Having a mechanism for resolving disputes short of litigation is critical — particularly when working with foreign IT services providers. That’s why incorporating an effective arbitration clause into international outsourcing contracts is critical, writes Stephanie Overby for CIO magazine.

“Every international arbitration organization offers a standard clause IT service buyers can put into their contracts. Such clauses typically state that all disputes arising under or in connection with the agreement shall be resolved by arbitration under the rules of a specific international arbitration organization,” according to the article.

Overby quotes B. Ted Howes, partner and leader of Mayer Brown’s U.S. International Arbitration practice, “While such a standard clause is enforceable, more is required to make the arbitration clause workable and to minimize disagreements at the time of arbitration.”

Read the article.

The celebrated “freedom of contract” is not absolute, writes Glenn West for Weil, Gotshal & Manges LLP’s Global Private Equity Watch.

“The right of contracting parties to obligate themselves to one another has always been subject to certain statutory limitations, as well as those imposed by the common-law principles that govern the enforcement of contracts generally. A recent decision by the United States Court of Appeals for the Seventh Circuit, Caudill v. Keller Williams Realty, Inc., 2016 WL 3680033 (7th Cir. July 6, 2016), serves as a reminder of one of those common-law principles—the idea that, as a general rule, parties should not be penalized for breaching a contract,” he writes.

“Parties relying on agreed damages clauses on both sides of the Atlantic should continue to draft such provisions based upon the current interpretation, in the applicable jurisdiction, of the ancient principle of the common law that abhors a penalty for a contractual breach,” West advises.

Read the article.

In an article in the Polsinelli blog “Polsinelli at Work,” shareholder James C. Sullivan writes about how unsettled the law is on employer/employee arbitration provisions containing class/collective action waivers. For now, some guidance on the issue may depend upon where a case is filed, and the Supreme Court likely will resolve the conflicting lower court decisions on the issue.

“Five years ago, the United States Supreme Court in AT&T Mobility LLC v. Concepcion ruled, in a 5-4 decision written by Justice Scalia, that state laws prohibiting the enforcement of consumer contracts containing an arbitration provision with a class action waiver were contrary to the Federal Arbitration Act. Within a year of that decision, the National Labor Relations Board in D.R. Horton ruled that Concepcion did not apply in the context of employee rights under the National Labor Relations Act, specifically § 7 which vest employees with the right to engage in ‘concerted activities,’ ” writes Sullivan.

The Fifth Circuit, the Second and Eleventh Circuits have ruled that class/collective action waivers in employer-employee arbitration agreements are enforceable. But in June 2016, the Seventh Circuit  turned the tide, becoming the first federal court of appeals to adopt the NLRB’s rationale in D.R. Horton. And later the Ninth Circuit adopted the reasoning of the Seventh Circuit.

Read the article.

If you want your electronic contracts to be enforceable, it is a best practice to require the counterparty to affirmatively accept the contract by checking a box or clicking a button, write Nikita A. Tuckett and Aaron Rubin on Morrison & Foerster LLP’s Socially Aware blog.

“A recent New Jersey district court decision, ADP, LLC v. Lynch, reinforces this point. Such issues most often arise in the context of website terms of use, but ADP v. Lynch involved a non-competition provision and forum selection clause contained in documentation presented to employees electronically in connection with stock option grants,” the authors write.

They continue: “ADP had presented the documentation in such a way that each employee was physically unable to click the required ‘Accept Grant’ button unless he or she had affirmatively checked a prior box indicating that he or she had read the associated documents containing the restrictive covenants and forum selection clause.”

The court denied the employees’ motion to dismiss.

Read the article.

eSignLive by Vasco has made available for downloading a new white paper that discusses the best security practices for implementing e-signatures and evaluating vendors. (See the download form below.)

“It is important to make sure your electronic signature provider meets the highest security standards. Security is at the core of a trusted digital experience between you, your employees and customers,” the company says on its website.

That means more than simply passing an audit. eSignLive recommends taking a broader view of e-signature security that also addresses:

• Choosing the appropriate level of authentication
• Protecting signatures and documents from tampering
• Making it easy to verify e-signed records
• Ensuring vendor-independent records
• Verifying the vendor has a consistent track record of protecting customer data
• Creating end-to-end trust through white-labeling and integration with your existing IAM framework

The white paper includes a best practices checklist.

