Unintended consequences

While reading the news today, I came across an article talking about credit card companies unilaterally deciding to change their interest rates and or credit limits for certain customers. The unintended consequence of a credit card company changing your credit limit is something known as your “credit utilization ratio” – how much you’re currently borrowing against how much you are allowed to borrow.  So if you’re carrying $4,000 on a $10,000 line of credit and they drop the line to $5,000 to protect themselves, your utilization immediately goes from 40% to 80% – which can negatively affect your FICO score.

I doubt that anyone reads the contract provided by the credit card company when they were applying for (or received) their card, if for no other reason than they realized that they didn’t have any leverage and couldn’t make a change even if they wanted to.  If you want the credit, you sign the agreement and activate your card.  You’re not thinking about all of the potential negative things that could happen in the future… right now, everything is seen through the rose-colored glasses of a new line of credit which will allow you to buy that new computer, pay off a few bills, get your significant other a nice gift.

I urge you, however, to consider the unintended consequences when signing a deal.

This isn’t about contracts as much as it is about logical thinking.  It’s about the process of thinking through each issue and making sure that you’ve turned it around in your head enough to ferret out different situations and consider what may happen in the future.  It’s about looking to see if you can plug potential holes while you still have the ability to walk away.

In particular, I most hate a practice which is becoming more and more common and which I work vigorously to prevent anytime I see it: URL’s in contracts.  If you’ve never heard the term “URL”, it means “Uniform Resource Locator” – a web address (http://www.licensinghandbook.com, for example).  Some organizations are now replacing sections of their agreements with the phrase “as listed and updated from time to time at http://www.xyz.com.”

STOP right there!

There’s an unintended consequence of using URL’s in contracts.  Even if they didn’t say the phrase “updated from time to time” the truth is that a website can be updated at the URL’s owner’s whim.  Or, put another way, the URL owner can change the terms of the agreement whenever they want, with or without notice.  So first, this is drastically different than a reference to a signed, static document, such as a previous contract.

Second, a URL that links to a page that today is harmless doesn’t mean that it always will be.  Remember that the change to the document sitting on that website could have language added to it that has nothing to do with the initially stated purpose of the URL.  For example, the most common URL-linking that I see has to do with security policies and acceptable use policies.  The argument made is that these documents are internal company policies which are then applied to the agreement at hand.  Because they’re policies, though, they’re subject to change by company executives … and of course, these same executives have mandated that all contracts be subject to the current form of these policies.

In the old world, this would require the sending/receiving of dozens of amendments every time a policy was changed.  Then a smart lawyer realized that if you just post the policy on the web and include the URL in the contract, you now have a way to have a constantly-current document attached to the contract.

The problem is that the policy document doesn’t have to remain a policy document.  The owner of the URL can decide, whenever they wish, to change the language of the policy, say, with a single new section that reads: “Section 12:  Limitation of Liability.  Party X shall have no liability for any damages caused as a result of Party Y’s violation of this policy or for any other reason.”

Do you see the problem? (Don’t forget that most agreements also have some sort of document precedence language which puts the policies ahead of the main agreement.)

So, to fix this, I simply recommend asking the other side (which is usually a vendor, but could be a buyer)) to copy the current policy document into a Word file and attach it as a regular exhibit.  When they balk, add in your own URL – linking to an ever-changing payment process on your end, for example (I’ve even considered creating one as a mock-up which mostly unreasonable language just to make my point… like 180 day terms and the ability to not pay anything I find “excessive” or “burdensome”).

Granted, there will be times when you have no leverage and a business owner/sales executive breathing down your neck to “just close the dang deal!”  In those cases, remember to cover your butt and write a memo outlining your concerns.  You might not have the final say on whether a deal is completed, but you sure can show that you were properly trying to protect your company!

Deal Coder

My Macintosh-geekery is pretty extensive.  I’ve got a solid collection of Apple-related paraphernalia, computers, advertising pieces, etcetera.  Amongst the collection are about a hundred shirts (I’m not exaggerating here, ask my wife).  One of them is relatively recent and it’s one of the few that I wear, as the rest are pretty old.

