Before you sign B2B contracts, it’s important to review the draft business-to-business agreements to make sure you’re not committing some costly errors. According to Business Contracts Lawyer Mike Young, here are four of the most common mistakes that entrepreneurs make in business-to-business deals.
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Mistake 1 – Failing To Identify Who Owns What
Whether it’s patents, trademarks, service marks, copyrights, or trade secrets, your agreement should clearly identify who owns the intellectual property that’s part of the deal. If there’s a license, it should be defined in unambiguous terms so that there’s no dispute what rights the licensor has granted to the licensee.
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Mistake 2 – Ignoring The Potential For Future Competition
Thanks to technology, it’s easier than ever to shift a company into complementary niches.
Unfortunately, that also means that today’s supplier of products or services under a B2B contract can become your competitor tomorrow…and you’ve provided that party with insider information needed to gain a competitive advantage when going after your existing and prospective customers.
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To limit the risk, it may make sense for you to require the other party covenant not to compete for 24-36 months against you after termination of your agreement. Although enforceability of non-compete agreements vary by jurisdiction, many states will enforce them if reasonable in scope.
Mistake 3 – Failing To Prevent Delegation in B2B Contracts
Many B2B deals are made with the intent that certain skilled professionals (e.g. software developers) deliver under the agreement. However, it’s common to save time and money by subcontracting work out to lower cost providers who may not be as efficient or effective in delivering per the terms and conditions of your agreement with the party that has become a general contractor in the deal.
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If you’re okay with subcontracting or otherwise assigning the work to others, that’s one thing.
However, if you want to protect the quality (and confidentiality of the work), it’s usually prudent to including clauses that prevent or limit farming out the work to third parties for completion.
Mistake 4 – Not Stopping The Potential Poacher
Whether or not the other party to a business-to-business contract plans to compete against you, it’s fairly common for relationships to develop between that party and your key personnel. Such relationships lead to job offers, i.e. poaching of your talent.
To prevent your employees from being “stolen” away, you should consider adding an anti-poaching provision to your agreement that bars the other party from soliciting your workers for employment during and 12-18 months after termination of your contract.
In addition to the above mistakes, Business Contracts Lawyer Mike Young points out that it’s important to perform due diligence on the other party before signing an agreement. He said, “You don’t want to enter into B2B contracts with parties that have a shady past, history of not performing, or have a track record of suing others in disputes.”
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When our law firm prepares a Business Contract Legal Protection Package for entrepreneurs like you, we focus on preventing mistakes so you can get what you want from a deal while minimizing the risks.