be suffered as a result of the breach that leads to the right for liquidated damages to be paid. Agreeing sums to be paid by way of liquidated damages however does not limit the payee to accept the specified or calculated sum in the event of a breach, as they may still sue for damages at large.

Termination

The two provisions that cater for termination in practically every professionally prepared document – where the parties have near equal bargaining power – are that either party may terminate in the event of a material breach or where one party enters liquidation or is otherwise insolvent.

Incorporating other rights to terminate largely relies on the nature of the services to be provided. Having right to terminate the contractual obligations assumes that there are continuing obligations under the contract. If the contract simply grants a perpetual software licence for a fixed fee, then it stands to reason that there is little need for rights to terminate. The modern style of contract drafting, even for packaged software (which are commonly instances of a perpetual licence grant ion) commonly exist in software licence agreements, and generally relate to the failure of the provider to meet specified minimum service levels.

Consequences of Termination

In the case of outsourced software services, exit management provisions are essential to ensuring a timely and professional handover of the outsourced services when terminating contracts. In the context of software developed and subsequently licensed, it may be that it is appropriate for the licensor to

1. Hand back user documentation

2. Delete all copies of the software residing on servers and workstations

3. Deliver up copies of the software on backup media and

4. Destroy confidential information.

Certificates of compliance may be used to obtain confirmation that the post-termination requirements of the contract have been adhered to.

On a related issue, this is where managing software licensing by electronic means is a useful tool to prevent use of the software. This is an under utilised measure by licensors to ensure that the computer software cannot be used.

Limitations of Liability

Limiting liability can be one of the most contentious issues in negotiating licence terms. The purpose of limitations of liability is to exclude or otherwise limit liability that arises in a party in the event of a breach of contract or negligence in performing the contract. Liability that cannot be excluded should be insured and there is a good case for employing other means to manage corporate liability and protect the assets of a company, which naturally includes intellectual property assets. Liability arising from negligence that causes personal injury or death cannot be limited or excluded in any case. The types of liability that may be excluded include property damage; loss of profits, business or revenue; consequential or incidental loss; loss of goodwill and the damage caused by the loss and destruction of data.

In technology contracts that use facilities such as the Internet that are outside the control of the parties, force majeure clauses may be used to absolve the parties of liability when something goes wrong. Force majeure clauses may refer to named events as well as a general type of event. The effect is to avoid the instance of a party being in breach where the events are outside their control.

The basic checklist for some of the provisions that are often sensibly incorporated into software license agreements is:

1. The Parties

2. The Price

3. Obligations of the Software Supplier

4. Obligations of the Licensee

5. User Acceptance Testing Procedures leading to Acceptance, including warranty periods that will apply thereafter

6. Additional Services

7. Change Control

8. Training Requirements

9. Escrow Agreement

10. Service Levels

11. Service Level Compensation

12. Liquidated Damages

13. User Documentation

14. Rights to Improvements

15. Confidentiality obligations

16. Intellectual Property Rights

a. Branding rights

b. Terms of licence

17. Confidentiality obligations

18. Termination clauses

19. Consequences of Termination

20. Limitations of Liability

Porn and the Christian Woman

When you think of the word “pornography,” does it conjure up the image of a scruffy guy with messy hair in the basement watching porn in his underpants?

Truth is, though I get lots of requests for prayer and counsel from men who are slaves to porn, I recently had an encounter with a pretty young woman who was struggling with that same addiction.

I was already aware this problem existed among the gentler sex. I was awakened to that fact while listening to a Christian radio program on the subject many years ago and was amazed that half the callers were female teens. I’ll always remember the young girl who called crying because she felt powerless to resist the lure. A Christian girl, attending her Youth Group, the kids at school started passing around a website address. Desiring to fit in, she logged on. She was hooked. Not only was she hooked but she tearfully admitted she was confused about her sexuality, having found herself aroused by lesbian photos as well as the straight stuff.

My heart ached for her. Still does.

