Category: Contracts

May 18, 2020 Contracts, Miscellaneous, Trade Secrets

Independent contractor agreements: common mistakes to avoid

A lot of companies bring on independent contractors to develop content. They may be photographers, designers, writers, consultants, etc. who sign independent contractor agreements. Here are three common mistakes that you should not make if you are hiring an independent contractor.

Intellectual property ownership mistakes in independent contractor agreements

The first common mistake is to leave out language that ensures you as the hiring party own the intellectual property in the deliverables. Did you know that unless the contract specifically says otherwise, the independent contractor will retain ownership of the copyright in the deliverables? Many companies have been surprised to learn, after spending a lot of money on an independent contractor, that they do not own the rights in the content they thought they had paid for.

The agreement should have a work made for hire provision. And since the definition of work made for hire is specific, some things that the contractor may do will not qualify as work made for hire. So the agreement should also say that to the extent the deliverables are not work made for hire, the independent contractor assigns the intellectual property to the party that hired it.

independent contractor agreement

Confidential information mistakes

The second common mistake that you should avoid in engaging with an independent contractor is being vague or loose when it comes to confidentiality. The independent contractor could learn a lot about your business – its vendors, its customers, its plans, and how the company operates. The confidentiality provision should adequately restrict how the independent contractor discloses that information or uses it outside of the engagement with the company. If not, that information may lose its trade secret protection. Or the contractor could take the information it learns about your company and use it while working for one of your competitors.

Indemnification mistakes

A third common mistake that you should avoid in independent contractor agreements is being silent on defense and indemnification. If a third party sues you over something that the independent contractor has done, you would likely want to look to the independent contractor to pick up the costs of defense and pay the amount of any judgment that results. Say, for example, the independent contractor copies a photograph from somewhere else and then provides that to you as his or her original work. If the true owner of the copyright in that work sues you for using the photo, it is only fair that you can turn to the contractor for relief. The agreement should say that.

See also: Independent contractor’s email was key factor in finding he had apparent authority to bind principal

About the author: Evan Brown is a technology and intellectual property attorney in Chicago. Follow him on Twitter and Instagram. Subscribe to his YouTube channel. 

May 17, 2020 Contracts

Working without a signed contract – a good idea for vendors?

As a technology vendor, you may be eager to get that new customer relationship started. Don’t let that tempt you to get underway without taking care of the details first. Technology vendors should avoid working without a signed contract. Here are three reasons why.

Working without a signed contract makes it harder to deal with overly-needy customers.

Working without a signed contract makes it hard to deal with overly-needy customers. Say you have entered into an arrangement where you are going to provide support and maintenance services. You get into the relationship on a handshake basis, and after a few months, the continues making requests, never satisfied, and always wanting services performed “on the cheap”.  You finally recognize  this business relationship is not bearing fruit and that you need to walk away. If there is no written contract in place making clear the conditions under which you as the vendor can terminate the relationship, when you try to disengage from this customer, you might run into trouble. 

A situation like this happened recently in a case that came from Kansas (Straightline HDD Inc. v. Smart E-Solutions, Inc., 2020 WL 2296941 (Ct. App. Kansas, May 8, 2020). In that situation, the parties litigated for several years over the question of whether there was an implied contract for the defendant software reseller to continue to provide support to its customer (with whom it did not have a signed contract). 

The trial court found that defendant had to provide some value for the software customer. Fortunately, the appellate court overturned that on appeal, finding that there really was no implied contract, so the reseller was able to separate from that needy customer. In that situation, the reseller ultimately avoided liability. But it is unfortunate that the parties spent all those years and all those resources litigating the issue. If there had been a written contract in place from the beginning of the relationship, there would have been more clarity and there wouldn’t have been those issues to litigate. The parties could have handled the situation much more quickly and efficiently. 

Having no signed contract means missing out on protective contract provisions. 

A technology vendor should not want to start work before it has a signed written contract because that written contract that was not signed should protect the vendor. For example, you want to make sure that the agreement has the appropriate disclaimers of warranty. A vendor does not want to promise that the technology solution is going to solve all the world’s problems. There should be  certain express warranties, and that is all.