This particular shirt is fairly plain – solid black with a white Apple logo on the back and in a rare departure from my preferred blank front, has “I (Apple logo) code.” on the front, dead-center on the chest.  When I wear it, I have always kinda’ felt like a fraud.  I don’t program computers.  The most I know are the names of the various languages: C, Perl, Java, Ruby on Rails, PHP, etc.  But when asked, I always say that I couldn’t code my way out of a paper sack.

I realized today that I’m wrong – to borrow a marketing slogan from Apple, I just needed to Think Different.  Let’s start with two definitions.

Code (n): a system of words, letters or symbols assigned to something for the purposes of classification or identification.

Program (n): a series of instructions to control operation.

Hmmm… I think I might actually fit into these with a little twist. I am a Deal Coder.  Yep, that’s right… I write code and programs.  But you’d probably call it a contract.  I take words and symbols and I combine them in a specific way to achieve a particular result.  Each section of a contract is designed to address a specific set of circumstances.  We even have what computer programmers call “comments” in our code – have you ever read a “Whereas” clause?  It’s just a place for us to explain the why behind our code.

Heck, we even use similar language to describe how we run our code – execution.  Oh, and we have buggy code, too.  We issue contract revisions (amendments) much the same way a computer programmer provides bug fixes.  And when we’re done with our use, we terminate what we’ve done.

Like computer programmers, we not only have to learn the language we’re coding in, but more specifically, as we improve, we have to learn how to refine the language we use.  We clarify, we revise, we edit (see the work of Ken Adams in my blogroll).  We reduce the bulk (bloat) where we can and we look for ways in which we can recycle code we’ve written before.  Herein lays another overlap in language – we both have toolboxes of prior code that we use again and again to achieve a similar result.

So I am a Coder (Koder? 😉 ) and I do love my particular form of code.  I’m wearing my shirt today with a new found sense of pride!

Are you a Koder?

Law School Advice

I mention it from time to time, but I don’t usually dwell on the fact that I went to law school.  It was a fine education, and I had a good experience (no “hiding the book” type stuff – besides, doesn’t everyone realize if you’re the only one with the answer, everyone’s going to know it was you who hid the book?).  But I am not licensed to practice, I don’t/can’t advertise myself as an attorney… and I’m extremely satisfied both with the education received and with my career choice.

Apparently, people are going to law schools in droves these days (even when there aren’t the jobs to support them once they come out).  So when folks ask for my advice about applying and/or attending law school, I usually give some sort of pithy comment about making sure you really want to go – intended not to discourage, but to make sure you’re in the right frame of mind to spend up to $150,000 and mostly cloister yourself for 3 years.

I was kinda’ amused to see a CBS Sports columnist commenting on going to law school.  But Clay’s got it right (except for #14 – Go Valpo!)… even if he comes across a little bitter.

So, if you’re thinking about law school… give the column a read.  Your ultimate decision to apply and/or attend is obviously up to you.  But I will say this.  If you’re a contracts person like I am… and you love it, there’s no must-have exclusive knowledge waiting for you in law school.  Having the degree is an advantage in certain cases – but many of the best contract negotiators, reviewers and drafters have music, English and philosophy degrees, if that.

What they do all have in common is a thirst for understanding what they do and a desire to constantly improve.  Law school won’t give you that – you have to come that way.  😉

When licensing goes kaflooie

I believe in technology licensing… I really do.

I also believe that we’re going to eventually need an overhaul of our intellectual property system on a global scale.

Why, you ask? Simple.

Timing is everything in your purchase

So it’s no secret than I’m an Apple fan… and they released the new iPhone 3G yesterday. On dozens of message boards across the world, people are actually complaining that they own a 2G iPhone (the original model) and that Apple won’t upgrade them to the 3G for free.

WHAT?!?

Do we expect this kind of treatment in any other area of our lives? Even in the business world where we TRY to get current price paid to apply to future deals, how many times are we actually successful?

