Contracts – Page 3 – Attorney Evan Brown

January 25, 2023 Contracts

Warranties in technology agreements: the basics

warranties technology agreements

Warranties in technology agreements can be a crucial component of a technology transaction. They provide a level of protection for both the service provider and the customer, ensuring that the services being provided meet certain standards and that any issues that may arise will be addressed in a timely and satisfactory manner.

There are two main types of warranties that are typically included in technology services agreements: express warranties and implied warranties. Express warranties are those that are explicitly stated in the agreement, while implied warranties are those that are assumed to be in place even if they are not explicitly stated.

Express warranties can include things like a guarantee that the services provided will meet certain performance standards or that certain features will be available. For example, a service provider may include a warranty that their software will have a certain uptime percentage or that their hardware will be free from defects.

Implied warranties, on the other hand, are more general and are assumed to be in place even if they are not explicitly stated. These can include things like a warranty of merchantability (meaning that the services will do what they purport to do) and a warranty of fitness for a particular purpose (meaning that the services provided will meet the specific needs of the customer).

It’s important to note that warranties can be given limitations. A service provider may disclaim implied warranties. Warranties may have time limits, meaning that they will only be in effect for a certain period of time after the services are provided. And a contract can provide that certain remedies (e.g., repair or replacement) serve as the exclusive remedy for the breach of a warranty.

Warranties are an important aspect of technology services agreements and provide a level of protection for both the service provider and the customer. Knowing the types of warranties that are typically included and understanding the scope of the warranties and any limitations or exclusions that may apply is crucial when reviewing and signing a technology services agreement.

Evan Brown is a technology and intellectual property attorney in Chicago. Follow him on Twitter at @internetcases.

January 19, 2023 Contracts

Why are API access agreements important?

Twitter has been in the news lately for what some seem to imply has been a problematic termination of third-party developers from its platform. This is a good occasion to talk about API access agreements in general, what they should cover, and why they are important.

An API (Application Programming Interface) access agreement is a legal document that outlines the terms and conditions under which a third-party developer can access and use an API. These agreements are important because they ensure that the API owner maintains control over their system and that the third-party developer understands and agrees to the terms and conditions of use.

System security and stability

One of the key provisions in an API access agreement relates to security. As APIs are used to access sensitive data and perform critical functions, it is essential that the API is protected from unauthorized access and misuse. The API owner should set strict security requirements for the third-party developer, such as data encryption and authentication protocols, to ensure that the API is used in a secure manner. The API owner may also wish to set limits on how often calls can be made to the API, so that the system is not overloaded or otherwise subject to diminished performance.

Intellectual property protection

Another key provision in an API access agreement relates to copyright. The API owner should have the right to control the use of their API, including the right to limit the third-party developer’s use of the API as needed to protect intellectual property rights. The API owner should also ensure that the third-party developer agrees not to copy, distribute, or otherwise use the API in a manner that is outside of an agreed scope.

These are contracts

API access agreements are contracts, and as such, they are legally binding. The API owner must be able to maintain control of its system for the system to function properly. This means that the API owner should have the right to revoke access to the API if the third-party developer breaches the terms of the agreement or if the API is being used in a manner that is not in compliance with the agreement.

Avoiding problems with termination

When terminating access to an API, the provider can treat a third-party developer fairly by providing adequate notice and a clear explanation for the termination. The developer should also negotiate for a reasonable amount of time to transition to an alternative solution or to retrieve any data it has stored within the API. Additionally, the provider may wish to make a good faith effort to assist the developer in finding a suitable alternative solution. If the termination is due to a breach of the API access agreement, the provider may provide the developer with specific details about the breach and allow for an opportunity for the developer to cure the breach before terminating access. A developer should also consider trying to negotiate a provision that says it is entitled to compensation from the developer for any losses or damages incurred as a result of an improper termination. Overall, the provider should approach the termination process in a fair, transparent and reasonable manner, taking into account the developer’s business needs and interest.

