Winning IP contract disputes depends on more than good drafting

Good contract drafting provides a baseline for interpreting and enforcing contractual obligations.  Without it, the risk of an adverse interpretation by the court (or an unreasonable commercial stance by one or both parties) is increased.  But good contract drafting alone is often not sufficient to win your contract dispute.

IP Draughts understands from commercial litigation lawyers that many, or perhaps most, breach of contract disputes turn on the detailed facts – who did (or failed to do) what, when and how, and how the other party behaved in response.  There may be legal argument in some cases about the meaning of terms used in the contract – eg a best efforts or reasonable efforts obligations. But it is comparatively rare for the dispute to be limited to a disagreement about the meaning of terms used in the contract with no consideration of the facts.

Here are some of the other issues that IP Draughts has seen, that affect the outcome of contract disputes:

  1. Variation by conduct. The parties are held to have agreed a variation to the strict terms of the contract.  Thus, in one case a franchisor had a right to repurchase equipment at the end of the franchise term, but only if he gave notice within 14 days of the end of the term.  Much to IP Draughts’ surprise, the court held that parties’s conduct meant that this time limit no longer applied.
  2. Waiver. A party does not promptly complain of a breach by the other party, and is held to have waived its rights to terminate for that breach.  In one case in which IP Draughts was involved, counsel advised that a delay of one month was too long, and resulted in a waiver.
  3. Implied term. A party asserts that other terms apply, that are not set out in the written contract.  In one case, a party successfully argued for an implied term of fitness for purpose in a software licence agreement, even though the court accepted that the contract was not a contract for the sale of goods, and therefore the statutory implied term of fitness for purpose did not apply.
  4. Refusal to accept reality.  In another case, the wording of the contract seemed clear, as did the breach.  Our client was entitled to a full refund on the price of some expensive laboratory equipment that did not work.  But the party in breach maintained that it was not in breach and refused to back down.  Only when we incurred the expense of an expert report supporting our case, and commenced proceedings, did the other party come to the negotiating table to agree a settlement.

In all of these cases, good contract drafting helped, but it did not ensure a satisfactory outcome.  This is not an argument for downgrading the importance of getting the drafting right – far from it.  But don’t expect drafting alone to solve the messy realities of contract disputes.

Sometimes, parties attempt to avoid these messy realities by sophisticated drafting, eg by excluding implied terms or including a “no waiver” clause.  These attempts are not always successful, and sometimes they are taken to extremes (eg in some risk-averse contracts drafted on behalf of venture capitalists).  A well-drafted contract may include some of these provisions but will focus mainly on clear, unambiguous drafting of the parties’ obligations.

3 Comments

Filed under Contract drafting, Intellectual Property

3 responses to “Winning IP contract disputes depends on more than good drafting

  1. Interesting post. Do you have any case citations for any of these examples?

    • Matthew, these are cases in which I was involved which are not published decisions. For a case on software licensing where a judge in the Court of Appeal decided the case on the basis of an implied warranty of fitness for purpose, see Saphena Computing Limited v Allied Collection Agencies Limited [1995] FSR 616 (CA).

Leave a Reply

Please log in using one of these methods to post your comment:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s