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The BUSKLAW January Newsletter: "What's in Your Contracts?" The Case for Auditing Your Contracts (Part 1)


It's 2019! Time to dust off the real - or virtual - dust covering those contracts in your real - or virtual - file cabinet and take a look at them for potential problems waiting to blossom into disputes that could lead to costly litigation. So pick one of your more important business contracts and review the following provisions to see if any of these concerns hit home:   

> Identification of the Parties. For some reason lost in the annals of time, lawyers often identify the contracting parties with names that are similar, as in "Licensee and Licensor," "Lessor and Lessee," and "Obligor and Obligee." But this practice is ill-advised because the drafter is susceptible to using the names incorrectly, and the reader must stop and figure out their meaning based only on the last two letters of the name. So rather than use these confusingly similar names, why not simply use the real names of the parties after first identifying their legal relationship. If your contract uses similar legal terms for the parties' names, chances are that the parties are misidentified somewhere in the contract.  

>Agreement Term (Duration). Are you working from an expired contract? Do you know when your contract expires and whether it can be renewed? In the recent California case of Olive v General Nutrition Centers, Inc., GNC failed to keep track of releases from 16 models used in their advertising, and their photos were used after their releases had expired. 15 of the 16 persons settled with GNC for sums ranging from $5K to $32K, but the 16th person, one Jason Olive, decided to sue for misappropriation of his likeness under California law. The jury awarded him $1.1M, less than what Olive sought but a lot more than what GNC paid to settle with the other models. That's what can happen if you fail to track the expiration dates and renewal provisions in your contracts. Have you checked yours?  How hard is it to keep a spreadsheet of your contracts that contains a summary of their important terms, including expiration dates and renewal provisions? 

>Payment Provisions. Are the payment provisions in your contracts clear, as in who is to be paid, how much is to be paid, and when payment is to be made? And what happens if payment isn't made when due? And must you pay the other party if they are in breach of the contract? Do the payment provisions in your contracts protect you while being fair to the other party? Has your finance area signed off on these payment terms?

>Intellectual Property (IP) Rights. If your contract is for your (or the other party's) services that produce something to deliver to you (or the other party), who owns the IP rights to the work product? Imagine believing that you could re-purpose some or all of a work product for your other customers only to find out that you conveyed all your IP rights to your original customer. Allocation of IP rights can be tricky. Do your contracts properly address who gets (and keeps) what IP rights?

>Confidentiality. These provisions are often one-sided in the sense of protecting one party's confidential information but not the other party's. Regardless of the parties' roles and responsibilities, confidentiality provisions should be mutual and contain exceptions for information that is already publicly known or in a party's possession without breach of the contract. And how long the confidentiality provisions bind the parties after the agreement's expiration or termination should be stated. Do the confidentiality provisions in your contracts satisfy these criteria?

My February post will continue this inquiry, but in the meantime, I'd be interested in hearing the results of your audit and helping you with any questions (just email me at busklaw@charter.net). And remember that three things in life are true: death, taxes, and that addressing these concerns in your contracts now is a lot less trouble (and cheaper) than having to argue about (or litigate) them when they emerge later.  

It's 2019, what's in your contracts?  
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If you find this post worthwhile, please consider sharing it with your colleagues. The link to this blog is www.busklaw.blogspot.com and my website is www.busklaw.com. And my email address is busklaw@charter.net. Thanks!

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