API access agreements are an essential part of the API ecosystem. They help ensure that the API owner maintains control over its system, that the third-party developer understands and agrees to the terms and conditions of use, and that the API is used in a secure and compliant manner. It is important that the parties understand the key provisions in an API access agreement and seek to comply with them in order to use the API successfully.

Evan Brown is a technology and intellectual property attorney in Chicago. Follow him on Twitter at @internetcases.

January 18, 2023 Contracts, Licensing

Why are limitation of liability provisions important in technology agreements?

liability cap

Limitations of liability are an important aspect of any technology agreement, as they help to define and limit the amount of financial responsibility that each party in the agreement must accept in the event of a dispute or legal action.

Caps

One of the main limitations of liability in a technology agreement is the cap on the amount damages. This means that even if a party is found to be at fault in a dispute, the maximum amount of financial responsibility that it is willing to accept is limited to a specific dollar amount. For example, a technology company may agree to a cap on damages of $1 million in the event of a legal dispute. Or it could agree that the maximum amount it would have to pay would be whatever its insurance will cover. It is important to note that while damages caps can provide predictability and stability in terms of financial exposure, they can also limit the recovery of a party that has suffered significant losses. So they should be negotiated thoughtfully.

Exclusions

Another limitation of liability in a technology agreement is the exclusion of certain types of damages. This means that even if a party is found to be at fault, they are not responsible for certain types of losses or damages. For example, a technology company may exclude consequential damages, such as lost profits or loss of business, in the event of a legal dispute.

Carveouts

Though a limitation of liability provision may call for a damages cap or an exclusion of the types of damages available, parties recognize that in certain situations, damages should not be limited. For example, a breach of confidentiality by one party may be particularly harmful to the other party, and thus it would be unfair to cap the amount of damages. Another example arises in the context of indemnification. If one party is obligated to pick up the tab because the other party got sued for what the indemnifying party did, then the indemnified party will want to make sure it is made whole, regardless of what the damages are. In situations such as these, the parties may negotiate a “carveout” from the damages cap or exclusion, and agree that if something occurs within a defined set of circumstances, the liability caps or exclusions will not apply.

Limitations on limitations

It is important to keep in mind that limitations of liability are subject to legal interpretation and may not be enforceable in all jurisdictions. They can be evaluated and interpreted by courts in different ways. Additionally, some courts may hold that a limitation of liability clause is unenforceable if it is found to be unconscionable or against public policy.

Tough negotiation

In many technology transactions, the limitation of liability provision is among the last remaining issues to negotiate. This fact underscores how important such provisions are in making a particular transaction palatable to a party. A particular vendor may not be willing to “bet the company” on a particular deal (i.e., would not want to risk everything if something goes wrong). So these sorts of provisions are useful in giving parties comfort to enter into a deal.

Evan Brown is a technology attorney in Chicago. Follow him on Twitter: @internetcases

January 16, 2023 Contracts

What are audit provisions in a technology contract?

audit provision

An audit provision in a technology contract is a clause that allows for one party to inspect and perhaps copy certain business records and other information of the other party. Often an audit provision authorizes a party that owns licensed technology or software (the provider or licensor) to periodically inspect and audit the customer’s use of the technology or software. These types of provisions help ensure that the customer is using the technology or software in accordance with the terms of the agreement and that it is not infringing or otherwise misusing the technology or software. They can also be used to ensure that the customer is paying the appropriate license fees or royalties.

One often sees audit provisions in reseller agreements and revenue sharing agreements, to give the right of one party to inspect records that confirm it is being paid in accordance with the terms of the agreement. Since commissions are often calculated as a percentage of revenue, a referral partner may want to see the underlying records supporting the amounts the referral partner is being paid.

The audit provision typically outlines the procedures for the audit, such as the frequency of the audits (often expressed as “no more often than x times per calendar year”), who may conduct the audits (e.g., designees of the auditing party), and what information must be made available for review during the audit. It may also outline the rights and responsibilities of both parties during the audit process, including any limitations on the scope of the audit and the handling of any confidential information that is revealed during the audit.