We are sexual beings. Just look at yourself nude in a mirror. Everything about our anatomy screams reproduction. Without the God-given urges we feel, there’s no other way would have ever procreated the species. Sex was God’s idea (and a great one at that). Leave it to Satan to pervert those desires and turn something beautiful into something so vile and harmful.

I found some 2003 statistics on pornography and its impact on society. I’m sure they’re worse now, 5 years later. Brace yourself:

Of the adults admitting to Internet sexual addiction: 10%; 28% of those are women (internet-filter-review.com).

This one impacts women more than we can imagine: More than 70% of men from 18 to 34 visit a pornographic site in a typical month (comScore Media Metrix).

Our young men, even the Christian guys, are being fed a steady diet of nudity and sexually-related lies. In real life, women don’t look or act like that.

But perception is reality.

Our girls simply cannot compete.

I was doing premarital counseling with a couple when, on our last night before the wedding, I gave them the opportunity to talk about anything they wanted to get out in the open. Sure enough, the young lady bashfully admitted her fear of disappointing her husband when he saw her body in comparison to all the others he’d been exposed to all his life, if only just at store check-out counters and magazine racks.

Girls, don’t be deceived. There are many wolves in sheep’s clothing. Outwardly, they may show all the signs of being “good.” Inwardly, well…they’re a mess. You have every right to get to know his internet viewing habits and see the magazines he subscribes to. Don’t be so quick to give your heart away and invite problems later. As a former Singles Pastor, my word of advice was always, “Become what you want to marry.” It’s the reaping and sowing factor.

Where porn’s impact on marriage is concerned, at a 2003 meeting of the American Academy of Matrimonial Lawyers, two thirds of the 350 divorce lawyers who attended said the Internet played a significant role in the divorces in the past year, with excessive interest in online porn contributing to more than half such cases. Pornography had an almost non-existent role in divorce just seven or eight years ago.” (Divorcewizards.com)

STATISTICS ON WOMEN WITH PORNOGRAPHY ADDICTION

28% those admitting to sexual addiction are women (internet-filter-review.com).

That was five years ago.

34% of female readers of Today’s Christian Woman’s online newsletter admitted to intentionally accessing Internet porn in a recent poll and 1 out of every 6 women, including Christians, struggles with an addiction to pornography (Today’s Christian Woman, Fall 2003). There is much deliverance required and, sadly, too few who even know what that means to minister in that way.

The impact on families and marriages is devastating, affecting women in yet another negative way as their desire to e married and raise children in a healthy, happy home are dashed. 47% percent of families said pornography is a problem in their home (Focus on the Family Poll, October 1, 2003). Add that to drug and alcohol problems, teen rebellion, overeating, domestic violence, workaholism, and everything else that goes wrong behind closed doors.

CHRISTIANS, PASTORS AND CHURCH PORNOGRAPHY STATISTICS

I hear of far too many instances of clergymen having affairs with female Members of their flock. It’s no wonder. 51% of pastors say cyber-porn is a possible temptation. 37% say it is a current struggle (Christianity Today, Leadership Survey, 12/2001). In fact, over half of evangelical pastors admit viewing pornography last year.

Roger Charman of Focus on the Family’s Pastoral Ministries reports that approximately 20 percent of the calls received on their Pastoral Care Line are for help with issues such as pornography and compulsive sexual behavior.

In a 2000 Christianity Today survey, 33% of clergy admitted to having visited a sexually explicit Web site. Of those who had visited a porn site, 53% had visited such sites “a few times” in the past year, and 18% visit sexually explicit sites between a couple of times a month and more than once a week. These are our Church leaders. When a woman with a problem visits a man with the same problem, looking for spiritual assistance, what else can we expect? Like spirits attract, after all.

The sheep are fairing no better than the shepherds with 29% of born again adults in the U.S. feel it is morally acceptable to view movies with explicit sexual behavior (The Barna Group).

57% of pastors say that addiction to pornography is the most sexually damaging issue to their congregation (Christians and Sex Leadership Journal Survey, March 2005).

