A recent letter from Attorney John O’Brien to a client, which provides some valuable information and perspective. For more information about Technology Licensing and Contracting, view our page here.

Dear Client,

Thanks for sharing the article on cumulative damages. I think that was skewed toward the customer, or maybe I have been on the vendor side so long I am skewed. In my opinion and my approach I have a few simple rules:

1.) Do not try to win the deal in a negotiation; it should be fair and reasonable if the contract relationship is going to last. That even applies to business terms, so if you get too good a PS rate, chances are it will unfavorably effect the PS resource assigned…..how is that a good deal for anyone?

2.) Remember Customers are still king, we are here to get the business but also appreciate that they keep the lights on. Treat them with respect at all times (even when they may be unreasonable or worse than that, unethical).

3.) Consistent with #1 when you insert a contractual provision, try to make it complete. You provide a warranty to define the scope of the promise, but almost all warranties include a remedy, and that remedy should be an exclusive remedy. The vendor will not generally complain about the cause of the warranty claim (unless blatant misuse), they just go right to the remedy and the remedy should resolve the issue; like commercially reasonable efforts to cure the product to function to specification; and maybe a money back remedy if that cure does not happen after 2 tries or X days. That remedy is not a starting place, it’s an ending place. An indemnity, with the cure or refund remedy most often found in those provisions is also a complete and total remedy, not that + a legal action for damages.

4.) No deal is worth betting the future existence of the company, and if a Vendor does a crazy deal with you, its likely they are also doing crazy deals with others. Commercial entities typically require 1) a limit on their liability, and a disclaimer of special, indirect and consequential damages. Its unlikely under that scenario that your deal will be the first to explode, so there is a good chance that if a vendor is foolish enough to accept your excess demand, you will not be successful with them in the long term. All commercial parties request some form of limitation of liability, so that the value and the risk presented by the deal are in some sort of balance.  In some cases like a violation of a privacy law, the LOL cap may be larger, but still there. In most commercial tech contracts, they calibrate the LOL cap to the last 12 months fees paid.

5.) If a customer does not document their implementation plan, staffing plan, or functional specification they don’t really know; they may have a fuzzy framework in mind, but they have not done sufficient planning, so its likely the delivery to follow will include a lot of sorting out those details and a less than terrific delivery.

These are my views, but these basic rules are like learning to block and tackle in football. When a team fails you can almost always trace the failure back to a violation of one or more of these rules.

Regards,

John