When anyone signs up to help Donald Trump’s presidential campaign by making phone calls to prospective voters, they first must sign a 2,271-word nondisclosure agreement that prohibits the volunteer from  criticizing Trump or any member of his family for the rest of their lifetimes, writes Joe Ahmad in the Legal Issues in the Executive Suite blog. The blog is on the website of  Ahmad, Zavitsanos, Anaipakos, Alavi & Mensing P.C. of Houston.

The campaign program is the Trump Red Dialer, an online call system that connects campaign volunteers with potential voters.

“It states you cannot disparage Trump or any “family member,” which includes grandchildren and his nieces and nephews, or any of their companies,” writes Ahmad. “Try figuring out who all of these people and companies are – just try! Nor can you even disparage any of these companies’ products.:

He points out that a legal question to ask is what is the consideration – what does the volunteer get – in return for signing this broad agreement? “One guess is that it could mean they may get access to some type of confidential information. But that is neither promised nor even implied in the agreement,” he writes.

Read the article.

SpringCM has posted a free on-demand webinar discussing contract lifecycle management, including the capabilities as well as the benefits of implementation.

“To ensure your business is well-positioned for success in the 21st century, transforming critical business processes like contract management is pivotal,” the company says on its website. “As a result, Contract Lifecycle Management (CLM) and Contract Discovery and Analytics solutions are quickly being added to a company’s technology portfolio because they work together to help firms gain better visibility and control over their contracts.”

The title of the webinar is “Get Control of Your Contracts! How to Use Contract Management and Analytics to Accelerate Digital Transformation.”

Karry Kleeman, CRO at SpringCM, and Lloyd Alexander, VP of Contract Strategy at Seal Software, join guest speaker Andrew Bartels, vice president and analyst at Forrester Research Inc., to discuss contract lifecycle management in the 60-minute webinar.

Watch the on-demand webinar.

LawGeex has published a case study showing how social media company Brandwatch uses artificial intelligence to reduce costs and speed up the contract review process.

The case study focuses on Dylan Marvin, Brandwatch’s general counsel. His company employs more than 350 people.

He worked closely with LawGeex to build his own customized solution, resulting in:

• 80% reduction in time spent reviewing routine contracts
• 90% cost saving compared to using outside counsel or hiring new staff
• Legal department no longer a bottleneck
• 3 times faster deal closing

Download the case study.

ContractWorks offers a free guide to selecting the appropriate contract lifecycle management software.

The decision to purchase and implement contract lifecycle management software is not one most companies take lightly, the company says. There are currently over 100 solutions in the market- everything ranging from bare-bones, free solutions, to extremely complex and very expensive solutions- and everything in between. Knowing where to start can be tough, that’s why we’ve put together this guide.

This guide covers:

•The top three reasons companies choose to implement contract management software
•The key benefits companies realize from implementing software
•Budget and cost considerations
•Implementation times and how this can affect the ROI of your purchase
•Security considerations for CLM solutions
•Key factors to consider when vetting providers- including solution scalability and company/vendor reputation

Download the guide.

By Katie Cook
ContractRoom

Image by Steve Jurvetson

The third season of HBO’s Silicon Valley is now complete and Pied Piper has just released its product to market. Several hurdles have been overcome in the journey to this level of fruition including one of the key executives of the company being trapped in a self-driving car and large amounts of code being accidentally deleted. Legal complications have also played a large role in the plot lines, including many issues related to contractual agreements. These include:

1. Intellectual property theft due to terms in employment agreement

The first term in a contract that became important in the plot line was that about intellectual property in Richard Hendricks’s, Pied Piper’s CEO’s, employment agreement with Hooli. Hooli was the company he was working with before leaving to work full time for Pied Piper. This term specified that the fruits of work done on his work computer would become Hooli’s intellectual property. In trial, evidence showed that Richard had performed some work for Pied Piper on his Hooli computer and so all the intellectual property according to this term was Hooli’s. However, unexpectedly and thankfully for Pied Piper, the judge noted there was also a non-compete clause in the employment agreement which was unlawful. Due to this, the entire employment agreement, as well as the employment agreements of all other Hooli employees were declared by the judge to be null and void and Pied Piper was allowed to keep the intellectual property that Richard had created.

