Category Archives: contract terms

Things that shouldn’t count as force majeure

Define the term “force majeure” for me.  Looking online, there are several:

  • it’s French for “superior force”
  • act of God: a natural and unavoidable catastrophe that interrupts the expected course of events  (WordNet)
  • a common clause in contract which essentially frees both parties from liability or obligation when an extraordinary event or circumstance beyond the control of the parties (Wikipedia)
  • an unavoidable catastrophe (Wiktionary)

So what’s the common theme?  It’s the ability to AVOID a particular set of actions.  In other words, force majeure events are those which are unavoidable or unforeseeable.  If you only click one link above, do the one for Wikipedia and learn about the three-part test in French and international law for what constitutes a force majure event.  UCC Section 2-615, “Excuse by Failure of Presupposed Conditions” and the Restatement of Contracts 2d, Section 261 “Excused Nonperformance” also include multi-part tests.

But we’ve gotten lax in contract drafting in the US and folks have assumed that force majeure clauses (those that allow a party to not perform as a result of one of these types of events) were continually written with actual unavoidable events listed.  In fact, almost every force majeure clause I now see contains at least one, if not more, of the following things as force majeure events:

  • strikes/labor disputes
  • telecommunication difficulties
  • supply chain problems
  • terrorism and war (sometimes even phrased as “acts of the public enemy”)
  • riots
  • government regulation

Unfortunately, these are not force majeure events.  Why?  Because most of them can be planned for… and even something like terrorism and war (especially when they’re happening right now), should be planned for.  If you can plan for them, they’re foreseeable.  And if they’re foreseeable, they’re not unforeseeable.  See where I’m going with this?  🙂

So when you strike these items out of the force majure event clause, you’re going to get push back because people don’t want to be responsible for planning in all eventualities.  You’re not asking them to do it.  Rather, you’re asking that contract performance not be hindered or halted as a result of things that are capable of having a backup plan.  Which means that you could, if you were so inclined, draft language which allows for these items to be force majeure only if they were part of a backup plan that still was impeded.  In other words, you’ll give these items force majure weight if the party claiming force majeure can show that they had planned for them properly, but still ran into trouble.

Oh, and by the way, force majeure also isn’t one-size-fits-all.  Would you EVER list telecommunication difficulties in a contract with your telephone service provider?  Additionally, force majeure protections should benefit BOTH parties, even if one party’s sole obligation is to cut a check.  Payment can be made quite difficult by floods and hurricanes, just ask the good people in Louisiana, Alabama and Mississippi about business deals during Katrina.

Third Party Providers

Happy New Year!

I saw an interesting article today that high-tech vehicles were posing problems to some mechanics.  The mechanics claim that they can’t afford the thousands of dollars that are necessary for them to obtain the specialized diagnostic tools for each auto manufacturer.  The manufacturers are claiming that they’re trying to protect their intellectual property.

Sound familiar?  Yup, it’s exactly like the issues Frank Scavo and Ray Wang have written about with regards to third-party software providers being blocked from performing various maintenance/implementation tasks by the contracts and software licenses and services agreements of certain primary vendors.

On the automotive side, it’s apparently gotten to be such an issue that there’s a congressional bill called the Motor Vehicle Owners Right to Repair Act of 2009.  The stated purpose of this Bill is to “protect the rights of consumers to diagnose, service, maintain, and repair their motor vehicles”.  What’s really interesting are the Bill’s findings, among which say that:

  • Motor vehicle owners are entitled to choose which service provider will diagnose, service, maintain, or repair their motor vehicles.
  • Promoting competition in price and quality… will benefit consumers.
  • Only service technician with the necessary tools and information can access the computers to perform diagnosis, service, maintenance and repair…

And the requirements of the Bill, specifically:

  • Duty to Make Tools Available:  The manufacturer of a motor vehicle sold, leases or otherwise introduced into commerce in the United States must offer for sale to the motor vehicle owner and to all service providers on a reasonable and non-discriminatory basis, any tool for the diagnosis, service, maintenance, or repair of a motor vehicle, and provide all information that enables aftermarket tool companies to manufacture tools with the same functional characteristics as those tools made available by the manufacturers to authorized dealers.
  • Replacement Equipment: The manufacturer of a motor vehicle sold, leased, or otherwise introduced into commerce in the United States must offer for sale to motor vehicle owners, and to all service providers on reasonable and non-discriminatory terms, all equipment for diagnosis, service, maintenance, or repair of a motor vehicle.

The only thing the Bill protects for the manufacturer are things that are actual trade secrets.

Wow.  Of course, there are a LOT of people (and more specifically, a lot of trade association and advocacy groups) behind this Bill.

Could you imagine what would happen if this passes and someone realizes that software in cars isn’t that dissimilar to plain old enterprise software?  If only there was a trade association group for buyers of enterprise software apps.  😉

But let’s talk about the other side of the issue for a moment.  Do consumers have a right to have third-party companies provide service?  A right?  No.  I don’t think there’s a right to be able to have third-party providers.  [Keep in mind, when we’re talking about rights, we’re talking about things equal to “life, liberty and the pursuit of happiness…”.]

Absent a right, should third-party providers still be allowed/encouraged?  I’m really torn on this.  On one hand, I’m all in favor of things that inspire commerce.  I like behaviors that create business, allow more people to work… and of course, things that drive down costs and dissipate apparent monopolies.  On the other hand, an individual or organization who creates something should be able to protect their idea/invention and not have to give up the secret sauce simply so that other people can benefit.  But there seems to be a line somewhere that once you cross it should allow for third-party companies to fill available niches.  Maybe it’s where the original vendor is no longer able to provide a quality-level of service.  Maybe it’s a situation where the original vendor is charging exorbitant rates.  I’m not sure.

Anyone have a solution?

As the year draws to a close

Hopefully, most of you are done with work for the year.  But for those of you about to close end of year, firesale-type deals in the remaining 6 days of the year (the end of the year is even a Thursday, so you don’t have to “work” a weekend if this is your fate), here is a list of articles on how to get the most out of your transaction time:

Start with fundamentals on negotiation.  Think outside the box.

Then go through the basics on firesales.  If you want more, buy the Firesale Concall Recording.

Understand pricing, and when it might pay to avoid maintenance costs.

Start your deals from good templates.

And, lastly, consider the reasons for agreeing to renegotiating deals.

To my faithful readers: Thank you for listening to me for another year.  I hope you have a very joyous holiday season and a happy New Year.  See you in 2010 (unless something really awesome in the licensing world happens between now and then).

Updating Contract Language for the 21st Century

Holly Towle wrote an excellent article on the boilerplate contract language issues that might now exist in your contract language.  Read the article… consider the issues… review your templates.  Make some changes.  Of course, you can always just call me and I’d be happy to review your contracts for you.  😉

GPL, WordPress and Themes

I saw an intriguing post the other day by Jennifer Schiffer on WordPress, themes and the GPL.  She linked to a video of Matt Mullenweg (one of WordPress’ lead developers) who was talking about why WordPress was a GPL product (short answer: they didn’t really have a choice because WP is based on b2, which was GPL) and, more specifically, was talking about why themes and plugins are also then GPL.

The truth of the matter is that the GPLv3 is a very restrictive license, in as much as it’s also a harbinger of freedom.  The GPL was written in a way to specifically retain the freedoms it grants through successive iterations of a particular product, or its add-ons.  This means that if you like a GPL product, develop a derivative work, a modification, a plug-in or any other type of add-on, the resulting work is also going to be covered by the GPL (you do not have a choice in this).

