Does Your Business Lawyer Draft Contracts That Encourage Dispute Resolution Or Lawsuits?

By | Business Contracts, Dallas Business Lawyer, Intellectual Property | No Comments

Does Your Business Lawyer Draft Contracts That Encourage Dispute Resolution Or LawsuitsImagine your most important business agreement has been breached by the other side. What would you do?

For many companies, the answer is a costly lawsuit that often sucks up more time and money than the amount of damages caused by the breach in the first place.

Is there an alternative to a breach of contract lawsuit?

Yes.

Have your agreements drafted an experienced business lawyer so that they favor resolving disputes quickly and at minimal cost.

How?

Here are three key issues to cover in your business contracts that should fix most problems:

(1) Include a comprehensive alternative dispute resolution process;

(2) Make the law that governs the agreement favorable to you; and

(3) Have disputes settled in a location that minimizes your costs.

Related Article: 5 Things You Should Review With Your Business Lawyer Annually

1. Alternative Dispute Resolution Clauses

5 Things You Should Review With Your Business Lawyer AnnuallyYour agreements should provide for a multi-step process for solving problems without going to court.

Common stages of dispute resolution include informal discussions between the parties, mediation, and arbitration (binding or non-binding). Many business attorneys who are not trial lawyers prefer binding arbitration for their clients because it typically saves time and is cost-effective.

2. Applicable Law

Make sure that the law governing your agreement generally favors you. This is particularly important when the other party is located in another country whose laws on contract enforcement are lax or nonexistent.

3. Venue

Even if you’re not heading to court, you’ll want the location of your dispute resolution process to be in a location that’s convenient for you. Ideally, that will mean having the contract provide that mediation and arbitration occur in the same geographic area (e.g. city or county) as your company’s headquarters. In the alternative, if the other party insists, agree in the contract to resolve disputes at a neutral location that’s mutually convenient.

What contract disputes should your business lawyer encourage be resolved by a court instead?

Unfortunately, sometimes it’s necessary to sue to protect your company’s legal rights. Because of this, your corporate legal counsel will want to carve out exceptions to mandatory alternative dispute resolution to cover issues like intellectual property infringement, violation of a non-competition clause, and related matters where equitable relief from a court may be needed.

Software Development Agreement – Who Really Owns The Intellectual Property?

By | Copyrights, Intellectual Property, Licensing, Licensing Agreements, Open Source, Software, Software Agreements, Software Lawyer | No Comments

software development agreementWhether you’re a developer or a client, one of the most important things to cover in your software development agreement is who owns what intellectual property (IP) rights.

Surprisingly, most developers and their clients either don’t know or having conflicting views on the subject.

Imagine you’re a client that’s just obtained an advantage in the marketplace with new software. Then you discover your developer now works for one of your biggest competitors on a similar software project.

Or, let’s say you’re a software developer. At the end of a project, the client is happy with your work but makes an off-the-cuff remark about owning the new software lock, stock, and barrel. You wonder if the client understands that’s not the case.

According to Dallas Software Lawyer Mike Young, there are two competing interests at play. “The client wants ownership while preventing the developer from re-selling the software to others,” he said. “On the other hand, the developer wants to keep ownership because some code can be recycled and used on projects for other clients instead of having to reinvent the wheel from scratch.”

So, how do you balance these competing interests in a software development agreement?

One method is to use a combination of licensing with non-competition provisions.

How does this work?

The developer retains IP ownership, licenses the software to the client, and agrees to restrict the purposes for which the code can be recycled. Often, this means the developer is agreeing that for a period of time, the developer will not use the software to compete with the client or recycle the code and sell it to one of the client’s competitors.

What if the developer doesn’t own some of the code used in the software?

The general rule of thumb is you can’t convey what you don’t have.

When it comes to software development, there’s often is some code the developer does not own. For example, a developer’s license has been purchased from a third party, the developer is using open source licensed code (e.g. GNU General Public and Creative Commons licenses), or some of the code has been taken freely from the public domain.

In other words, there may be multiple tiers of intellectual property rights associated with a single piece of software. And if those are not clearly identified in the software development agreement, it’s a recipe for confusion, hard feelings, and litigation.

What if the developer is the company’s employee?

Even if employees are doing software development for an employer, it’s risky to assume the software is the employer’s intellectual property as a work made for hire for two primary reasons.

First, certain criteria must be satisfied before the software is considered a work made for hire.

Second, the employee(s) developing the software may have licensed some of the code, used open source code, or taken code from the public domain.

Employers can reduce these risks by taking preventative steps before development begins. These actions can include written employment agreements that cover works made for hire, implementing employment guidelines to ensure the work-for-hire criteria is satisfied, and establishing a clearly defined project scope of work to identify the coding resources for the project and related intellectual property rights.

IP Ownership Is Negotiable

Whether you’re an independent contractor, client, or an employee involved with a software development project, it’s important to understand the intellectual property rights are frequently negotiable, i.e. there’s no one-size-fits-all standard to apply across all projects.

Before negotiating, work with your software lawyer to identify what you must have, what would be nice to have, and what you can live without. This makes it easier to cut a deal where each party gets what they want from the project.

Protect Your Brand With The Right Licensing Agreement

By | Licensing, Licensing Agreements, Technology Contracts | No Comments

brand licensing agreementThere’s a well-known fashion designer who’s currently suing for breach of a licensing agreement because she alleges, among other things, that the licensee is hurting her brand by selling inferior merchandise.

Whether or not that’s true, the key takeaway from this lawsuit is that when it comes to protecting your brand as a licensor, your licensing agreement must contain specific terms and conditions that makes it difficult for the licensee to harm your service marks and trademarks through misconduct.

Important Brand Licensing Agreement Clauses

Some of the key provisions you may want to include in the contract are:

  • Limit the scope of the license (e.g. term, geographic, revocable, nonexclusive, etc.);
  • Choice of law and forum for resolving disputes (preferably your home territory, not the licensee’s);
  • The ability to obtain injunctive and other equitable relief to protect your brand;
  • Significant liquidated damages per violation;
  • Alternative dispute resolution (mediation and arbitration) for most issues unrelated to protecting your intellectual property (IP);
  • Award of attorneys’ fees and court costs to the prevailing party in a dispute (loser pays); and
  • Confidentiality and non-disparagement clauses.

According to Texas Internet Lawyer Mike Young, unequal bargaining power may become an issue when interpreting a license agreement because courts (particularly juries) are inclined to favor the underdog if one party is significantly larger than the other.

If you have all of the leverage (e.g. the licensee is a micropreneur), it’s important that your company’s attorney draft language that mitigates this disparity in bargaining power while protecting your interests so that there’s a perception of fairness when it comes to enforcement.

Plain Language

Using simple plain English will prevent many common disagreements as to your respective rights and obligations under a licensing agreement. When each party clearly knows what he is supposed to do, the odds increase that your deal will be profitable while protecting your brand too.

A good way to get what you want when licensing your brand is to have an experienced business transactional lawyer draft the contract based on your unique needs and use that draft as the starting point for all negotiations with prospective licensees.

5 Business Consulting Agreement Essentials

By | Consulting Agreements, Intellectual Property, Texas Business Lawyer, Texas Business Lawyer | No Comments

consulting agreementWhether you’re a consultant or looking to retain one for your business, there are some fundamental issues that must be covered your consulting agreement to ensure performance by the other party while reducing your liability exposure if something goes wrong.

Here are five key areas that should be covered in every consultant agreement you sign.

1. Detailed Scope of Work (SOW).

Your scope of work (a.k.a. scope of services) for a project should specifically identify what will be done and exclude services that will not be performed.

According to Texas Internet Lawyer Mike Young, one of the most common mistakes is to have a consulting agreement vaguely refer to the services that will be performed, with each party having a different view of what’s included in those services.

Retaining a consulting firm to provide “marketing services” without defining activities, milestones, deadlines, and objectives is a recipe for disaster because invariably one party will not deliver according to expectations of the other.

Business management believes they have been cheated by nonperformance. Conversely, the consultant thinks he has actually over delivered.

Yet neither party can prove or disprove their position because there is not a detailed scope of work as a standard against which to measure performance.

2. Defined Compensation.

The second most common area of dispute in consulting contracts is the amount of compensation to be paid and the milestones that trigger payment.

As a general rule of thumb, it it’s not in the agreement, the compensation will not be paid. For example, there’s a consultant who is currently suing his client for a performance bonus.