An audit provision in a technology contract may provide that if the audit uncovers underpayment by the audited party (perhaps by at least a certain percentage) then the audited party will be responsible not only for the amount of the underpayment, but also for the costs incurred by the auditing party in conducting the audit.

Overall, audit provisions are an important aspect of technology agreements and play a vital role in protecting the interests of both parties involved. It is important for both parties to understand the audit provisions in the agreement and to comply with them fully in order to avoid any potential legal disputes.

Evan Brown is a Chicago attorney helping businesses negotiate and draft technology services and development contracts. He also handles many other issues involving the internet, copyright and trademarks, domain names and new media. Call him at (630) 362-7237 or email ebrown@internetcases.com. Follow him on Twitter: @internetcases

January 11, 2023 Contracts, Licensing

Why are indemnification provisions important in technology contracts?

vicarious liability copyright

Indemnification provisions in technology agreements play a crucial role in protecting the parties involved in a technology transaction. These provisions are often included in agreements among technology vendors, customers, software developers, and other related parties to shift the risk of losses and legal liabilities from one party to another.

Picking up the tab

Indemnification is a legal concept that involves one party (the indemnitor) agreeing to compensate the other party (the indemnitee) for any losses or damages that may occur as a result of a specific event or occurrence. Similarly, a provision of this sort may provide that one party will “defend” the other party by retaining counsel and paying the costs of defense in court, as those costs are incurred. In technology agreements, indemnification provisions are often used to shift the risk of losses or damages that may result from a party’s breach of contract or negligence. Customers will often seek to insist that the vendor indemnify the customer in the event a third party files a lawsuit against the customer because the technology infringes that third party’s intellectual property rights.

The main purpose of indemnification provisions in technology agreements is to protect the parties involved from potential financial losses, legal liabilities, and other costs associated with legal disputes. For example, a contract may provide that if a software developer breaches a contract and causes a loss to the client, the indemnification provision would require the developer to compensate the client for any damages.

Key elements

Indemnification provisions in technology agreements typically contain several key elements, including the types of losses or damages that will be covered, the parties that are responsible for indemnifying the other party, and the time frame for indemnification to take place. It also often covers the notification requirements, the documentation and information that should be provided in case of losses or damages, and the limitation of liability.

Another key aspect of indemnification provisions is that they are often mutual, meaning that both parties are responsible for indemnifying each other in certain situations. This can help to ensure that both parties are protected in the event of a legal dispute, and it also helps to create a balance of risk between the parties.

Why bother?

Indemnification provisions in technology agreements play a vital role in protecting the parties involved from financial losses, legal liabilities, and other costs associated with legal disputes. It’s important for both parties to understand the concept of indemnification, the purpose of these provisions, and how they are typically used in technology agreements.

Evan Brown is a technology and intellectual property attorney in Chicago. Follow him on Twitter at @internetcases.

September 27, 2022 Contracts, Copyright

Company successfully defends against trade dress and copyright infringement claims over online software tool

trade dress

A federal court in Delaware dismissed most of the intellectual property infringement claims concerning a competing online room-planning software tool. The court held that plaintiff’s trade dress infringement and breach of contract claims failed, and that its copyright infringement claims failed, except for those allegations relating to the copying of computer code.

No trade dress protection where look and feel was functional

On the trade dress claim, plaintiff had identified fifteen elements that formed a cohesive “look and feel” of its software. And the court found – based on extensive use, wide advertisement and appearance in industry publications – that the trade dress had acquired secondary meaning. But the court found that the look and feel was merely functional and not subject to trade dress protection.

Copyright infringement – mixed bag

Similarly, the court dismissed the copyright infringement claim regarding the selection, arrangement and coordination of visual elements of the program. In the court’s view, these elements were merely functional and thus not subject to copyright protection. The court dismissed the copyright infringement claim as well concerning the tool’s graphics. On this point the court was even more bold – it found after a visual comparison of the works that they simply were not similar.

The court allowed the copyright infringement claim concerning the program’s code to move forward. It found that plaintiff had alleged both access and similarity. Plaintiff had also alleged that defendant repeatedly accessed the program to stress test the design, and that there were extensive similarities in the tools’ mechanics. These allegations were enough to survive a motion to dismiss.

