1. Risky Business – Risk Allocation and Other Business Risk Issues
ACC-Northeast
Corporate Counsel Institute
Contracts & Negotiations
October 8, 2015

2. Panelists and Moderator
Rick Winkler, Director, Legal Counsel – Americas for ClickSoftware, Inc.
Pat Schmidt, Senior Director, Brand Licensing & Marketing, IGT
Kim Herman, Partner and head of Intellectual Property practice group, Sullivan & Worcester LLP
Lew Segall, Partner and head of Corporate/M&A practice group, Sullivan & Worcester LLP
© Sullivan & Worcester LLP
11/7/2018

3. What’s Your Risk Profile?
Risky Business - Risk Allocation and Other Business Risk Issues
October 8, 2015

4. Know your client, know your deal
Risky Business - Risk Allocation and Other Business Risk Issues
October 8, 2015

5. Agreement with Vanna White
What are the facts?
TV personality for decades
Strong name and likeness?
Ownership of name or likeness ever contested?
Any pending claims, in general?
Will services be scripted, any ad-lib?
Will scripts be pre-approved by talent?
What is the likelihood of a claim based on use of name/likeness
What might we give up?
Indemnification for third party IP claims
Certain reps and warranties

6. Representations and Warranties (and some Covenants)
Risky Business - Risk Allocation and Other Business Risk Issues
October 8, 2015

7. Representations and Warranties – What are we talking about?
What’s the difference between a representation and a warranty?
Representation: Statement of fact made to induce a party to enter into a contract.
Warranty: Assurance that a particular fact is and will continue to be true.
Remedies:
Breach of warranty may only permit a claim for damages.
Intentional breach of representation may allow for complete rescission of the contract.
Best practice: Provide for a specific rescission or termination right in the event of a breach of a particularly important representation regardless of materiality or intent.
Risky Business - Risk Allocation and Other Business Risk Issues
October 8, 2015

8. What are market compromises for IP reps?
IP Infringement
Vendor owns, or has all rights necessary to use and provide under valid and enforceable agreements, all Intellectual Property Rights reasonably necessary for and related to the operation of the Services as conducted and proposed to be conducted by Vendor hereunder.
To its knowledge, Vendor and its provision of the Services (as well as the Vendor Technology and Vendor Content) does not and will not infringe or violate any Intellectual Property Right of any other person.
Vendor has not received any charge, complaint, claim, demand or notice alleging any infringement or violation of any Intellectual Property Right of any other person with respect to the Services.
To its knowledge,
Vendor position: Make no representations as to title or infringement, as the third party infringement indemnity should cover all of customer’s concerns.
Risky Business - Risk Allocation and Other Business Risk Issues
October 8, 2015

9. Indemnification - What’s Market?
Separate IP Infringement Indemnity
If any of the Services or Vendor Technology become, or in either party’s reasonable opinion (in the case of Customer, which opinion is supported by the advice of counsel) may become, the subject of a claim or allegation of infringement of US patent, copyright or trademark Intellectual Property Rights, Vendor may, and shall if requested by Customer, within a reasonable time, at its sole expense and option, select one of the following options in its discretion:
Procure for Customer the right to continue using the Service or Vendor Technology, but Vendor shall have no obligation to select this option if such rights are not offered on commercially reasonable terms;
Replace the Service or Vendor Technology with a non-infringing substitute reasonably acceptable to Customer and of equivalent form, fit, function and performance; or
Modify the Service and Vendor Technology to be non-infringing, without materially detracting from form, fit, function or performance.
Vendor position: Customer modifications of product/software outside of license will relieve Vendor of the obligation to indemnify.
Risky Business - Risk Allocation and Other Business Risk Issues
October 8, 2015