Under the agreement, the consultant has been paid $2 million. However, he contends that there was a “general understanding” that the client would pay a bonus consisting of 5% of the additional revenues he generated. The client takes the position that no such understanding exists and there is no obligation to pay beyond what the written contract requires.

Even when the amount of compensation is clearly defined, payment issues arise when the milestones triggering payment are too vague. Each milestone should be specific (by date, objective met, etc.) so that there is no room for confusion.

3. Changes in Scope of Work.

Your consulting agreement should provide a mechanism for written change orders to the scope of services that will be performed, including agreed upon payments with related milestones, so that both parties know what’s expected going forward with the consultancy.

Oral or other informal modifications (e.g. emails) that modify the scope of work often create misunderstandings that can easily be avoided by detailed written change orders.

4. Confidentiality and Publicity.

Consulting contracts should address the nature and extent of confidentiality, both as to the client’s data and the existence of the consulting arrangement. Will the consultant be able to identify the client by name as a client for marketing purposes (on the consultant’s website, press releases, etc.)?

What constitutes confidential information? If the consultant is using subcontractors (e.g. website designers), will the subcontractors also be required to sign confidentiality agreements?

5. Alternative Dispute Resolution.

When there is a dispute concerning performance by either party, it’s rarely a good idea to head straight to court (notable exceptions for breaches of confidentiality and intellectual property infringement).

If the client is upset about the services rendered or the consultant feels cheated as to compensation, a good first step to resolving the issue is informal mediation using a neutral third party as conciliator.

Should mediation fail to achieve a resolution of the dispute, the consulting agreement should provide for binding arbitration at a mutually agreed upon location. In the United States, it’s common to have such commercial arbitration handled per the rules of JAMS or the American Arbitration Association.

Other Consulting Agreement Provisions

“There are other clauses you’ll want to include in your written contract,” Texas Internet Lawyer Mike Young said. “An experienced transactional attorney can prepare a customized consulting agreement template for you to use that can be modified on a per-project basis.”

Joint-Employer Liability: How To Avoid It As A Business Owner

By | Dallas Business Lawyer, Dallas Business Lawyer, Employment Agreements, Featured Articles, Franchising, Licensing | No Comments

joint-employer liabilityAs noted by the Wall Street Journal in the editorial “A Joint-Employer McDouble,” both the federal government and class action attorneys are working hard to impose joint-employer liability on franchisors for alleged misconduct by franchisees with regard to employee claims.

Business Opportunity Licensors and Joint Liability

According to Dallas Internet Lawyer Mike Young, the theories being used to shake down franchisors like McDonalds may also be applied to those who license rather than franchise their business systems. In other words, if franchisors can be held jointly liable as employers, it’s not too far of a stretch for the same legal arguments to be applied in suits against business opportunity licensors for claims made by licensees’ employees.

Indirect Control and Joint-Employer Liability

The National Labor Relations Board (NLRB) is attempting to impose joint employer liability under the theory that a franchisor indirectly controls at least some of a franchisee’s employees.

Ostensible Agency and Joint Liability

As noted in the Wall Street Journal editorial, it appears that plaintiffs’ attorneys may succeed if they can show that franchisee employees reasonably believed that franchisees were acting as ostensible agents for the franchisors when committing misconduct.

How to Reduce the Risk of Being Held Jointly Liable

License instead of Franchise

In addition to less regulatory burdens, licensing your business system (instead of franchising) reduces the odds you’ll be on the hook as a joint-employer. Unlike franchising, there are many ways to structure a business licensing deal so that a licensee’s employees don’t even know of the licensor’s existence.

Lacking knowledge of a licensor-licensee relationship, it would be difficult for a licensee’s workers to argue joint employer liability under ostensible agency or indirect control theories.” – Dallas Internet Lawyer Mike Young

Indemnification and Defense

It may be appropriate for your franchise agreement or business opportunity license agreement to make it clear that if an employee of a franchisee or licensee brings a claim against you as an alleged joint employer, that your franchisee/licensee will indemnify and defend you against such a claim.

Written Employment Agreements and Policies

Of course, whether you’re a franchisor or a business system licensor, you may want to ensure that your respective franchisees and licensees make it clear in employment policies and any written employment agreements that you do not control their employees (directly or indirectly) and that your franchisee or licensee is not acting as your ostensible agent with regard to employment matters.

Your business lawyer can prepare related provisions for use in employment contracts and workplace policies.