SEEKING COMFORT IN AN UNCOMFORTABLE WORLD

We are aliens on this planet. We’re not from around here and, therefore, should give up on our attempts at getting comfortable. Such attempts are futile. Nevertheless, because the cycle of emotional pain among women – even the Christian variety – has been going on for so long, our ladies are running to things like Valium, extramarital and premarital affairs, romance novels, soap operas, porn and, yes, even religion, in search of comfort. Some may even embrace timidity, manliness, or what’s referred to as a “Jezebel” spirit. They’re doing that INSTEAD of running to the God of all comfort; the loving Father who wants nothing more than to kiss them and make things better. They need ministry but too few ministers are equipped to minister in the required manner.

Why wouldn’t a Christian run to her Christ and, instead, run into the arms of another lover like porn? The answer is obvious: She doesn’t know Him. Like a man with homosexual tendencies, throwing himself into Christian service in hopes of cleansing himself and “getting better,” many woman expect that sitting in a pew each time the door is opened and attending conferences, even reading Christian books, will all make their problem go away.

It won’t.

Only Jesus has the power to do that. Only He is our Deliverer. Freedom will come when the foul Spirit of Porn bows to His Name and no other.

I’ve read that the early Church would minister exorcisms to new converts before baptizing and introducing to the Christian community. Great idea!

Here are some promises from Scripture that I hope will encourage you. I followed this with a prayer you may want to print and stick by your bathroom mirror. Remember this: God isn’t mad at you. Stop feeling so guilt-ridden and sin-conscious and focus on your relationship with the Redeemer. Jesus suffered for the sins of the world, including YOURS. There’s no judgment remaining, no wrath of God forthcoming, no punishment. The debt has been paid and God is satisfied. Between Calvary, which was judgment on Christ, and the Judgment Day, when all the books will be opened, there is no place for judgment in this world. Yet, most Christians cannot seem to overcome that sin consciousness that oppresses and suppresses them. The price has been paid! You’ve already been reconciled to God! When He sees you, He sees Jesus! You couldn’t be good enough and you’re not bad enough to lose your place with Him. This goodness of God is what will bring you to repentance. Don’t expect that from church services or Christian books.
Start down your road to recovery TODAY!

Psalm 10:17

Lord, you know the hopes of the helpless. Surely you will hear their cries and comfort them.

Psalm 23:4

Even when I walk through the darkest valley, I will not be afraid,for you are close beside me.
Your rod and your staff protect and comfort me.

Psalm 119:76

Now let your unfailing love comfort me, just as you promised me, your servant.

2 Corinthians 1:4

He comforts us in all our troubles so that we can comfort others.

Thank you, Lord, for being my Comforter. I’ve been crying out to be comforted since the moment I was born. Now, I feel that I need your comfort – the only REAL comfort that exists – more than ever. I’m tired of trying to overcome and I’m running to YOU – the One who dwells within me who cannot do anything BUT overcome. Be the Lord of my life; the Owner of my sinful nature, my bad habits, my addictions. Thank you for comforting me, Lord Jesus, so that I, in turn, will be better equipped to comfort others who are also struggling with bondages. I thank you, also, for healing me where I’ve been hurt. Not just physically but deep down in those darkest places that no one can see but you. Thank you for giving me the grace to forgive those who hurt me; they knew not what they were doing to me. I believe you are the One who can Deliver me; increase my unbelief that the things I struggle with are even real. Help me to un-believe MORE that I am trapped, that I am a victim, that I am a second-rate Christian. Help me to believe more strongly than ever that I am who YOU say I am…redeemed, delivered, healed, the enemy’s worst nightmare, part of a Kingdom of Priests and Kings. Thank you, Father. I love you and I pray this in the mighty Name of Jesus, the Name above every name. Amen!

Every blessing,

Michael Tummillo

Workplace Chaplain

http://www.YourTown4Jesus.com

International Contracts

Culture and Contracts for International Lawyers

Lawyers working in international law oftentimes interpret, review, and advise their clients on contracts written by other international lawyers in foreign countries. Considering the great possibility for legal, linguistic, and cultural misinterpretations, it is important for international lawyers to become familiar with the types of contractual clauses that they see in such diverse contexts.

In understanding the commonly used clauses in contracts drafted by lawyers in other countries, international lawyers will be better prepared to explain to their clients the consequences and implications of contract language written according to the laws and customs of other countries. International lawyers may do work with clients and their legal representatives across the world. However, the purpose of this article is to help guide those lawyers practicing outside of the U.S. toward understanding the common clauses used in contracts written by U.S. lawyers.

Common situation

The international-contract scenario is easy to identify. It begins with a party in Mexico, for example, who contracts with another party in Germany. Or it starts with a Spanish company wishing to employ a French agent to work in Spain. While the parties negotiate the contract terms, one party’s lawyer may, in the end, write most of the contract due to the difference in the bargaining positions of the parties. The party whose lawyer drafts most of the contract has the advantage of including certain clauses with legal concepts that may be unknown to lawyers not practicing in that country. To avoid this situation of allowing unfavorable contract terms into a business deal, international lawyers should become familiar with – to the extent time and circumstances permit – the country’s laws and customs where the other contracting party resides.

An understanding of the typical contractual clauses used in the U.S. legal system is beneficial to those international lawyers whose clients contract with parties represented by U.S. lawyers. Because the U.S. legal system is based on the common law (judge-made law), typical contractual clauses encompass legal concepts of well-developed case law of which international lawyers may not be aware. The following paragraph and examples provide the basic background about the standard terms and conditions clauses normally included in many contracts drafted by U.S. lawyers.

Standard terms and conditions

A contract contains the standard contractual clauses and performance deliverables to which both parties agree. While the performance deliverables section of a contract provides the parties with general ideas of expectations, the standard terms and conditions section of a contract is just as important. Signing the contract binds a party to the common contractual clauses as much as it does to the performance deliverables clauses. In summary, the standard terms and conditions section may contain just as many or more calls to action as the performance expectations. Therefore, while a French agent contracted to do work in Spain may be more aware of his or her duties to carry out performance, the standard terms and conditions that also bind the agent are critical to the agent’s understanding of how to perform. This is because standard terms and conditions clauses in U.S. contracts generally lay the legal framework for how to interpret the contract, which law applies, dispute resolution options, etc.

The clauses contained in the standard terms and conditions section consist primarily of those clauses the parties include to protect themselves in case of breach of contract or potential litigation over contract terms or circumstances. A breach of contract may result, for example, from a breakdown in the parties’ relationship or a misunderstanding about performance or enforceable promises. To assist international lawyers with identifying and understanding common contract clauses to prevent a breach of contract for their clients, listed below are some of the typical contract clauses normally contained in a standard terms and conditions section of contracts. This list is not exhaustive, but it does contain some of the more commonly included contract clauses in the U.S. legal system.

Commonly called: Merger/entire agreement/complete agreement clause

Effect: This clause indicates to the reader that the parties have no agreement other than the agreement containing the merger clause. A merger clause pronounces an agreement’s completeness and restricts other prior agreements from consideration when determining the contract’s terms. The function of the merger clause is to keep out any “side conversations” when determining the parties’ intent captured in the contract at issue. The effect of this clause is that one agreement only governs the parties’ relationship.

Example: “This agreement represents the parties’ entire agreement.”

Commonly called: Modification clause

Effect: This clause generally requests that two contracting parties memorialize their modification in a writing that both sign. Important to the modification clause and its effect is the general rule that contract modifications typically require new consideration. Consideration is a common-law concept that refers to a bargained-for exchange. However, some types of contracts may not require new consideration for modification, so it is important to check (1) the type of contract and (2) the laws in the jurisdiction governing the contract. While the consideration issue may be more complex, a modification clause simply requests that amendments to the contract be in a signed writing. This writing requirement of the clause encourages the parties to negotiate any modifications before reducing their changes to writing and obtain a similar and clear understanding of what will be modified before any change occurs. However, oral modifications – despite what a contract says – may be effective depending on the U.S. jurisdiction.

