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Reasons to review, adapt and create new contracts for your business

Contracts protect your company

When first setting up a business there is often a cavalier approach to contracts that denigrates their role. However it is a dangerous path to take and is more likely to create additional costs and expose your company to greater risk of claims from third parties. This is particularly the case where people are making a contribution as a friend or colleague to the initial start-up project. You can guarantee that when the company is successful that a legal action for a share of the enterprise for being a co-creator of the intellectual property rights or a collaborating partner will be commenced. All the evidence will be based on your conversations, texts, drawings and emails that there was an agreement or understanding that is legally binding. Either way your business is at threat when the problem could have been prevented by a simple written document which you required the other person to sign before any work was started.

Contracts are not static

There is the mistaken belief that generic agreements can be just rolled out with minor editing and suit all circumstances. Quite the opposite is true, and your contracts should be amended regularly so that your business does not lose intellectual property rights it should have acquired and to ensure that they adhere to all the relevant best practices, codes and regulations for your industry.

The balance of power between companies and individuals has dramatically changed due to technology which allow sales to a global market without any need to have retail outlets. The ability to release and market material through YouTube, Amazon and Instagram has created new audiences and encouraged artists and creators to demand greater control over how their work is exploited and represented. You may need to either amend your editorial control clauses or add new clauses to allow greater consultation through the production, distribution and marketing stages.

New IP rights and assignment

There are methods of using, selling, distributing and making money out of material which did not exist twenty years ago. Blogs, apps, Instagram photos, YouTube films, emojis and podcasts are all new formats. Some methods happily fall within existing definitions of rights and some are ambiguous. New product lines may lead to the creation of new logos and artwork which you may wish to register as a trade mark. If you have not had an assignment from the person who created the work or there is no relevant clause within their employment contract, then you may find that your business does not own the rights. Anyone who creates new material in any form whether it is images, sound recordings, music or merchandising for your company should be asked to sign a short form assignment document as a matter of policy.

Territory and language options

You may have originally had contracts that applied to specific countries or languages based on how markets were then exploited. Do you need to expand the territory and make it worldwide rather than risk being in a technical breach? If the territory is defined too narrowly it could result in a serious loss of income in the future. It may also result in you being unable to exploit rights in a global market. If the contract relates only to one language, then there are automatic restrictions on sales which cannot be overcome. The better option is to ensure it is clear that it can be in any language.

Risk and liability

The assessment of risk either in terms of the cost of potential litigation or the effect on the brand of a company has now changed. More stringent conditions apply to factory conditions and how products are produced and tested as well how they are certified and labelled. Identify issues which create a high risk and make a decision as to what the consequences will be if something goes wrong. If you do not want to accept liability then make it clear who is responsible or arrange insurance cover and consider setting a limit on any claim. You cannot, however, exclude liability for personal injury or death where you can be held accountable.

Omissions

There is often failure to state who owns the rights to all the different types of material which have been developed if an agreement is terminated. If a distributor goes into administration unless you can point at a clause in a contract which establishes ownership of a master copy, then it is not yours to retrieve.

An analysis of the total expenditure which a company incurs under each agreement such as returns, freight, packaging, insurance, marketing and currency conversion charges often pinpoints costs which were not expected.

Many contracts are constantly reissued as pro forma despite the fact that the work which is being completed under the agreement has considerably altered. The only evidence of the additional payments due may be through an exchange of emails which are later questioned as they are not in the main contract.

There have been a number of companies which have lost huge sums as they have allowed distributors to hold large sums on their behalf and not insisted on monies being processed and paid swiftly.

Company strategy

The ability to read and make sense of a contract should be fundamental but that is not often the case. Many contracts issued to consumers by mobile phone companies and broadband providers are deliberately written to be obscure and clauses which benefit the consumer are limited.

Ofcom should review all the contracts issued by mobile phone companies and broadband providers to ensure that consumers are protected more effectively. Many of these companies adopt a policy of using a minor reduction in the price of the monthly cost to consumers to generate a new contract and so effectively extend the term where the consumer is locked in. Here corporate policy creates additional revenue for a company by triggering new contracts as part of the management cycle when pricing is changed.

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

The views and opinions expressed in this article are those of the author.

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