The folly of crowds in contract drafting

Will you all stop making that noise!

The crowd noise is deafening!

This article has been inspired by the words of Neil Wilkof, who recently posted an excellent article on the IPKat blog with the title: The IP Lawyer’s Nightmare: “But Everyone Else Does It”.

How true, thought IP Draughts.  There are many situations where some people rely on “group think” or, to use a more recent expression, the “wisdom of crowds“, when taking decisions.  Sometimes, the views of the many outweigh the views of the one.  IP Draughts supports the use of juries to decide facts in criminal trials.  But when the decision involves a legal issue, crowds can be a very unreliable source of information.

Several examples come to mind in the field of contract drafting:

  1. The university senior manager who assumes, because no-one has sued the university before (or not in recent memory) for breach of contract, that the risk of being sued for breach of contract is low, and therefore (“on this occasion”) the university can enter into a contract without the limitation of liability clause that his contracts manager has recommended but the other party is refusing to accept.
  2. The in-house lawyer at a well-known computer company who told IP Draughts in about 1989, during negotiations over the terms of a licence agreement, that he had discussed IP Draughts’ point at an internal meeting with 11 of his colleagues, and they all agreed that IP Draughts’ interpretation was wrong.  Therefore, said the lawyer, IP Draughts should back down in his wording request.
  3. The persistence of US drafters who use the term “indemnify and hold harmless” because (they think) everyone else does, but they are unable to explain what the difference supposedly is between indemnifying someone and holding them harmless.

These examples illustrate different aspects of the same problem.  In the first example, a university president or vice-president may be relying on the collective experience of (UK) universities in not having been sued as justification for concluding that the risk of being sued and incurring liability is low and can be ignored.  But isn’t that what liability clauses (and, for that matter, insurance) are there for: the very small risk of a major event?

"Purple and black are so much more flattering to the older figure than scarlet."

“Purple and black are so much more flattering to the older figure than scarlet.”

In the second example, the in-house lawyer was applying a very crude form of negotiating pressure based partly on the assumption that if a dozen people agree on something, the thirteenth person should question his own judgment and step into line.

In the third example, the drafter takes comfort from the fact that this form of words is commonly seen in indemnity clauses, and he doesn’t feel the need to question it or even, if truth be told, really understand it.  If, instead of following the crowd, the drafter read and followed the recommendations of some of the leading US texts on contract drafting, eg Tina Stark’s book on boilerplate clauses, or Ken Adams’ Manual of Style for Contract Drafting, he or she would stop using the expression “hold harmless”. (There is also an obscure UK book on boilerplate by Anderson & Warner, that comes to similar conclusions.)

Why is that man wearing underwear when the story says he should be naked?

Mummy, why is the Emperor wearing underwear when the story says he has no clothes?

In all of these examples, it may be better to analyse the legal or practice issue than to be distracted by social factors such as group experience or peer pressure.

An intellectual property example that came to mind when IP Draughts read Neil Wilkof’s article is the practice of putting customer logos on a corporate website.  This is a common practice.  A search on Google Images with the search term “our customers” revealed this example in the first line of the search.  This is provided for illustration purposes only; IP Draughts has no knowledge of the company in question and implies no wrongdoing.

Reproducing customer logos is fine if the customers have agreed, but (quite apart from questions of copyright infringement) in IP Draughts’ experience contracts with major companies often include terms expressly prohibiting the supplier from using the company’s logo.  Try pointing this out to a company’s marketing department!  If you do, IP Draughts predicts that some will ignore the advice and take comfort from the fact that “everyone else does it”.

The moral of this tale is that, when it comes to legal issues, following the herd can lead you into danger: crowds can be very unwise.

4 Comments

Filed under Legal practice

4 responses to “The folly of crowds in contract drafting

  1. ginabicknell

    Hi Mark – re point 3 (“hold harmless”) I think many US drafters would have difficulty letting go of this one for the reasons that you listed in a prior post (http://ipdraughts.wordpress.com/2011/10/12/hold-harmless-revisited/). Protection from intra-party liability has been the most common explanation that I have heard for including “hold harmless” in addition to “indemnify” in US contracts. I think it would be worth checking the applicable state law before agreeing to remove (if drafting for the Indemnitee). -Gina

  2. Ken, I agree they are different issues. My examples are only loosely connected under the general theme that “doing what others do” is a questionable basis for action.

  3. adamsdrafting

    Mark: There might be some value to distinguishing between “wisdom of the crowds,” which can be taken to refer to “crowdsourcing” contract language, and misbegotten conventional wisdom, which simply requires that individual drafters ape what they see in the contracts that they’re exposed to. In case it’s of any interest, here’s my take on crowdsourcing contract language: http://bit.ly/15UyjOR. Ken

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