Browsewrap not enough

Finally, the breach of contract claim failed, not on the basis of preemption as one might expect, but because the court found plaintiff had not sufficiently alleged that a contract had been formed. Plaintiff asserted that its website’s terms of service prohibited copying of the software, and that defendant’s employees should have been aware of those terms on a browsewrap theory – there was a link to the terms at the bottom of the page. But the court would not find that plaintiff alleged enough facts to plausibly allege that defendant’s employees manifested assent to those browsewrap terms.

Design With Friends, Inc. v. Target Corporation, 2022 WL 4448197 (D. Delaware, September 23, 2022)

Restraining order issued against domain name seller who refused to transfer

restraining order domain name

Defendant listed a domain name for sale using DomainAgents. After a couple rounds of negotiation, plaintiff accepted defendant’s counteroffer to sell the domain name. But when the time came to put the domain name in escrow to enable transfer, defendant backed out of the deal, saying he had changed his mind. Plaintiff sued for breach of contract and sought a temporary restraining order that would prohibit defendant from transferring the domain name.

The court granted the motion. It agreed with plaintiff that it was appropriate to determine the motion ex parte (that is, without giving notice to the defendant) because the defendant could transfer the domain name in the meantime, thereby depriving plaintiff of the ability to procure an irreplaceable asset.

It found plaintiff would likely succeed on the merits of the breach of contract claim, because plaintiff had shown that a valid contract likely existed, that plaintiff was willing to perform its end of the bargain, that defendant had breached by refusing to go through with the transaction, and that plaintiff had been damaged due to the loss of the ability to procure the domain name from defendant.

The court further found a likelihood of irreparable harm to plaintiff, in that defendant’s communicated belief that he was not bound by the purchase agreement indicated he would sell the domain name to another interested party. If that were to happen, plaintiff would have no recourse against that purchaser, who was not in privity of contract with plaintiff.

Moreover, the court found the balance of equities favored plaintiff. The temporary restraining order would only be in place until a further hearing on injunctive relief could be had, and defendant would not otherwise be restricted from using the domain name in the meantime.

Finally, the court held that the public interest favored granting injunctive relief. The public interest strongly favors enforcing contracts.

Jump Operations, LLC v. Merryman, 2022 WL 1082641 (D. Nev., April 8, 2022)

Uber’s signup process did not create enforceable arbitration provision

After plaintiff Uber user was denied a ride because of her guide dog, she sued Uber for discrimination under Maine law. Uber sought to have the matter sent to arbitration and the court denied that motion. So Uber sought appeal with the Maine supreme court. That court affirmed the denial of the arbitration motion, finding that Uber’s terms of service were not binding on plaintiff.

First, plaintiff was not placed on reasonable notice that the terms existed. The hyperlink was not underlined and was muted by gray coloring. Its placement on the screen was “relatively inconspicuous.” There was a greater focus on entering payment information.

Second, the court found that even if the registration process had provided reasonable notice that the terms existed, the process was insufficient to place plaintiff on notice that her registration would constitute her assent to those terms. Merely clicking the “DONE” button in the signup process, in the court’s view, could merely have meant that plaintiff thought she was done entering her information, not signing up for an account. And that button appeared on the screen “as far as possible” from the notice and hyperlink to the terms, which were at the bottom of the screen.

Sarchi v. Uber Technologies, Inc., — A.3d —, 2022 WL 244113 (Maine, January 27, 2022)

January 5, 2022 Computer Crime, Contracts

Court refuses to enjoin use of fake accounts to access DRM-protected information

Plaintiff manufacturer of medical equipment sued a company that services such equipment for hospitals and clinics. Plaintiff claimed, among other things, that defendant violated the Computer Fraud and Abuse Act and the anticircumvention provisions of the Digital Millennium Copyright Act by using fake accounts to access proprietary documents, information and software that plaintiff had protected with digital rights management (DRM) technology.