Another kind of provision that you  want to make sure is in the agreement is a limitation of liability. Let’s say you as the vendor are only getting a small amount of revenue from this engagement with the customer.  If the technology solution fails for some reason – maybe even through no fault of yours – and the customer suffers millions of dollars worth of damage or business loss or some other form of consequential damage, you want to  make sure that you are not on the hook for that just. It does not make sense for a vendor to enter into an arrangement where it is only going to get a little bit of revenue while at the same time putting the company on the line with the exposure to potentially large damages.

Going without a signed contract makes it more difficult to get paid.

A third reason for having that written contract in place before you start doing the work is so that you will get paid.  The contract should be clear on how much customer will pay, what the payment is for, and when the payment is due. If it does not, do not be surprised if your customer remembers differently about cost, deadlines and specifications. 

Working without a signed contract is not good for technology vendors.

See also:

Software development breach of contract lawsuit moves forward

About the author: Evan Brown is a technology and intellectual property attorney in Chicago. Follow him on Twitter and Instagram, connect on LinkedIn and subscribe to his YouTube channel for videos on interesting topics about law and technology. 

April 5, 2020 Contracts

Influencer agreements: what needs to be in them

If you are a social media influencer, or are a brand looking to engage an influencer, you may need to enter into an influencer agreement. Here are five key things that should be in the contract between the influencer and the brand: 

  • Obligations 
  • Payment 
  • Content ownership 
  • Publicity rights 
  • Endorsement guidelines compliance 

Obligations under the influencer agreement.

The main thing that a brand wants from an influencer is for the influencer to say certain things about the brand’s products, in a certain way, and at certain times. What kind of content? Photos? Video? Which platforms? What hashtags? When? How many posts? The agreement should spell all these things out.

Payment.

Influencers are compensated in a number of ways. In addition to getting free products, they may be paid a flat fee upfront or from time to time. And it’s also common too see a revenue share arrangement. That is, the influencer will get a certain percentage based on sales of the products she is endorsing. These may be tracked by a promo code. The contract should identify all these amounts and percentages, and the timing for payment.

So what about content ownership? 

The main work of an influencer is to generate content. This could be pictures posted to Instagram, tweets, or video posted to her story. All that content is covered by copyright. Unless the contract says otherwise, the influencer will own the copyright. If the brand wants to do more with that content outside of social media, that needs to be addressed in the influencer agreement.

And then there are rights of publicity. 

Individuals have the right to determine how their image and name are used for commercial purposes. If the brand is going to feature the influencer on the brand’s own platform, then there needs to be language that specifies the limits on that use. That’s key to an influencer who wants to control her personal brand and reputation. 

Finally, endorsement guidelines and the influencer agreement. 

The federal government wants to make sure the consuming public gets clear information about products. So there are guidelines that influencers have to follow. You have to know what these guidelines are to stay out of trouble. And the contract should address what happens if these guidelines aren’t followed.

See also: When is it okay to use social media to make fun of people?

About the author: Evan Brown is an attorney helping individuals and businesses with a wide variety of agreements involving social media, intellectual property and technology. Call him at (630) 362-7237 or send email to ebrown@internetcases.com. 

March 25, 2020 Contracts

Technology vendors must be proactive in dealing with COVID-19 problems

Early action now on possible performance issues will “flatten the curve” of customer problems in the coming weeks and months. 

Here are three things technology and software vendors can do right now to get ahead of problems that may appear (if they are not already) with services such as development, implementation and support:

  • Check your contracts to see whether there are any “material assumptions” that have failed or will fail – perhaps because of some governmental action or unavailability of personnel.
  • Consider whether a change order would be appropriate to redefine the scope of services, timing for performance, or the fees to be charged.
  • See if any delay in your performance is excused on the basis of force majeure. If so, do you need to give notice to your customer that you are claiming force majeure?

Learn from IBM: Do what is required when there are failures of material assumptions.

In 2006, the State of Indiana signed a $1.3 billion contract with IBM to revamp the technology of the State’s welfare system. The economy went south in 2008. In the complicated breach of contract litigation that followed, IBM argued, among other things, that the economic downturn resulted in the failure of one of the material assumptions of the agreement. IBM urged the court to consider that failure of assumption when deciding whether IBM had materially breached its contract to develop and deploy the system.

