Keep it Simple: How to Ensure Your EULA is Enforceable

Posted on May 2, 2008 by Kraig Baker

Fascinating summary of four cases discussing the enforceability of click-through licenses and other contracts over at the E-Commerce and Tech Law Blog.  The gist of the cases is that if you're EULA is well drafted and someone clicks-through the agreement, it's likely to be enforceable (even if you're a company that most people would want to "get").  On the other hand, if the terms of the contract aren't available, the contract is contradicted by the sales person, or the customer is rushed through the process, courts may not enforce what would otherwise be an enforceable contract.  The fact situations of the cases are amusing in their errors (the contract wasn't included in the box, a kiosk that was supposed to link to the terms of the contracct wasn't connected to the Internet, the button for "assent" to the contract was labeled "print", etc.), but they reflect a consistency in the jurisprudence on the effectiveness of electronic contracting, namely that EULAs, click-throughs and other electronic contracts aren't enforced only when someone tries to get cute a la Douglas.  If a company will just enact a simple on line contracting policy and be consistent in its enforcement, it is unlikely that a contract will be unenforceable.

Tags: ,

Whoops! What I Really Meant to Say Was...

Posted on April 25, 2008 by Kraig Baker
Law.com details a fascinating story of a deal that went south and every transactional lawyer's worst fear -- testifying in court about what you meant about a clause when it was drafted.  In this case, the dispute is over something that we all do, agreeing to some ambiguity in a clause because it "preserves wiggle room" down the road or, frankly, is necessary to get the deal done. 
Here's the interesting section from the article, "Kevin Rinker, a Debevoise & Plimpton partner who practices in the area of private equity and who presented a case study of the deal to his fellow partners, agrees with this analysis. From the testimony, he says, it appears Ehrenberg won a point during the negotiations but then failed to clearly articulate it in the contract. Kenneth Adams, a former Jones Day and Winston & Strawn lawyer who now advises law firms on contract matters, goes a step further. "It was a major failure of drafting," he says. "What happens if and when someone walks is a do-not-pass-go issue." Lawyers familiar with the deal say they believe the United Rentals case offers a glimpse into a little-noticed but common practice: Deal lawyers often agree to contracts with ambiguous language for the sake of compromise. Whether this is what happened here, or whether Ehrenberg simply made a mistake, is unknown, but the lesson is clear. "Not­withstanding the pressures of the deal, you really have to think hard about every provision," Rinker says."  http://www.law.com/jsp/article.jsp?id=1209047604522
I think the bottom line is that we all will continue to live with ambiguity.  Very few clients in the licensing context are willing to pay to iron out all the ambiguity from a contract, but the lesson in the above clause is the critical one, it's important to think about the consequences of the ambiguity and opt in to the ambiguity instead of letting it go.  Anyone trying to figure out whether legacy content licenses grant "digital rights" or "mobile rights" knows exactly what I'm talking about.
Tags:

Know Your Nines

Posted on February 13, 2008 by Brian Kennan

If you're negotiating a service agreement, sooner or later you have to confront the question of how many "nines" you want to buy.

Often, businesses want at least "five nines" of uptime, meaning the service will be up 99.999% of the year. (Though it often isn't clear what exactly that means.) Certain businesses, like financial firms, may require more availability than this.

Five nines, though, can be expensive. Often money saved from cutting the service level down a nine could better be used on something else. Joel Spolsky has a nice, non-theoretical discussion the issue here. Here is another helpful analysis.

Unless you live and breathe these issues, those articles are probably worth rereading before negotiating your next SLA. At the least, it's not a bad idea to know the approximate meaning of the various service levels for annual uptime. For instance:

  • 99.9999% uptime means about 30 seconds of downtime.
  • 99.999% uptime means about 5 minutes of downtime.
  • 99.99% uptime means about 1 hour of downtime.
  • 99.9% uptime means about 9 hours of downtime.
  • 99.0% uptime means about 90 hours of downtime.

I find it much easier to think of these issues it terms of how much approximate downtime I am "buying." Then the question becomes, "Can I live with that?" Often it's not easy to say, for the reasons Spolsky points out on his blog. But at least it clarifies the problem.

(By the way, if you haven't had enough of the number nine yet, you can always get John August's highly entertaining and enigmatic movie on DVD.)

Tags: , ,

Forget The Term Sheet?

Posted on February 8, 2008 by Brian Kennan

Certain phrases scare the heck out of me. For instance, "This won't hurt a bit," "This may feel a little cold," "This stock can't lose!" and, of course, "It tastes just like chicken." But perhaps the most frightening statement I've come across in my practice is the following: "Let's forget the term sheet and just draft the contract."

Why is this scary? Going straight from idea to contract without passing term sheet is a little like writing an article or book without an outline. Sure, you can do it. But it's quite painful. And it wastes a lot of time, including attorney time (which can be expensive---or so I've heard.) Other than some very simple deals a term sheet is key, for at least two reasons. First, it helps you think through the deal. Second, it keeps everyone involved in the deal on the same page. Or sheet.

Jonathan Handel has a great piece, posted here, on the basics of term sheets. The main ideas in his piece apply to just about any deal. One thing I would stress: as a default, make the term sheet or LOI non-binding. If you want to bind the other party, enter into a contract. Yes, sometimes it's appropriate to do binding LOIs or term sheets. But rarely, in my experience.

Tags: ,

ENOUGH WITH THE CAPS ALREADY!

Posted on February 7, 2008 by Brian Kennan

Sure, most of us put them in our contracts. But do we really need ALL THOSE CAPITAL LETTERS FOR CLAUSES THAT ARE SUPPOSED TO BE CONSPICUOUS, LIKE DISCLAIMERS OF WARRANTY? The eminently sane Ken Adams suggests not:

Andrew says that some laws require that certain provisions be written in all capitals. Can anyone cite for me any such laws?

And no, the Uniform Commercial Code doesn’t count. Parts of the U.C.C. require that text be “conspicuous.” For example, section 2-316(2) states that a disclaimer of the implied warranty of merchantability must be conspicuous. But section 1-201(10) of the U.C.C. specifies that “language in the body of a form is ‘conspicuous’ if it is in larger or other contrasting type or color”; it doesn’t say anthing about all capitals.

And Amercian General Finance, Inc. v. Bassett, 285 F.3d 882 (9th Cir. 2002), debunked the notion that text needs to be in all caps to be conspicuous. I particularly like this sentence from that case: “Lawyers who think their caps lock keys are instant ‘make conspicuous’ buttons are deluded.”

In the comments, Craig Tindall finds a law actually requiring all caps--and bold as well:

ARS 12-1366(A)(1) If a contract for the sale of a dwelling or an association’s community documents contain commercially reasonable alternative dispute resolution procedures. If the contract for the sale of a dwelling contains the procedures, the procedures shall conspicuously appear in the contract in bold and capital letters. If the contract for sale of a dwelling contains the procedures, a disclosure statement in at least twelve point font, bold and capital letters shall appear on the face of the contract and shall describe the location of the alternative dispute resolution procedures within the contract.

South Carolina improves upon this even more:

South Carolina requires all caps (underlined, no less; how’s that for readability?) for disclaimers in employee handbooks. S.C. Code Ann. § 41-1-110 states that “a disclaimer must be in underlined capital letters on the first page of the document.”

The BOTTOM LINE seems to be that "conspicuousness" does not require all caps, but all caps may nonetheless be required, even though they are less readable.    

Tags: