Nobody likes paying legal fees to have contracts reviewed, and we get it. For that reason, we figure our best option is to get you focused on contract terms that really matter when you get into DIY contract negotiations. Let’s talk about the ten terms in commercial contracts that you should negotiate. That way, when you choose not to hire us, you hopefully never need to hire our litigation colleagues.
#1 – Business Terms
Everyone loves a good checklist. Take out your mental or written checklist of business points you want in the contract. Walk through the contract and make sure that all of those points are included. More importantly, you will want to make sure that you have captured all of the business points you want in your contract – how much you will be paid, how you will be paid, when you will be paid, when you need to deliver products or provide services, how those products will be delivered or the services will be provided, what needs to happen before either party needs to act, what happens if a party does not act as required, etc.
Keep in mind that as you negotiate or choose to accept legal terms in the contract, you may need to budge on some business terms to get your way on important legal terms. Figure out which business terms and legal terms are important to you and stick to your guns, then give in on the others if necessary to get the contract signed.
#2 – IP Protection
We all love gold. If we had bricks of gold, then we would protect them. We would likely put them in a vault. If we needed to show the vault to someone, then we would want to investigate the person, put procedures in place to ensure that no gold is taken out of the vault without our permission and figure out what to do about it if any gold was removed. IP, to many companies, is gold. It just happens to be invisible gold. You should treat your IP as you would physical gold. So, whenever you have a business relationship that will give another party a glimpse at your IP, try to understand that other party’s history and make sure you have a contract that protects your IP as well as (or better than) a vault protects gold.
Your contract, at a minimum, needs to make clear that you will at all times own the IP, put procedures in place for making sure any new IP becomes your IP, prohibit sharing your IP with a third party and make sure there are no limits on your right to recover harm done to you if your IP is stolen.
#3 – Representations and Warranties
Representations and warranties are statements and assurances that you make regarding events or facts. Representations and warranties are important because they tie to indemnification and termination rights. For example, if a contract represents and warrants that you have the best product in the world (which, by the way, we have no doubt that you do) and it turns out that another product is better, then the party making the representation and warranty has breached the agreement.
It is common to think that because both parties know a representation or warranty is not entirely accurate it is okay for it to be inaccurate. It is also common that the party making the representation or warranty thinks everyone understands it to mean one thing regardless of the meaning of the words. Both of those thoughts are wrong. The words are the only things that can be counted on if an argument ever arises and any unwritten understandings at the time of the agreement go out the window. Make sure the representations and warranties say only what is completely accurate. If they are not completely accurate, then change them to make them completely accurate.