The Chinese Restaurant Menu And Yogi Berra Approach To e-Commerce Contracting

What makes a License Agreement a license agreement? In fact, why are so many e-commerce contracts called license agreements in the first place ' and should they be?

Traditional business contracts generally follow standard forms. When an attorney sits down to draft a stock purchase agreement, or buy-sell agreement, it probably won't be much different from the dozens he or she has done before.

This is very comforting, for lawyer and client. The drafter need not worry about leaving out anything important. The form will have most, if not all, of the necessary clauses already in place. The attorney must mark up only the details of the particular deal.

From the client perspective, this type of drafting helps control costs. Little complex work is necessary, so junior attorneys can do most of the job ' at lower rates. In fact, because most changes reflect business terms, rather than legal points, many sophisticated clients can save money by doing their own contracts ' or at least first drafts of contracts.

Follow Familiar Legal Models

But e-commerce contracts don't always follow the rules of traditional drafting. Although e-commerce has existed for several years, few attorneys or firms have large bodies of forms from which to draw for drafting e-commerce contracts. Even a leading online contract-forms site, www.onecle.com, which extracts forms from SEC filings, doesn't have a category for e-commerce contracts. (Searching that site by company, however, quickly identifies several e-commerce companies' actual contracts.)

The absence of “standard” e-commerce forms should not be surprising to anyone involved in the development of online business over the last decade. The hallmark of e-commerce has been innovation, as entrepreneurs try, and then discard, new business models at a furious pace in their quest for dominance of a new landscape. Even firms that once seemed invincible quickly saw others bypass their technology or market position, such as Alta Vista, or eToys.com.

As a result, many e-commerce contracts are sui generis ' they don't follow a model. Each deal has unique aspects, which must be considered separately and covered by one or more agreements. If the drafter wants to protect his or her interests adequately, then the form of a traditional agreement should not dictate the content of an e-commerce contract. Just because standard forms don't exist doesn't mean that e-commerce contracts don't get written, however. Business goes on, and deals demand paper. Instead, e-commerce contract-drafters must follow the same process used by those who have argued e-commerce issues in court ' start from existing law, and analogize, compare or contrast. Drafters must first consider what issues and risks exist in the deal, all of which must be addressed in the contract, and then modify forms as necessary to add provisions for these points.

And, As Usual, Use The Internet

When the subject is new, drafters often look to samples of what other firms in the industry have done with similar issues. Today, this approach has become particularly easy because so many actual contracts are available at company Web sites.

Most basically, begin with contract-formation issues. Businesspeople rarely gather around old tables in a conference room to negotiate and sign documents. Instead, drafts and comments are circulated by e-mail. That means that the e-commerce draftsperson must consider whether to incorporate provisions for electronic signatures ' assuming that all parties have the necessary software. Everyone must agree on a procedure and system that will create a binding acceptance under the law of the state that governs the contract.

Electronic signatures typically require not only software to record the clicked acceptance, but also digital certificates. Digital certificates give some comfort that the person clicking “accept” is, in fact, the person the other party believes him or her to be. If the deal does not warrant the costs of that infrastructure, then the draftsperson must plan time for more traditional alternatives. Typically, confirmation e-mails from all parties will quickly be followed by circulation and signature of paper printouts.

Although electronic signatures were much discussed when enabling legislation was passed several years ago, only true e-commerce sales sites have widely adopted them. Even though most traditional agreements are negotiated electronically today, in practice, many are still signed on paper, and then circulated by mail, fax or .PDF (or all of these forms in our “paperless” society). And so, particularly because many deals proceed very quickly, even the extra day or two it takes to exchange signed papers may become a problem for clients who do not want to wait for the deal to become final before they begin work. A further potential delay is putting the deal on paper, which often highlights new issues that require more than a day or two of thinking and negotiating. Also, lawyers and clients alike should not forget to compare the versions of the contracts that each side believes are final. As e-mailed drafts overlap one another, differences may creep in without anyone realizing it.

