Are legal details a waste of time in IP contracts?

Dancing on a pin is doing my head in!

Dancing on a pin is doing my head in!

A commenter on this blog recently challenged the idea that legal details matter in contracts.  The broad point he was making, which is one that IP Draughts has heard before from lawyers as well as commercial clients, was that most contract disputes are fact-based and do not turn on subtle legal points such as whether affiliates are parties to an agreement.

Some obvious points in favour of this argument include the following:

  1. No dispute. Most contracts do not result in disputes.  Therefore, for most contracts, subtle arguments about contract wording and structure may not matter.  Counter-argument: precise, accurate legal drafting helps to make the parties’ rights and obligations clear, which may reduce the likelihood of the parties getting into a disagreement in the first place.  Also, if you base your approach on an assumption that there will be no litigation, what is the point of having a detailed, written contract at all, as distinct from a quick email summary of price and work to remind the commercial parties what they have agreed?
  2. No litigation. Where contracts do result in disputes, those disputes are mostly resolved without litigation, or are settled before the court makes a final decision, so technical legal arguments that might be raised in court are unlikely to make much different to such contracts. Counter-argument: in IP Draughts’ experience, commercial clients ask for a legal opinion on the merits of their dispute, long before the parties get to the point of actively considering litigation.  Often, such opinions include advice on the interpretation of detailed contract wording. The legal opinion provides a context to the parties’ commercial negotiations, and may be cited in the negotiations. 
  3. Outcome often not based on wording. Even where contract disputes do reach court, it is relatively rare for the court’s decision to turn on the interpretation of detailed wording.  Often, disputes turn on the facts of the case – who did what, or said what, to whom – and are influenced by the court’s assessment of who it believes and who has “right” on their side. Counter-argument: True, there are many reasons why a party wins or loses a court case, and sometimes the strict wording of the contract is not the reason.  Nevertheless, there are sufficient instances of the courts applying a narrow focus on the wording of the contract to make getting that wording right an important part of the contract lawyer’s job.

In the IP world, a classic example of the court focussing on the detailed wording is the 2011 US Supreme Court case of Stanford v Roche, reported on this blog here. In a nutshell, Stanford University lost ownership of an employee’s invention because its agreement with the inventor used the phrase “agrees to assign” rather than “hereby assigns”.  A majority of the Supreme Court considered this wording to be critical, though a minority of the court disagreed, noting that there were only “slight linguistic differences” between the two phrases.

The iceberg that sank the Titanic

The iceberg that sank the Titanic

More generally, IP Draughts considers that taking pains to get the drafting right is likely to be symptomatic of a careful approach to all the legal aspects of contracts, including record-keeping (it is dismaying how many commercial clients can’t find the signed originals of their contracts and don’t seem to regard this as important), giving valid notices of breach or termination, being prompt and systematic in the enforcement of rights, and putting together a robust case for trial.

In summary, it should worry you as a commercial party if your contract is not well-drafted, as this may be the visible part of a legal iceberg that could do great damage to your business.

2 Comments

Filed under Commercial negotiation, Contract drafting

2 responses to “Are legal details a waste of time in IP contracts?

  1. I’m happy with that way of looking at it. None of my contracts has been litigated either. But I have been involved in litigating other people’s, and in advising on the merits of cases based on contract wording.

    So when drafting and negotiating contracts I want to engineer the commercial relationship (good phrase) AND take reasonable steps to protect my clients in case of battle.

    Unless the client wants something different, of course. It’s great when a commercial client really knows what they want from their lawyer and gives clear instructions. If they don’t want legal protection and just want the engineering role (and give explicit instructions to that effect so that successors in that commercial role don’t decide to blame the lawyer for the lack of legal protection when the contract goes pear shaped) that suits me fine.

  2. There is middle ground in this debate. Any one contract is very unlikely to
    be litigated. Certain costs and uncertain outcomes are strong motivators to avoid litigation by negotiating to resolve or settle a dispute. I’ve handled hundreds of contracts between multinationals over 30 years, and not one of those contracts has ever been litigated. (You can imagine that I am not keen about wasting days in arguments between the two sides’ lawyers about jurisdiction and governing law.) However, there have been many disputes in the commercial relationships that these contracts created. I believe strongly that the process of answering a reasonable number of “what if?” questions with provisions in contracts is worthwhile. To me, the most valuable assistance that a lawyer brings to his or her clients in situations like this is the identification of the most important “what if?” questions to be answered in advance and the crafting of clear and effective language to capture the answers. I think of it as engineering a commercial relationship more than preparing for litigation that will almost never happen.

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