The Indiana supreme court rejected IBM’s arguments. Why? Not because the economic downturn was not a failure of a material assumption. (It might have been.) Indeed, the contract specifically said that one of the parties’ material assumptions was that the economy would not take a downturn. But IBM did not do what the contract required in light of the downturn – it did not submit a change order request in response to the failure of the assumption, as the contract required.

Change orders anyway?

Even if your contract does not contain material assumptions, it may contain a procedure for procuring change orders. Parties include change order provisions so that they have an organized pathway for making changes to the scope, timing or pricing when circumstances – whether dramatic or trivial – change while the contract is being performed. Vendors should consider whether a simple change to the parties’ obligations can be made now to reduce bigger problems later. It is better for a ship to correct its course early in the journey rather than after many weary days at sea.

And from a practical, customer-focused perspective, the discussions around possible change orders gives a vendor the opportunity to communicate with its customer. This gives the vendor the chance to assure the customer that services are safe in the long run, and can work to build trust and goodwill that will be key in the further development and collaboration that is going to happen in the technology space once this COVID-19 episode has come to a close. 

Force majeure notice – it is critically important

In the litigation against the state of Indiana, IBM also claimed that severe flooding in the state in 2008 was a force majeure event that excused IBM’s performance. Again, as with the argument for failure of material assumption, IBM did not do what it was required to do under the terms of the contract to avail itself of this excuse in performance.

The court found that force majeure did not apply because IBM did not give appropriate notice as required under the agreement. This highlights a critical takeaway – if a vendor sees an upcoming need to claim that it cannot perform due to some circumstance arising from causes outside its control, it is better to place the customer on notice of that fact sooner rather than later.   

So, here are the key questions to ask right now:

  • Has a material assumption failed? If so, what must I do?
  • Would a request for change order be appropriate?
  • What do I need to do before claiming force majeure?

Being proactive now, in the early stages of the COVID-19 crisis, will – just as in the epidemiological context – flatten the curve of problems later.

State of Indiana v. IBM Corp., 51 N.E.3d 150 (Ind. 2016)

February 1, 2020 Contracts

Are your terms and conditions enforceable?

Are your terms and conditions enforceable?

If customers use your website or online service or app, you need to have enforceable terms and conditions. That way, if there is some dispute, you can control over how it’s resolved,. You can also contain the costs by putting an arbitration clause in the terms and conditions. Instead of an expensive lawsuit, you can resolve it in arbitration which is often less expensive, quicker, and more private.

For terms and conditions to be enforceable, one must prove that the customer actually agreed to them. You’d be surprised how often companies find themselves in the expensive hassle of fighting over whether their terms are enforceable, then finding out they’re not.  This can cause them to miss out on the cost savings and efficiency of arbitration.

This happened just just this week. A federal court of appeals ruled that an app developer didn’t structure the interface in a way to put users on notice of the terms. So since the developer couldn’t prove the users saw the terms, the case will proceed in court instead of arbitration.

And perhaps even worse, the case will probably move forward as a class action. Had the terms been enforceable, it would probably have just been limited to one-on-one lawsuits. That would have been much better for the developer.

If you’d like to discuss your terms and conditions, drop me a line or give me a call.

See also: Browsewrap enforceable: hyperlinked terms on defendant’s website gave reasonable notice

Benson v. Double Down Interactive, LLC, 2020 WL 468422 (9th Cir. January 29, 2020)

About the author:Evan Brown is a technology and intellectual property attorney in Chicago. Follow him on Twitter and Instagram, connect on LinkedIn and subscribe to his YouTube channel for videos on interesting topics about law and technology. 

October 29, 2019 Contracts

Software development breach of contract lawsuit moves forward

Plaintiff sued defendant software developer for breach of contract and other claims, asserting that defendant failed to develop and deliver a video editing application on time and within budget. Defendant moved to dismiss the case, arguing that plaintiff had failed to state a claim upon which relief may be granted. The court denied the motion to dismiss the breach of contract claim, allowing that claim to move forward.

The court found that plaintiff had successfully pled a breach of contract claim under Texas law. Defendant had argued that the parties agreed to benchmark the developed software’s performance in comparison to “recreational” software, but that plaintiff later demanded the software be benchmarked against professional grade software. Plaintiff responded that it had asked defendant to benchmark the program’s speed to iMovie, which it characterized as recreational and not professional.

