Do automated agreements and licences need to be reviewed by qualified lawyers?

Assessing the whole relationship

The government’s problems with Carillion would not have arisen if there had been someone involved in the procurement process and subsequent agreements who had had the authority to question every detail of the relationship with the company.

The software systems used in such circumstances tend to favour the large corporations who can routinely pass the criteria of experience, expertise and financial stability. If a paper pile of the Carillion contracts had been viewed then someone might have raised a red flag earlier. The question may then have been asked as to whether it made sense to allow one company to be awarded so many major public projects? All the focus was on each separate application or contract – and there was no risk assessment regarding the ability of the company to deliver, in respect of multiple procurement agreements.

Every contract matters

The whole process of contract management is now so streamlined that it takes a very courageous person to challenge the system. The reliance on technology is said to bring greater certainty, reduce risk and increase efficiency. However, where contracts are concerned that is not the case. It is a naïve approach to issue the same contract repeatedly without any thought and input to tailor it to the time, place, law, technology and facts.

Precedents are only building blocks

Precedent books and online resources serve the purpose of being a starting point and should not be taken as providing finished documents. Yet the software contract documents in such resources are presented as if they are comprehensive and complete. That can never be true and an agreement should always be analysed, reviewed and amended before it is issued or signed. Automated contracts can result in errors, omissions and failures which are not noticed until later when litigation is pending. The wording of pro forma agreements needs to be reviewed to consider whether it actually covers all the potential issues and how it can be improved.

The software developers believe that they can eliminate the role of trained qualified lawyers and legal professionals who are experts in their field. Yet any company that fails to have an expert in contracts involved in the process of the negotiation, drafting, conclusion and storage of the data relating to the contracts is adopting a weak strategy. It is likely that the company will run an increased risk of legal actions and, further, that it will not acquire copyright or ownership of new material, images, logos and work created by third parties. The company may enter into contracts which are too long and which cannot be terminated easily. The contract may impose restrictions or liabilities which could have been avoided. The company may be unable to collect any revenue from a particular form of exploitation as those rights were either not specified or were signed away. This sort of problem particularly applies to new methods and formats, whether it be the use of a brand as a subject for a theme park or a new product.

Contracts and IP rights are valuable business assets

Contracts often form the building blocks of a business and every contract requires sufficient attention and analysis to see how it can be adapted to protect the company, increase revenue and ensure that any indemnity, risk or liability is as low as possible. Every contract and scenario should be considered and drafted from a fresh angle after looking as all the facts and possibilities. A contract should be specific to each case and not just be issued merely as an administrative exercise. Failure to invest in proper legal advice and expert drafting may result in a company failing to acquire intellectual property rights and to lose significant revenue.

Delete clauses that seem ambiguous or are likely to be forgotten

A company may find that it has committed itself to a relationship with a licensee to a far greater extent than was necessary. In a recent case involving a football club it was contractually obliged to offer a licensee ‘matching rights’ to those offered by third parties. When the club failed to offer those ‘matching rights’ the original licensee took legal action.  If this clause had been deleted from the contract in the first place this predicament would have been avoided. There was no clear financial benefit to the club for this type of clause in a merchandising agreement. It is also probable that there was no additional payment by the original licensee for the inclusion of this clause.

A company therefore needs to have control of its documents and to make amendments before a contract is issued or before a third party agreement is signed. A company needs to create its own contract procedure and policy which is entirely detached from the automated version. For instance a company may adopt a policy that no contract with a distributor will be for longer than five years or that all supplier contracts shall be for a fixed period of one year.

Assignments and acquiring rights

At some point in the drafting someone needs to look at the agreement and see how it can be cut back so that less rights are given for the same payment and to ensure that all rights, copyright, trade marks and other media relating to the project will not fall into the control of a third party.

Agreements in a crisis

When a company has a successful relationship with a distributor or licensee or marketing company. The contract may be amended  by an exchange of emails to cover additional work, a different payment structure or even a longer term. Only when something goes wrong will everyone rush to look at the contract. The distributor may be insolvent and the moulds or masters are kept in the factory. Who owns them and do you as a company have any right to enter the factory and recover them back? The parent company of the licensee has been acquired by a business with a very different brand strategy and profile which does not meet your own criteria. Is there a right to terminate the agreement? So the answer is clear that licences, distribution, supply, assignments and commissioning agreements should all be drafted by those with expertise who understand the impact of clauses on the company and its business.

Deborah Fosbrook is the author of Contract and Copyright Drafting Skills, The A-Z of Contract Clauses, The Media and Business Contracts Handbook and The Complete A-Z of Contract Clauses Pack

Written by Ellie MacKenzie

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