2. Services Agreement between End Frame and Intersite

End Frame is a rival company of Pied Piper. In the first season, some of the people who go on to form End Frame trick members of Pied Piper into disclosing some of their intellectual property to them. In season two, Pied Piper becomes aware of End Frame’s existence after they lose their partnership with “Homicide,” an energy drink, to live stream a stunt for them. Instead Homicide engages End Frame for this. In an act of desperation, when it looks like Pied Piper is losing its funding, some of the Pied Piper team get their hands on the services agreement between End Frame and an internet porn company called Intersite and set out to convince Intersite to contract with them instead of End Frame. Intersite agrees to have End Frame and Pied Piper compete to see which product is the best and Pied Piper wins this competition.

3. Non-disclosure Agreement (NDA) signed by Big Head (Nelson)

Big Head (also known as Nelson) was originally part of the Pied Piper team and a friend of Richard. They knew each other from when they both worked at Hooli. After Pied Piper obtained funding, Big Head was cut from the team, but at the same time was offered a large promotion at Hooli, which he took. CEO of Hooli, Gavin Belson, continued to promote him in an attempt to outsmart Pied Piper, believing he had poached one of their best developers and that Hooli, with Big Head, could create a better product at a company inside Hooli called Nucleus. Once it became clear that Nucleus was a flop and all employee contracts at Hooli were null and void due to a non-compete clause, Hooli offers a redundancy package of $20 million to Big Head which he accepts. However, he takes this on the condition he abides by an NDA which he breaches by talking to tech blogger, C.J. Cantwell, about how Hooli covered up bad reviews about Nucleus by changing how their search engine operated.

4. Sales agreement for Pied Piper’s “box”

One investment firm Raviga takes over the funding of Pied Piper at the end of season 2 and early season 3, Richard is removed as CEO. The new CEO, Jack Barker, believes that creating a ‘box’ to contain the compression product will be more quickly adopted by the market and quicker to sell to enterprises. Richard and his team are not interested in creating the box as they have always wanted to use their compression algorithm to create a product available to consumers. His team devise a plan to create a product for consumers, while pretending to create the box product. However, Jack Barker becomes aware of this plan. In the meantime, Monica, who works for Raviga notices a term in the sales agreement for the box that gives exclusive rights to the owners to use Pied Piper’s algorithm for five years. This deal would prevent Richard and his team from creating the consumer product within that time. In the meantime, Hooli acquires End Frame for $250 million. End Frame is creating a consumer compression product and not a box. This purchase effectively sets the value of Pied Piper if it was creating a consumer compression product and makes obvious that developing a consumer product will be a much more valuable option. Jack Barker is fired by Raviga and the way is paved for the team to continue building the consumer product.

5. Partnership agreement between Erlich and Big Head

Erlich convinces Big Head to go into business with him and drafts a manipulative partnership which gives Erlich complete control over Big Head’s assets but no access for Big Head to Erlich’s Pied Piper shares. Big Head signs the agreement unaware that he is essentially giving Erlich the same financial rights as a spouse. Erlich sets about planning an extravagant party to celebrate the launch of his and Big Head’s new company which is to be called “Bachmanity”.

6. Vendor contracts for Bachmanity Insanity

The extravagant launch party for Bachmanity is held at Alcatraz and it is Hawaiian themed. Erlich engages event planner, Sasha, to organize this party and details of the party include, among other things, pukka shells, roasted pigs and flamethrowers. During the party Sasha informs Erlich that a number of vendors have called to complain that their checks have bounced and just before the main speech that Erlich and Big Head are to give Arthur Clayman, Big Head’s business partner, informs Erlich that Bachmanity is bankrupt.

8. The Retainer Agreement for Big Head’s business manager, Arthur Clayman.

This gave Mr Clayman access to Big Head’s funds. After Clayman explains to Erlich that Bachmanity is bankrupt, Erlich gets Jared Dunn, Richard’s assistant and former personal assistant to Hooli CEO Gavin Belson, to assess what has happened with the funds. He finds that $6 million has been misplaced, which they later realise Clayman has used to pay other clients. Big Head and Erlich consult the District Attorney’s office about taking legal action against Clayman but are told their case would be a low priority. Erlich is told he may have to liquidate his shares in Pied Piper to repay the debts of Bachmanity that are outstanding.

By Stephen F. Pinson
Scott & Scott, LLP

In a previous blog, I spoke about what an indemnification provision is and how it operates. In this blog, I will discuss questions that licensors and licensees should ask when negotiating an indemnification provision within a software contract: (1) what are the licensor’s objectives in the indemnification section, (2) what are licensee’s objectives in the indemnification section, (3) what is a checklist of elements and questions that should be negotiated in a indemnification section, and (4) what is a general checklist of provisions that should be included in a indemnification section.

(1) Licensor’s objectives in an indemnification section

The licensor’s (software vendor) objective is to protect itself from any claims resulting from the licensee (business) from breaching the license grant. For example, if the licensee modifies the software contrary to the license grant, then the software vendor may be exposed to third-party claims. The licensor often will seek indemnification from those types of claims through the indemnity clause called “IP Indemnity.”

On the other hand, another objective of the licensor is to indemnify the least amount of loss or liability possible. For some contracts, and indemnification section will not exist for a licensor to indemnify, and for others it will be detailed and extensively negotiated. Usually, a licensor at the very minimum will indemnify for intellectual property infringement for its own liability.

(2) Licensee’s objectives in an indemnification section

Alternatively, the licensee is looking to be protected from third-party lawsuits for intellectual property infringement resulting from a situation where the licensor has intellectual property (typically software code) that infringes on the property of someone else (third-party claimant). In this scenario, the licensee is also infringing on the rights of the third party and can be sued for infringement. For this reason, the licensee would want to seek protections in the indemnification provision.

(3) Checklist of questions that should be asked when negotiating a warranty section on performance warranties:</bold

Consider the following negotiation elements when drafting, negotiating or entering into a contract with an indemnity provision:
1. Applicability – Who is indemnifying whom? Is the indemnification mutual or unilateral?
2. Scope of Indemnity – What is the scope of the indemnification? Will the Indemnitor indemnify/reimburse for losses, defend (a duty to provide a defense), or hold harmless (bar claims against the Indemnitee)?
3.Nature of covered claims – What risks of doing business under the contract are being indemnified, i.e., inter-party claims based on breach of representation, warranty, or other contractual obligation, third party claims based on product liability, infringement, fraud, or negligence, governmental claims based on regulatory matters, or other specified claims such as: personal injury, property damage, economic loss, and attorneys’ fees and costs of defense?
4. Exceptions – Are there any exceptions to indemnification such as taking control of the claim? Or not causing the indemnifying circumstances such as not modifying code?
5. Limitations – Should there be a monetary limit on the extent of the indemnity? If so, the limitation should bear a reasonable commercial relationship to the contract. Is there a limitation as to the time a party can bring an indemnification claims (i.e., within a 6 months, 1 year, etc.)? Is there a limitation on the amount that can be recovered for an indemnified claim in the Limitation of Liability (i.e., preferably a licensee will want an exclusion where the limitation of liability does not apply and damages are uncapped)? Or, does the contract include a provision requiring coverage of certain risks by insurance such that the indemnity is limited to the amount of the insurance coverage (i.e. contractual liability insurance)?
6. Procedure – Does the indemnity provision specific procedural requirements for recovery, like submitting a claim within a certain time period, of follow certain procedures to submit a claim for Indemnitee? Is there a duty to mitigate any portion of the claim before submitting it to the Indemnitor?
7. Exclusivity of remedies – Do the terms of the contract determine whether the Indemnitor is obligated to reimburse the Indemnitee for a particular claim, and if so, when? Does the contract clearly express an intent to indemnify a party against its own negligence, and if so does it make sense under the circumstances?
8. Review other corresponding provisions in the contract – Does the indemnification provision harmonize with the warranty and limitation of liability section in the contract? Does the insurance section of the contract harmonize with the indemnity section? Are there enough insurance limits for this type of claim scenario for the licensor? Is the limitation of liability uncapped for intellectual property claims for the licensee?