Example: “The parties may modify the contract only by an agreement in writing signed by both parties.”

Commonly called: Employee or independent contractor clause

Effect: In a contract for services, this clause identifies whether one of the parties will be considered an employee or independent contractor. The greatest difference is that employers are responsible for certain financial and liability matters for employees, where those who hire independent contractors are not responsible for the same matters. In summary, an employee means more employer control but also more employer liability.

Example: “Mr. X will act only as an independent contractor for the ABC corporation. Mr. X is NOT considered an employee of the ABC corporation for the purpose of this contract for services.”

Commonly called:Confidentiality clause

Effect: A confidentiality clause or agreement defines what confidential information is, who must keep it private, and what the consequences of disclosure are. Confidentiality clauses may have exceptions relating to publicly known information or where the other contracting party consents to the disclosure of otherwise confidential information.

Example: “Mr. X, independent contractor, will not disclose confidential information obtained through Mr. X’s scope of services for ABC corporation.”

Commonly called: Conflict of interest clause

Effect: A conflict of interest clause restricts a contracting party from engaging in relationships, transactions, or circumstances external to the contract at issue. The purpose of the clause is to prevent a conflict of interest from arising between the contracting parties. A conflict of interest issue may arise due to a party’s personal situation or position.

Example: “Contractor has disclosed any interest that presents or may present a conflict of interest. Contractor will disclose any actual, apparent, or potential conflict of interest that arises throughout the term of the parties’ contractual relationship.”

Commonly called: Choice of law clause

Effect: A choice of law clause identifies where the contracting parties prefer to litigate issues arising from the contract. Usually, the party who drafts the contract chooses the applicable law. Other jurisdictional issues may become relevant in the future if litigation arises.

Example: “The laws of the State of Delaware will govern this contract.”

Commonly called: Dispute resolution clause (commonly involving arbitration and waiver of jury trial)

Effect: These clauses tell the reader whether either party has waived some type of dispute resolution option. A contracting party may want the other party to opt out of certain dispute resolution options in light of likely costs and inconveniences.

Example: “ABC corporation agrees to resolve all matters arising from this contract through arbitration.”

Commonly called: Severance clause

Effect: This clause refers to the situation where a court determines that part of the contract is illegal or unenforceable. The clause states that in this case, the validity of the remaining portions of the contract is unaffected.

Example: “If any of the provisions of this agreement contravene or are invalid under state or federal laws, this finding will not invalidate the whole agreement.”

Commonly called: Indemnification clause

Effect: This clause states that one contracting party will indemnify (reimburse) the other for failure to meet a contractual obligation or other illegal or damage-causing action.

Example: “ABC corporation shall indemnify, defend, and hold DEF corporation harmless from any and all liabilities, damages, penalties, claims and expenses (including defense and settlement costs) resulting from any breach of this agreement.”

Conclusion

This article clarifies some of the most common clauses found in the standard terms and conditions section of a contract drafted by a U.S. lawyer. While the explanations and examples of the clauses are generally consistent across a wide variety of U.S. contracts, these clauses vary depending on the U.S. jurisdiction in which the drafting lawyer is licensed or the interests of the party drafting the clause. As a result, international lawyers should carefully read and assess the standard terms and conditions of the contracts that guide their clients’ contractual obligations. Even if U.S. law does not govern the contract at issue, understanding and recognizing common U.S. contract clauses will allow international lawyers to better help clients to perform on contracts in a way that does not offend U.S. cultural notions of compliance and fairness.

In understanding contractual clauses common to any particular legal system, both international lawyers and clients will be more prepared to fulfill contractual obligations and maintain healthy international business interests and relations.

Melanie Glover & Marina Bugallal