The court denied plaintiff’s motion for preliminary injunction – which sought to bar defendant from accessing the computer systems or circumventing the DRM. It held that plaintiff had not met an essential element required for injunctive relief, namely, that plaintiff would suffer irreparable harm if the injunction was not granted.

There were two main reasons for the court’s decision. First, the court found that the assertions of irreparable harm were mere conclusions not supported by concrete facts. Second, the court found that the obligations on the defendant imposed by the contracts it had with its hospital and clinic customers would constrain defendant from engaging in the harmful activity that plaintiff sought to stop. For example, plaintiff claimed that defendant would access patient data without authorization. But the court noted that defendant was bound by confidentiality agreements and the obligation to abide by applicable data protection law. And plaintiff was worried that continued unauthorized access would increase the chances that defendant would modify the equipment. But again, the court looked to the contracts between defendant and its customers, which obligated defendant to properly maintain the equipment (thus removing any incentive to do what plaintiff was seeking to prevent).

Philips North America LLC v. Advanced Imaging Services, Inc., 2021 WL 6052285 (E.D. Cal., December 21, 2021)

January 4, 2022 Contracts, Cryptocurrency, Fraud/Misrepresentation

Exploiting blockchain software defect supports unjust enrichment claim

blockchain unjust enrichment
Most court cases involving blockchain have to do with securities regulation or some other business aspect of what the parties are doing. The case of Shin v. ICON Foundation, however, deals with the technology side of blockchain. The U.S. District Court for the Northern District of California recently issued an opinion having to do with how the law should handle a person who exploits a software flaw to quickly (and, as other members of the community claim, unfairly) generate tokens.

Exploiting software flaw to generate tokens

Mark Shin was a member of the ICON Community – a group that includes users who create and transact in the ICX cryptocurrency. The ICON Network hosts the delegated proof of stake blockchain protocol. The process by which delegates are selected for the environment’s governance involves ICX users “staking” tokens. As an incentive to participate in the process, ICX holders receive rewards that can be redeemed for more ICX. The system does not give rewards, however, when a user “unstakes” his or her tokens.

When a new version of the ICON Network software was released, Shin discovered that he was immediately awarded one ICX token each time he would unstake a token. Exploiting this software defect, he staked and unstaked tokens until he generated new ICX valued at the time at approximately $9 million.

Bring in the lawyers

Other members of the community did not take kindly to Shin’s conduct, and took steps to mitigate the effect. Shin filed suit for conversion and trespass to chattel. And the members of the cryptocurrency community filed a counterclaim, asserting a number of theories against Shin, including a claim for unjust enrichment. Shin moved to dismiss the unjust enrichment claim, arguing that the community’s claim failed to state a claim upon which relief could be granted. In general, unjust enrichment occurs when a person has been unjustly conferred a benefit, including through fraud or mistake. Under California law (which applied in this case), the elements of unjust enrichment are (1) receipt of a benefit, and (2) unjust retention of the benefit at the expense of another.

Moving toward trial

In this case, the court disagreed with Shin’s arguments. It held that the members of the community had sufficiently pled a claim for unjust enrichment. It’s important to note that this opinion does not mean that Shin is liable for unjust enrichment – it only means that the facts as alleged, if they are proven true, support a viable legal claim. In other words, the opinion confirms that the law recognizes that Shin’s alleged conduct would be unjust enrichment. We will have to see whether Shin is actually found liable for unjust enrichment, either at the summary judgment stage or at trial.

Examining the elements of unjust enrichment, the court found that the alleged benefit to Shin was clear, and that the community members had adequately pled that Shin unjustly retained this benefit. The allegations supported the theory that Shin materially diluted the value of the tokens held by other members of the community, and that he “arrogated value to himself from the other members.” According to the members of the community, if Shin had not engaged in the alleged conduct, the present-day value of ICX would be even higher. (It will be interesting to see how that will be proven – perhaps one more knowledgeable than this author in crypto can weigh in.)

Shin v. ICON Foundation, 2021 WL 6117508 (N.D. Cal., December 27, 2021)