(4) Provisions that should be included in a typical Indemnification section:
Licensor Provisions:
Licensor will defend, indemnify and hold harmless licensee for third party intellectual property infringement.
Licensor will pay all costs and damages awarded.
Conditions – Licensor’s obligations for indemnification are conditioned on the following:
(a) Licensee notifying Licensor promptly in writing of such action.
(b) Licensee giving Licensor sole control of the defense or settlement thereof.
(c) Licensee cooperating with Licensor in such defense.
Exclusions – Licensor will have no liability if the following occurs:
(a) any use of the Software not in accordance with the Agreement
(b) any modification of the Software made by any person other than Licensor.
Entire Liability – This is the entire liability of licensor and exclusive remedy.

Licensee Provisions:

Licensor will defend, indemnify and hold harmless licensee for third party intellectual property infringement.
If Licensee’s continued use of the Software is restricted or prohibited as a result of any such infringement, Licensor shall, at Licensee’s option and at no charge to Licensee:
(a) secure for Licensee the right to continue using the Software
(b) modify or replace the infringing components of the Software so that they are non-infringing
(c) refund to Licensee all amounts paid by Licensee for the Software.
Exclusions – Licensor will not be obligated to indemnify Licensee to the extent of the infringement claim based upon:
(a) use of the Software in breach of this Agreement
(b) any modification of the Software made by Licensee (other than at Licensor’s direction)
Defense of Third-Party Suits – Licensee will notify Licensor of third party suits promptly. If licensee tenders claim to Licensor, Licensor will have right and obligation to defend such claim. Once Licensor assumes defense of a Claim, it will be conclusively presumed that Licensor is obligated to indemnify Licensee. No settlement of a Claim will be binding on Licensee without Licensee’s prior written consent

*This is not an exhaustive list of provisions

Remember, an indemnification section is a specialized risk transfer section within a software contract. It is crucial to understand it and to successfully negotiate it to prevent unwanted risk. It is always important to seek advice from experienced legal counsel in order to understand all the risks involved when negotiating these types of provisions in a software contract.

LawGeex has launched new A.I. Contract Review technology designed to help in-house counsel read, review and understand contracts.

The company says the technology features artificial intelligence that reviews contracts and highlights any issues, reviews contracts based on the user’s own legal checklist, reviews other people’s changes to standard contracts, can review any contract custom built for any industry,  and automatically manages contract approvals and escalations.

The streamlined workflows between sales, operations and legal can save users 80 percent of the time and 90 percent of the costs while cutting the time to close deals by two-thirds, the company reports.

The artificial intelligence program can recognize when any clauses are rare, missing, or potentially problematic, and provide a plain English report.

• Interactive contract reports with recommended fixes
• Lightning fast turnaround – 80% time saved reviewing and approving contracts
• Legal speak translated into simple English
• Checked by real life lawyers for quality and accuracy

Learn more.

Wednesday, Sept. 21
2-3 p.m. EDT

eSignLive by Vasco is sponsoring an online presentation providing an overview of the basic terminology, concepts, and laws related to electronic signatures and answer the most frequently asked questions on the topic.

The free webinar will be Wednesday, Sept. 21, beginning at 2 p.m. EDT.

The speaker will be Richard Medina, co-founder and principal consultant of Doculabs.

Topics will include:

• What is the difference between an electronic signature and a digital signature?
• How can you prove who e-signed?
• What legal and compliance requirements do we need to consider?
• What ROI metrics have others reported?
• What do signers need in order to e-sign?
• How do we get started? What’s the cost? What’s the effort?

Register for the webinar.

Managing third-party vendor relationships has recently become a hot topic for state and federal financial bank regulators, writes Jerry Blanchard of  Bryan Cave LLP.

Some examinations have resulted in regulators imposing settlements and impose civil money penalties on vendors, he reports.

He explains that, “The OCC guidance is generally looked at as the ‘gold standard’ for evaluating issues that need to be addressed in a vendor agreement. That does not mean that every contract a bank signs needs to have every one of those issues addressed or that each one needs to be resolved in favor of the bank. Vendor contracts come in many different shapes and sizes and may affect everything from back office processing, internet delivery systems, use of the ‘cloud’ to the people watering the plants at the branch. vendors will vary from small local operations to multi-national companies.”

Read the article.

In reviewing the scope of an arbitration agreement that was part of a supply agreement, the U.S. Court of Appeals for the Federal Circuit affirmed the district court’s decision, determining that the defendant’s breach of contract counterclaims were related to the plaintiff’s patent infringement claims and thus were exempt from compulsory arbitration under the supply agreement, reports Andrea Coronado for McDermott Will & Emery.