Peer Ahead, But Be Prudent

Next, don't forget to consider whether conventional language is broad enough for the electronic world ' not only as it exists today, but as it may exist over the life of the contract. Constant innovation may create new circumstances that no one can reasonably anticipate. For instance, although a contract can't describe unknown future technologies ' the unexpected is obviously unexpected ' it can state the parties' clear intention that it will apply to situations as yet unknown. Contract language often specifically states that it will govern future circumstances, even if unknown at the time of signing (for example, future methods of distributing a product).

Publishing contracts, for example, have long explicitly covered unknown methods of publication. But the contract perhaps should not try to be too specific about the future. A well-intended effort to list some future possibilities could whipsaw the drafter, if technology develops differently and the general efforts to describe the unknown are interpreted by a court as limits on the contract's effect.

Even apart from the unknown, language for such traditional needs as granting rights or territories, for example, must address the effect of electronic data formats. International jurisdictional issues have become highly relevant because of the ease and minimal cost of worldwide distribution. And keep in mind that contract boilerplate no one ever need think about in the United States may create regulatory or cultural issues when applied abroad. Traditional commerce codes or arbitration rules may need their international analogs; for example, the statement of laws governing an e-commerce contract may have to recognize international standards, rather than U.S.-based ones, such as the United Nations Convention on Contracts for the International Sale of Goods (1980) (www.uncitral.org/pdf/english/texts/sales/cisg/CISG.pdf) rather than the Uniform Commercial Code). The U.S. State Department maintains a helpful list of documents to which the United States has subscribed (see it at www.state.gov/s/l/treaties/c15824.htm).

Cover All Possible Contingencies

“Choice of law” and “choice of venue” clauses that have always been boilerplate are often buried at the end of a contract. Should a dispute arise, however, they may become the most critical pieces in cost-effectively resolving the dispute – or could deprive a client of the practical ability to fight, if those choices were not carefully considered, and the case is heard in a distant location, or in one without a fair legal system.

Some e-commerce issues never arose in traditional contracts, yet have become primary concerns of businesspeople and their counsel. Drafters must, therefore, affirmatively add provisions for these “new” issues. For example, contractual assurances of protection of information privacy, and data-security integrity cannot be ignored – nor can remedies for the failure to provide these safeguards, or to apply them effectively. Problems in these areas can be catastrophic, financially and from adverse publicity.

Rights to new forms of intellectual property, and procedures for handling them, can also be covered. Contracts for the sale of a business have for many years specifically covered the transfer of a phone number. Today's equivalent clauses govern transfers of e-mail and Web site addresses, and domain-name dispute-resolution procedures. Remedy provisions ' what happens if something goes wrong, and how the wronged party will be made whole? ' require particular attention from an e-commerce perspective, for the same reasons as the governing law and venue issue. Long before e-commerce, attorneys had to anticipate ways to recover a judgment when dealing with a party without readily accessible assets or that were located in a distant jurisdiction, such as certificates of insurance, letters of credit, or personal guarantees.

Parties to an e-commerce contract, however, not only may never see each other beyond images on a computer screen, but may not have any tangible assets. Entrusting critical business operations to an e-business may mean dealing with a firm whose Web site could be gone tomorrow, or that could be located at a false address in some remote part of the globe; the ability to make claims on insurance or a letter of credit may be the only practical protection against defaults.

Chinese Restaurant Menus And Yogi Berra '
What A Combo!

Often, critical assets and operations in e-commerce revolve around intellectual property ' patent rights and inventions, or trademarks and copyrights. Those assets are generally licensed, rather than sold, which is why so many e-commerce contracts begin life as a license agreement.

Yet many of the issues discussed in this article, not to mention conventional provisions of purchase agreements for goods and services, would never appear in a traditional license. While licensing provisions are critical to protect those intellectual property rights, the e-commerce contract draftsperson cannot stop there.