The answer, of course, is not many. Why? Well, because a business that sells you something is hopefully selling it to you for the cost of good sold plus a good (but not gouging) margin. To give you a NEW product without further payment eliminates the margin, thus eliminating profit, thus eventually forcing bankruptcy. Not exactly the successful business model taught in school.

We don’t expect it with our homes or other personal property (try taking your computer back to Best Buy/Dell/Apple/etc for a “free upgrade” and see what they say). But somehow, folks expect it with phones.

Maybe its because we feel like we’re not getting the value out of the technology before it’s been upgraded on us. That in the past, there used to be some significant time period before a new version would be released (just like what we see in the software world). But the truth remains that we have the ability to refrain from purchasing at all. Inasmuch as I love new Apple laptops, I only get a new one every 5 years or so. And I try to schedule my purchase so that I feel like I’ve gotten value (by timing it so that I buy the latest one released, I hopefully ensure that a new one isn’t coming out tomorrow).

But I still feel a pang of regret when the new ones come out. The same is true for cars. When do you buy a new car? When should you buy? Well… if you like the best features, the most advanced tech, the latest and greatest… you buy in August/September, when the new model year comes out. If you like the best price and are willing to sacrifice the lastest-and-greatest, guess what, you buy at the end of the same time… September/October, when the new model year comes out and you get the most recent old one at a significant discount.

Live with your purchase decision, though. Plan it well and then cope with it. But don’t expect your vendors to give you a free upgrade if you’re not paying for it (maintenance fees, anyone?). They won’t be around long to support it if they do.

Force Majeure for the 21st Century

Chadwick Busk over on his blog “The Fine Print:  Musings of a Corporate Contracts Lawyer”, has a great post on the changes needed in your standard force majeure clause to deal with issues from the new millennium.

“Either party’s non-performance of this Agreement shall be excused to the extent that it is caused by any of the following events:

…

(iv) Destructive power unleashed by any of the following: the finding of the remaining crystal skulls, the reverse engineering of alien technology, or the discovery of the Ark of the Covenant.”

Go read the full post here.

Negotiate, or someone will do it for you.

Waggoner v Wal-Mart

“Before the Court in the above-entitled and styled cause of action… the parties are unable to agree if the deposition of Wal-Mart’s corporate representative should occur in San Antonio, Texas or in Bentonville, Arkansas.

The Court is sympathetic with Defendant’s argument. Surely Defendant’s corporate representative, a resident of Arkansas, would feel great humiliation by being forced to enter the home state of the University of Texas, where the legendary Texas Longhorns have wrought havoc on the Arkansas Razorbacks with an impressive 55-21 all-time series record.

On the other hand, the Court is sympathetic with Plaintiff’s position. Plaintiffs might enter Arkansas with a bit of trepidation as many residents of Arkansas are still seeking retribution for the “Game of the Century” in which James Street and Darrell Royal stunned the Razorbacks by winning the 1969 National Championship.

Because the Court is sympathetic to both parties’ positions, it has found a neutral site… the deposition is to take place on the steps of the Texarkana Federal Building.

IT IS FURTHER ORDERED THAT each party is to remain on his or her respective side of the state line.”

Thanks to Kevin Underhill @ Lowering the Bar. Go there to download a copy of the actual order in pdf form.

Need a Contracts Guy?

Experienced manager, contract negotiator, author and all-around nice guy seeks enlightened company who knows how to take advantage of these skills.

Resume available upon request, but if you’re reading this, you already know what he can do. 🙂

Please direct inquiries via e-mail.

Welcome Northwestern University and Franklin Pierce Law Center!

I found out a few months ago that the Software Licensing Handbook had been selected to be one of the textbooks at the Franklin Pierce Law Center… and a few days later, also at Northwestern University in one of their masters’ curricula!

I couldn’t be more ecstatic – I am so happy that to know that students are learning these valuable skills without having to first enter the workforce.

So I wanted to give a shout-out to the students from each of the classes using the book.  Welcome to the interesting world of software (technology) licensing!  Please join our discussion … your voice is important!