She discussed Verinata Health, Inc., v. Ariosa Diagnostics, Inc., Case No. 15-1970 (Fed. Cir., July 26, 2016) in an article published by The National Law Review.

“The Court reasoned that the national policy favoring arbitration when parties contract for that mode of dispute resolution under the Federal Arbitration Act applies only in circumstances where the scope of the agreement is ambiguous as to the dispute at hand, and only where the presumption in favor of arbitration cannot be rebutted,” Coronado wrote.

Read the article.

A “force majeure” clause is a contract provision that relieves the parties from performing their contractual obligations when certain circumstances beyond their control arise, making performance commercially impracticable or impossible, write Raedtha A. Vasquez and Edward Hart Bergin, partners in Jones Walker LLP.

In their article, they explain, that, in Louisiana, absent agreement to the contrary, force majeure excuses parties from liability when they fail to perform due to a fortuitous event that makes performance impossible.

“So, in determining whether the doctrine applies, it is necessary to determine (1) whether performance is impossible and (2) whether the impossibility was caused by a fortuitous event.”

They discuss some of the points to consider when confronting force majeure issues.

Read the article.

In orders issued just six days apart last month, the U.S. Securities and Exchange Commission (SEC) rejected language in severance agreements requiring employees to waive rights to receive additional monetary recovery, particularly awards for providing information to government enforcement agencies, reports Ogletree, Deakins, Nash, Smoak & Stewart.

“The Commission’s actions underscore its continuing scrutiny of any provisions that might impede the flow of information to the government, even where there is no evidence of any such effect. They also drive home that employers must continue to stay abreast of legal developments and modify their policies, practices, and agreements promptly.” write the authors, Margaret H. Campbell and Karen L. Vossler.

The advise employers to review and revise policies, practices, and employment agreements, including confidentiality, severance, separation and similar agreements. “In particular regarding recovery-limiting language, employers should consider carefully whether to use it at all, given that an enforceable waiver cuts off additional recovery from the employer,” they write.

Read the article.

The news of Gretchen Carlson‘s $20 million settlement with 21st Century Fox is sending shock waves through the legal world, especially in employment and labor law circles, according to a LawNewz.com report.

Rachel Stockman spoke with several legal experts about the settlement, including one who called this a “watershed moment for sexual harassment cases.”

Some of the experts said the case could open the door to more sexual harassment claims in the workplace, and some were surprised by the high dollar amount that 21st Century Fox agreed to pay.

The article quotes Washington, DC, employment lawyer Tom Spiggle as saying this case could convince victims of sexual harassment that the laws on the subject still have teeth.

Read the article.

An insurer’s duty of good faith is pervasive and its application to claim handling has matured into a formidable body of law, write Douglas L. Christian and Nathan D. Meyer for Jaburg Wilk.

But when a bad faith lawsuit converts the quasi-fiduciary relationship with the policyholder into an adversarial one, how does a policyholder lawsuit affect the insurer’s duty of good faith? And, how does the insurer’s duty of good faith affect the lawsuit?

“Policyholders argue that if a lawsuit obviates the insurer’s duty it will encourage insurers to engage in conduct that will precipitate a lawsuit. Insurers respond by arguing that if the fiduciary duty continues unabated, it will encourage premature lawsuits by policyholders, deprive insurers of their ability to adjust losses, and eviscerate their rights as litigants,” according to the article.

The authors discuss   the development of the continuing duty of good faith, whether insurer litigation and post-filing conduct is admissible under current rules of evidence, and whether continuing bad faith is actionable as a separate theory of liability.

Read the article.

With all the pressure on companies to build a robust cybersecurity defense within their own four walls, one area of risk might be getting overlooked, writes Shawn Shinneman of the Dallas Business Journal.

He talked to Sara Romine, an attorney at Carrington Coleman in Dallas, to find out how to deal with an attack that comes in through a third-party vendor.

Companies can be at risk and liable when dealing with vendors who have direct access to sort, store or transmit their data, she told the reporter.

“She’s found that companies tend to make some mistakes that grant leverage to the other side during negotiations either to strike a new agreement or renew an existing one. One big one is waiting until the last month or so to start the process,” the article reports.

Read the article.