10. Risky Business - Risk Allocation and Other Business Risk Issues
Other Reps and Issues
Computer Viruses
… no executable file virus, Trojan horse, worm, or any other similar harmful, malicious or hidden procedure, routine or mechanism that would damage or corrupt data, storage media, programs, equipment or communications, or otherwise interfere with operations.
Open Source
Licensor shall properly identify in writing for Licensee any portion of the Solution that is subject to the terms of the Free Software Foundation’s General Public License (GPL) or Lesser General Public License (LGPL), or any other open source license prior to Licensor’s use of such open source software in the products. The Solution shall not cause any portion of any software owned or licensed from a third party by Licensee, or any derivative thereof, to become subject to any open source software requirements such as (A) disclosure or distribution in source code form, or (B) a license granted to third parties for the purpose of making derivatives of such software, or (C) redistribution free of charge.
Vendor position: Best to knowledge qualify the representation as of the date made.
Vendor position: Ensure that the representation is not duplicative of, or creates ambiguity with, the Service Level Agreement (SLA).
Risky Business - Risk Allocation and Other Business Risk Issues
October 8, 2015

11. Risky Business - Risk Allocation and Other Business Risk Issues
Other Reps and Issues (continued)
Cybersecurity compliance in Massachusetts
Vendor represents, warrants, and hereby covenants that it has developed and implemented a comprehensive information security program with appropriate administrative, technical, and physical safeguards to ensure the security and confidentiality of protected information in full compliance with the requirements of state and federal laws, rules and regulations including, without limitation, Massachusetts General Laws c. 93H and 93I and 201 Mass. Code Regs. §
Social Media
The Vendor to its knowledge is in compliance in all material respects with the posted applicable terms of use of YouTube, Facebook, Twitter, and other similar social media websites on which the Vendor maintains an account in its name and will be used in connection with the Agreement.
Risky Business - Risk Allocation and Other Business Risk Issues
October 8, 2015

12. Risky Business - Risk Allocation and Other Business Risk Issues
October 8, 2015

13. Some of these vendors are a little shady. What else can I add?
Unlawful Inducements; Sanctions
Vendor has not violated, and will not violate, any applicable Laws or any Customer policies of which Vendor receives in writing regarding the offering of unlawful inducements in connection with this Agreement
For the full term of the Contract, Vendor represents and warrants that: (i) Vendor shall not be debarred, suspended, excluded or disqualified from doing business with the United States Government; and (ii) Vendor shall not be listed on the Excluded Parties List System maintained by the General Services Administration of the United States Government (found at
Customer position: Consider whether specific termination rights should be stated in connection with particularly important representations.
Code of conduct covenants.
Supplier shall ensure that its personnel comply with Customer’s code of conduct found at
Risky Business - Risk Allocation and Other Business Risk Issues
October 8, 2015

14. Indemnification

15. Risky Business - Risk Allocation and Other Business Risk Issues
During negotiations, you’re worried that the indemnitor will only cover defense of third party claims. Which fee shifting provision do you include?
Seller shall indemnify and hold harmless Buyer from any and all claims, damages, liabilities, costs and expenses.
Seller shall indemnify and hold harmless Buyer from any and all claims, damages, liabilities, costs and expenses, including reasonable counsel fees for both third party and direct claims.
Seller shall indemnify and hold harmless Buyer from any and all claims, damages, liabilities, costs and expenses, including reasonable counsel fees.
including
reasonable counsel fees for both third party and direct claims.
reasonable counsel fees.
including
Risky Business - Risk Allocation and Other Business Risk Issues
October 8, 2015

16. Risky Business - Risk Allocation and Other Business Risk Issues
You represent an indemnitor and want to preserve as much wiggle room about what is covered by the clause. Which provision do you draft?
A shall indemnify B and hold B forever harmless from and against all suits, actions, legal or administrative proceedings, claims, demands, damages, judgments, liabilities, interest, attorney's fees, costs and expenses.
A shall indemnify, defend and hold harmless B from and against all suits, actions, legal or administrative proceedings, claims, demands, damages, judgments, liabilities, interest, attorney's fees, costs and expenses.
A shall indemnify B from and against all suits, actions, legal or administrative proceedings, claims, demands, damages, judgments, liabilities, interest, attorney's fees, costs and expenses.
shall indemnify B and hold B forever harmless
shall indemnify, defend and hold harmless
A shall indemnify B
Risky Business - Risk Allocation and Other Business Risk Issues
October 8, 2015