Also, if new rights will be created under the contract, or existing rights will be modified or expanded, then the e-commerce contract should specify who will own them ' particularly after the contract ends. Parties to an online deal must especially decide who will keep domain names, because that may be the way that customers will look for the parties in the future ' just as phone numbers and prime real estate have always been important.

So how can an e-commerce contract writer confront all this uncertainty? As a start, perhaps writing an e-commerce contract should be treated like ordering a meal from “column A and column B” of a proverbial but electronic Chinese restaurant. Begin by considering all of the different types of forms that may be relevant ' not only a license agreement, but also contracts for the sale of goods or services, and buy-sell agreements when joint ventures are involved, or when new rights are created. Then select the necessary revisions from each, just as when ordering “one from column A, one from column B.” But in a world where the only constant is change, the drafting process should not stop there. Certainly, some provisions, or developments, may be so new that the only alternative is to craft language from scratch.

Fortunately, the Internet and electronic databases offer a virtual “help desk” to help practitioners solve these problems; unfortunately, these tools were unknown to lawyers in the past. With so many actual contracts online, whether in SEC filings, or simply available as “click to accept” documents at e-commerce Web sites, the drafter can quickly see how others have tried to provide for the same issues. The process that makes writing e-commerce contracts so difficult, the ever-changing nature of e-commerce, may provide a solution for the drafter trying to capture the e-commerce deal on paper.

And then there's Yogi Berra. The American sports and cultural icon ' and e-commerce entrepreneur (www.yogiberra.com) ' once said: “You got to be careful if you don't know where you're going, because you might not get there.” Simply trusting that a standard form will have all the provisions your deal needs, without analyzing whether it has provisions relevant to e-commerce, may get you to where you want ' sometimes ' but sometimes, in e-commerce, it may not. Many forms were written when “e” was nothing more than another vowel.

To get the e-deal on paper that you think you have negotiated, you must carefully plan where you want the agreement to go, and what you want it to do, rather than just mark up a form. Without that planning and without selecting the proper menu items for your e-commerce agreement, you may not even know where you need to go in the first place ' and you may never get there in the end, and still be hungry when you do.

What makes a License Agreement a license agreement? In fact, why are so many e-commerce contracts called license agreements in the first place ' and should they be?

Traditional business contracts generally follow standard forms. When an attorney sits down to draft a stock purchase agreement, or buy-sell agreement, it probably won't be much different from the dozens he or she has done before.

This is very comforting, for lawyer and client. The drafter need not worry about leaving out anything important. The form will have most, if not all, of the necessary clauses already in place. The attorney must mark up only the details of the particular deal.

From the client perspective, this type of drafting helps control costs. Little complex work is necessary, so junior attorneys can do most of the job ' at lower rates. In fact, because most changes reflect business terms, rather than legal points, many sophisticated clients can save money by doing their own contracts ' or at least first drafts of contracts.

Follow Familiar Legal Models

But e-commerce contracts don't always follow the rules of traditional drafting. Although e-commerce has existed for several years, few attorneys or firms have large bodies of forms from which to draw for drafting e-commerce contracts. Even a leading online contract-forms site, www.onecle.com, which extracts forms from SEC filings, doesn't have a category for e-commerce contracts. (Searching that site by company, however, quickly identifies several e-commerce companies' actual contracts.)

The absence of “standard” e-commerce forms should not be surprising to anyone involved in the development of online business over the last decade. The hallmark of e-commerce has been innovation, as entrepreneurs try, and then discard, new business models at a furious pace in their quest for dominance of a new landscape. Even firms that once seemed invincible quickly saw others bypass their technology or market position, such as Alta Vista, or eToys.com.

As a result, many e-commerce contracts are sui generis ' they don't follow a model. Each deal has unique aspects, which must be considered separately and covered by one or more agreements. If the drafter wants to protect his or her interests adequately, then the form of a traditional agreement should not dictate the content of an e-commerce contract. Just because standard forms don't exist doesn't mean that e-commerce contracts don't get written, however. Business goes on, and deals demand paper. Instead, e-commerce contract-drafters must follow the same process used by those who have argued e-commerce issues in court ' start from existing law, and analogize, compare or contrast. Drafters must first consider what issues and risks exist in the deal, all of which must be addressed in the contract, and then modify forms as necessary to add provisions for these points.