The court looked past this benchmarking aspect and found that even in light of the apparent disagreement on the standard, the allegations in the complaint – that defendant had not provided a viable product under the agreement – were sufficient to support a breach of contract claim.

Polar Pro Filters, Inc. v Frogslayer LLC, 2019 WL 5400934 (S.D. Texas, October 22, 2019)

October 17, 2019 Contracts

Browsewrap enforceable: hyperlinked terms on defendant’s website gave reasonable notice

Plaintiff was bound by forum selection clause found in online terms and conditions. 

Plaintiff sued TripAdvisor and some related defendants (including Viator, a company that TripAdvisor acquired) for a number of torts arising from an ATV accident that plaintiff had while on a tour in Mexico that she had booked online through defendants’ website. Defendants moved to dismiss, or in the alternative, to transfer the matter to federal court in Massachusetts based on the forum selection clause found in the Terms and Conditions that plaintiff agreed to when she booked the tour. The court granted the motion to transfer. 

To purchase the tour, plaintiff was required to click on a “Book Now” icon, directly under which the following message was located: “[b]y clicking Book Now and making a reservation, I acknowledge that I have read and agree to be bound by Viator’s Terms and Conditions and Privacy Statement.” The phrase “Viator’s Terms and Conditions” appeared in blue underlined text, in the form of a hyperlink, which directed the consumer to the website’s Terms and Conditions.

Viator’s Terms and Conditions included a forum selection clause, which, in relevant part, provided:

[T]his agreement is governed by the laws of the Commonwealth of Massachusetts, USA. You hereby consent to the exclusive jurisdiction and venue of courts in Boston, Massachusetts, USA and stipulate to the fairness and convenience of proceedings in such courts for all disputes arising out of or relating to the use of this Website. You agree that all claims you may have against Viator, Inc. arising from or relating to this Website must be heard and resolved in a court of competent subject matter jurisdiction located in Boston, Massachusetts.

The court found that plaintiff had agreed to the forum selection clause, and that the clause was enforceable. In determining whether plaintiff was bound by the clause, the court was guided by “fundamental precepts of contract law.” More specifically, under New Jersey law, “[a] contract term is generally binding if the contract has been mutually agreed upon by the parties, is supported by valid consideration, and does not violate codified standards or offend public policy.” W. Caldwell v. Caldwell, 26 N.J. 9, 24-26 (1958).

Plaintiff had argued that the Terms and Conditions amounted to an invalid browsewrap agreement, because she neither received reasonable notice of their existence, nor provided an unambiguous manifestation of assent. Primarily relying upon Specht v. Netscape, plaintiff argued that she was not bound by the Terms and Conditions, because Viator’s website was designed so that a user can use its services without affirmatively assenting to the web page’s terms of use. According to plaintiff, she was ultimately permitted to purchase the ATV tour without ever being asked to check a box or click an “I Agree” button, or even acknowledge that the Terms existed. Without proper notice, plaintiff maintained that enforcing the forum selection was not appropriate. 

The court disagreed. It found that the hyperlinked terms on defendant’s website adhered to the requirements of reasonable notice. Regardless of whether plaintiff was required to scroll through the Check Out page, the hyperlinked Terms and Conditions were conspicuously placed directly underneath the “Book Now” icon. Based on its location, therefore, the court found that the hyperlink was not hidden in an area of the screen that plaintiff was unlikely to notice, but, instead, was clearly displayed in a section of the webpage that she needed to review in order to effectuate her purchase of the ATV tour. Stated differently, the hyperlink was placed within the immediate proximity of an icon that plaintiff was required to click, for the purpose of confirming her purchase on defendant’s website. 

Mucciariello v. Viator, Inc., No. 18-14444, 2019 WL 4727896, D.N.J. (September 27, 2019)

About the Author: Evan Brown is a Chicago technology and intellectual property attorney. Call Evan at (630) 362-7237, send email to ebrown [at] internetcases.com, or follow him on Twitter @internetcases. Read Evan’s other blog, UDRP Tracker, for information about domain name disputes.

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