17. Risky Business - Risk Allocation and Other Business Risk Issues
October 8, 2015

18. Checklist for Drafting an Indemnification Clause
Consider whether the clause covers direct, third party claims, or both;
Pay attention to jurisdiction regarding availability of “fees on fees”; and
Remember that language matters: courts construe indemnification narrowly.
Risky Business - Risk Allocation and Other Business Risk Issues
October 8, 2015

19. Risky Business - Risk Allocation and Other Business Risk Issues
Special Indemnity
any allegation that any Services or Vendor Technology or any portion or element of any of the foregoing is false, deceptive, misleading, unethical, defamatory, libelous, obscene or threatening;
any breach (or any allegation that, if true, would constitute a breach) by Vendor of any agreement between Vendor and any third party relating to the Services or Vendor Technology;
any allegation that any individual used in the provision of Services is or should be deemed to be an employee of Customer or any of its Affiliates for any purpose;
any recall campaign, service campaign, corrective action, or other voluntary or involuntary action or effort in which Customer participates with respect to the Products or products into which the Products are incorporated;
any spill, discharge or emission of hazardous wastes or substances which relates, in whole or in part, to the Products; and
any damages to property or personal injuries to the extent arising from or in connection with Vendor’s work on Customer’s premises.
Risky Business - Risk Allocation and Other Business Risk Issues
October 8, 2015

20. Indemnification Procedures
When can I assume defense of a third party claim?
Notwithstanding anything to the contrary contained herein, in the event that Customer determines in its reasonable judgment that there is a probability that a claim may materially adversely affect its rights to conduct its business, then Customer may, by written notice to the Vendor, assume the exclusive right to control, defend, compromise, or settle such claim (with counsel reasonably acceptable to the Vendor) and the reasonable fees and expenses of counsel shall be considered Losses for purposes of this Agreement.
Best practice: Include specific procedures to ensure an indemnity claim will be handled as intended.
Risky Business - Risk Allocation and Other Business Risk Issues
October 8, 2015

21. Limitations on Liability

22. Risky Business - Risk Allocation and Other Business Risk Issues
Choose an exclusive remedy clause that is likely to be enforced by a court under the U.C.C.
Buyer’s remedy is limited to return of the product and refund of the purchase price; and such remedy shall be the Buyer’s entire and exclusive remedy. This clause is an agreed benefit of the bargain, and remains in effect even if any remedy under the agreement fails of its essential purpose.
Buyer’s remedy is return of the product and refund of the purchase price.
Buyer’s exclusive remedy is repair or replacement of the product.
and such remedy shall be the Buyer’s entire
and exclusive remedy. This clause is an agreed benefit of the bargain, and remains in effect even if any remedy under the agreement fails of its essential purpose.
Buyer’s remedy
Buyer’s exclusive remedy
Risky Business - Risk Allocation and Other Business Risk Issues
October 8, 2015

23. Risky Business - Risk Allocation and Other Business Risk Issues
You don’t want to pay “lost profits.” Which clause do you draft to bar a claim?
Neither party shall be liable to the other party for any consequential, incidental, indirect, or special damages for loss of profit, whether arising out of breach of contract, or otherwise, regardless of whether such damages were foreseeable.
Neither party shall be liable to the other for any consequential, incidental, indirect, special or punitive damages whether arising out of breach of contract, or otherwise, regardless of whether such damages were foreseeable.
Neither party shall be liable to the other for any lost profits, irrespective of whether lost profits constitute direct or consequential damages.
any
consequential, incidental, indirect, or special damages for loss of
profit,
irrespective of whether lost profits constitute direct or
for any lost profits,
consequential damages.
Risky Business - Risk Allocation and Other Business Risk Issues
October 8, 2015

24. Checklist for Drafting a Limitations on Liability Clause
Be specific regarding which damages are limited;
Be clear about the treatment of lost profits: general or consequential;
Watch placement of conjunctive and disjunctive words; and
Be explicit regarding exclusive remedies, failure of essential purpose.
Risky Business - Risk Allocation and Other Business Risk Issues
October 8, 2015

25. Questions?

26. Risky Business - Risk Allocation and Other Business Risk Issues
October 8, 2015