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 Legal Best Practices
Magazine
Protect Your Idea$
Turning Ideas Into Value - Part VI
by Brent C.J. Britton
Published: January / February 2009
Intellectual Property
Agreements
There is no truer maxim in the law than “get it in
writing.”
Intellectual Property (IP) lawyers provide numerous
services intended to reduce
legal and business risks.
Among them, the thoughtful structuring, negotiating, and
drafting of effective contracts. With very few
exceptions, every transaction in which a company engages
should be governed by a written contract. Without the
correct agreement in hand, you should never take money
from investors, hire employees or independent
contractors, purchase intellectual property, or let
anyone see your confidential information, to name just a
few.
Why get it in Writing?
During negotiations, a written contract helps reconcile
assumptions. People naturally, often subconsciously,
make self-interested assumptions, but rarely give voice
to them. “Handshake deals” almost always blow up at the
point when inharmonious or unrealistic assumptions
eventually come to light, as they always do. A contract
requires a meeting of the minds. There is no better way
to confirm that minds have met than to put the deal
terms on paper and get everyone to sign off.
Further, a written contract is the best evidence of a
deal’s terms. Without a written contract, the
understanding of a deal resides only in the respective
heads of the people negotiating it. What happens if
they’re not around? If you get sued over an oral
agreement, since you won’t be able to produce a written
contract, you’ll have to convince the court that your
recollection of the deal terms is the correct one. Good
luck with that.
And perhaps most importantly, the law dictates that some
agreements must be in writing. Certain deals, such as
work-for-hire agreements with outside contractors, for
example, must be in writing to be enforced. No writing,
no deal.
Size Matters
Why are contracts so long and boring? A written
agreement must be competent to govern the deal for which
it is used. In a transaction of any complexity, the
agreement serves as a recipe for the deal, a complete
instruction set for the parties to follow to carry out
their obligations. It is also an error trap, a set of
contingencies for what happens when a party does not
carry out his obligations or when assumptions underlying
the deal change.
Written agreements tend to grow in size in proportion to
the value of the deal. A $200 purchase of, say, an
office chair can be governed by a single page of
contract language, primarily because no one is going to
sue on it; if the other side breaches, it may be painful
to lose $200, but that pain is rarely worth the expense
of litigation. On the other hand, a $2 million agreement
may very well demand as much as 30 or 40 pages of
language to be competent. That kind of loss is worth
suing over, so the agreement requires language to make
it crystal clear for the judge, jury and opposing
counsel to determine when a breach has occurred and who
is owed what.
Sometimes a
legal relationship can get so complex that
counsel will draft and circulate another document – a
term sheet that outlines the deal terms – before
drafting or reviewing an actual contract. A term sheet
is a very effective negotiating tool that helps ensure
you’re reasonably close to a mutual agreement on the
major terms before getting bogged down in the minutiae
of the language of the written contract.
Contracts, Simplified
Most contracts have two parties, a buyer and a seller.
When you boil an agreement, no matter how complex, down
to its bare essentials, that’s what you get: a buyer
who’s willing to pay to get something the seller has and
is willing to give up for that money. Nearly every
business relationship can be reduced to a buyer-seller
relationship and nearly every contract ultimately
describes one.
The most important provisions of any contract,
therefore, consist of the terms that describe what the
buyer gets for the money, how the buyer and seller will
be able to know whether the buyer has gotten what was
promised, and the terms that describe what happens if
the buyer does not get what was promised. Provisions not
obviously in support of these goals may be excessive or
unnecessary.
Remember that if the promises made in a contract need to
be enforced in court, the judge and jury will be the
ones reading and interpreting your written agreement as
the last word on what promises have been made, kept, and
broken. Read your written agreements carefully prior to
signing them to ensure that they conform to your
intentions. Do not tolerate typographical errors or
misused terminology. Demand consistency, uniformity and,
above all, simplicity. Make it easy for the jury to
agree with you.
Brent C.J. Britton is an
intellectual property lawyer in Tampa. Learn more at
www.brentbritton.com.
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