And, As Usual, Use The Internet

When the subject is new, drafters often look to samples of what other firms in the industry have done with similar issues. Today, this approach has become particularly easy because so many actual contracts are available at company Web sites.

Most basically, begin with contract-formation issues. Businesspeople rarely gather around old tables in a conference room to negotiate and sign documents. Instead, drafts and comments are circulated by e-mail. That means that the e-commerce draftsperson must consider whether to incorporate provisions for electronic signatures ' assuming that all parties have the necessary software. Everyone must agree on a procedure and system that will create a binding acceptance under the law of the state that governs the contract.

Electronic signatures typically require not only software to record the clicked acceptance, but also digital certificates. Digital certificates give some comfort that the person clicking “accept” is, in fact, the person the other party believes him or her to be. If the deal does not warrant the costs of that infrastructure, then the draftsperson must plan time for more traditional alternatives. Typically, confirmation e-mails from all parties will quickly be followed by circulation and signature of paper printouts.

Although electronic signatures were much discussed when enabling legislation was passed several years ago, only true e-commerce sales sites have widely adopted them. Even though most traditional agreements are negotiated electronically today, in practice, many are still signed on paper, and then circulated by mail, fax or .PDF (or all of these forms in our “paperless” society). And so, particularly because many deals proceed very quickly, even the extra day or two it takes to exchange signed papers may become a problem for clients who do not want to wait for the deal to become final before they begin work. A further potential delay is putting the deal on paper, which often highlights new issues that require more than a day or two of thinking and negotiating. Also, lawyers and clients alike should not forget to compare the versions of the contracts that each side believes are final. As e-mailed drafts overlap one another, differences may creep in without anyone realizing it.

Peer Ahead, But Be Prudent

Next, don't forget to consider whether conventional language is broad enough for the electronic world ' not only as it exists today, but as it may exist over the life of the contract. Constant innovation may create new circumstances that no one can reasonably anticipate. For instance, although a contract can't describe unknown future technologies ' the unexpected is obviously unexpected ' it can state the parties' clear intention that it will apply to situations as yet unknown. Contract language often specifically states that it will govern future circumstances, even if unknown at the time of signing (for example, future methods of distributing a product).

Publishing contracts, for example, have long explicitly covered unknown methods of publication. But the contract perhaps should not try to be too specific about the future. A well-intended effort to list some future possibilities could whipsaw the drafter, if technology develops differently and the general efforts to describe the unknown are interpreted by a court as limits on the contract's effect.

Even apart from the unknown, language for such traditional needs as granting rights or territories, for example, must address the effect of electronic data formats. International jurisdictional issues have become highly relevant because of the ease and minimal cost of worldwide distribution. And keep in mind that contract boilerplate no one ever need think about in the United States may create regulatory or cultural issues when applied abroad. Traditional commerce codes or arbitration rules may need their international analogs; for example, the statement of laws governing an e-commerce contract may have to recognize international standards, rather than U.S.-based ones, such as the United Nations Convention on Contracts for the International Sale of Goods (1980) (www.uncitral.org/pdf/english/texts/sales/cisg/CISG.pdf) rather than the Uniform Commercial Code). The U.S. State Department maintains a helpful list of documents to which the United States has subscribed (see it at www.state.gov/s/l/treaties/c15824.htm).

Cover All Possible Contingencies

“Choice of law” and “choice of venue” clauses that have always been boilerplate are often buried at the end of a contract. Should a dispute arise, however, they may become the most critical pieces in cost-effectively resolving the dispute – or could deprive a client of the practical ability to fight, if those choices were not carefully considered, and the case is heard in a distant location, or in one without a fair legal system.

Some e-commerce issues never arose in traditional contracts, yet have become primary concerns of businesspeople and their counsel. Drafters must, therefore, affirmatively add provisions for these “new” issues. For example, contractual assurances of protection of information privacy, and data-security integrity cannot be ignored – nor can remedies for the failure to provide these safeguards, or to apply them effectively. Problems in these areas can be catastrophic, financially and from adverse publicity.

Rights to new forms of intellectual property, and procedures for handling them, can also be covered. Contracts for the sale of a business have for many years specifically covered the transfer of a phone number. Today's equivalent clauses govern transfers of e-mail and Web site addresses, and domain-name dispute-resolution procedures. Remedy provisions ' what happens if something goes wrong, and how the wronged party will be made whole? ' require particular attention from an e-commerce perspective, for the same reasons as the governing law and venue issue. Long before e-commerce, attorneys had to anticipate ways to recover a judgment when dealing with a party without readily accessible assets or that were located in a distant jurisdiction, such as certificates of insurance, letters of credit, or personal guarantees.

Parties to an e-commerce contract, however, not only may never see each other beyond images on a computer screen, but may not have any tangible assets. Entrusting critical business operations to an e-business may mean dealing with a firm whose Web site could be gone tomorrow, or that could be located at a false address in some remote part of the globe; the ability to make claims on insurance or a letter of credit may be the only practical protection against defaults.

Chinese Restaurant Menus And Yogi Berra '
What A Combo!

Often, critical assets and operations in e-commerce revolve around intellectual property ' patent rights and inventions, or trademarks and copyrights. Those assets are generally licensed, rather than sold, which is why so many e-commerce contracts begin life as a license agreement.

Yet many of the issues discussed in this article, not to mention conventional provisions of purchase agreements for goods and services, would never appear in a traditional license. While licensing provisions are critical to protect those intellectual property rights, the e-commerce contract draftsperson cannot stop there.

Also, if new rights will be created under the contract, or existing rights will be modified or expanded, then the e-commerce contract should specify who will own them ' particularly after the contract ends. Parties to an online deal must especially decide who will keep domain names, because that may be the way that customers will look for the parties in the future ' just as phone numbers and prime real estate have always been important.

So how can an e-commerce contract writer confront all this uncertainty? As a start, perhaps writing an e-commerce contract should be treated like ordering a meal from “column A and column B” of a proverbial but electronic Chinese restaurant. Begin by considering all of the different types of forms that may be relevant ' not only a license agreement, but also contracts for the sale of goods or services, and buy-sell agreements when joint ventures are involved, or when new rights are created. Then select the necessary revisions from each, just as when ordering “one from column A, one from column B.” But in a world where the only constant is change, the drafting process should not stop there. Certainly, some provisions, or developments, may be so new that the only alternative is to craft language from scratch.

Fortunately, the Internet and electronic databases offer a virtual “help desk” to help practitioners solve these problems; unfortunately, these tools were unknown to lawyers in the past. With so many actual contracts online, whether in SEC filings, or simply available as “click to accept” documents at e-commerce Web sites, the drafter can quickly see how others have tried to provide for the same issues. The process that makes writing e-commerce contracts so difficult, the ever-changing nature of e-commerce, may provide a solution for the drafter trying to capture the e-commerce deal on paper.

And then there's Yogi Berra. The American sports and cultural icon ' and e-commerce entrepreneur (www.yogiberra.com) ' once said: “You got to be careful if you don't know where you're going, because you might not get there.” Simply trusting that a standard form will have all the provisions your deal needs, without analyzing whether it has provisions relevant to e-commerce, may get you to where you want ' sometimes ' but sometimes, in e-commerce, it may not. Many forms were written when “e” was nothing more than another vowel.

To get the e-deal on paper that you think you have negotiated, you must carefully plan where you want the agreement to go, and what you want it to do, rather than just mark up a form. Without that planning and without selecting the proper menu items for your e-commerce agreement, you may not even know where you need to go in the first place ' and you may never get there in the end, and still be hungry when you do.