“You may not impose any further restrictions on the exercise of the rights granted or affirmed under this License.” – Section 10 of the GPL

This means that unless the WordPress GPL (yes, they’re specific by product… you can ADD restrictions if you want… so no 2 GPL’d products are necessarily identically licensed – we’ll talk about this in a minute) allowed for a theme developer to restrict the distribution of a theme, a theme developer isn’t allowed to add that restriction on their own.  Your development on a GPL product inherits the license of the original product.

Inheritance is a powerful concept because it creates license congruity, ad infinitum, for all downstream works of the original code.  It would be extremely difficult to manage license compliance if WordPress had one license, but a plug-in had a different one.

But there’s apparently a wonderful new theme available for WordPress called Thesis.  Its developer sells two several different versions of the theme (selling under the GPL is fine).  The problem comes to light when you look at the options:

  1. Personal:  one site only; footer link must remain intact; can’t re-sell theme or modifications
  2. Developer:  can create multiple sites and must pay Thesis developer for each site deployed; can remove footer link; can’t re-sell theme or modifications

And these options are problematic because they violate the GPL v2 under which WordPress is licensed.  Specifically, Section 2, which states, in part:

“You must cause any work that you distribute or publish, that in whole or in part contains or is derived from the Program or any part thereof, to be licensed as a whole at no charge to all third parties under the terms of this License.”

and Section 6:

“Each time you redistribute the Program (or any work based on the Program), the recipient automatically receives a license from the original licensor to copy, distribute or modify the Program subject to these terms and conditions. You may not impose any further restrictions on the recipients’ exercise of the rights granted herein. You are not responsible for enforcing compliance by third parties to this License.”

(Note that v2 and v3 of the GPL are vastly different animals… and v2 was actually more in the realm of “free as in free beer” than v3, which touts freedom as “free as in free speech, not free beer”.)

So, in fact, the Thesis theme, as a WordPress derivative work, is bound to the GPLv2 license that WordPress is licensed under.  As such, even the sale of the theme is a problem, as are the one-site-only restrictions and the “can’t re-sell” restrictions.  Note: the footer link restriction is probably fine, as it could qualify as the attribution allowed under the GPL.  Additionally, it could be argued that the fee charged is for the “physical act of transferring a copy” as allowed by Section 1 of GPLv2, but even then, the remainder of the unauthorized restrictions are still problematic.

But who is going to do anything about this violation?  Who has the right to enforce the license?  WordPress?  The folks at b2 (WordPress’ predecessor)?  Any particular end user?  Technically, it’s the folks at WordPress who have the right to enforce their license upon theme and plug-in developers.  They have the ability to potentially even sue to prevent a rogue developer from violating their license with WordPress [though I’m guessing that a theme developer is going to try to argue that a theme isn’t a derivative work or a modification].  But this is inherently difficult.  So instead, WordPress is taking a slightly different tack.  They’re going to create a Theme Page on the main WordPress website which only lists themes that follow the GPL (by the way, all derivatives have to be GPLv2 licensed, as the WordPress license doesn’t allow for newer versions of the GPL to apply).  I’m guessing that Thesis won’t be listed.

This Week on The Web 2009-10-11

These are the discussions that happened around the web this week – maybe you already read about them, maybe you need to again.  Come join the party on twitter (follow me here and you’ll participate in the conversation live.)

I also realized that many of you might have no idea what you’re seeing below.  Sorry.  These are “tweets”, 140 maximum character messages sent via Twitter.  Within the Twitterverse individual users follow others and have followers (think of it like overlapping Venn diagram circles).  To read a tweet, you have to wade through a bit of jargon used to make the most of the 140 character limitation.  “RT” for example, is shorthand for “Re-tweet” and the @____ is the username of some other individual on Twitter.  Combined together, then, “RT @_____” means that someone else wrote a tweet that I found important and I now want to forward along to my followers.  The URL’s are then also shortened by shortening services like bit.ly to make the most of the character limitation, too.  Lastly, you might see “hash” identifiers “#______” which are ways to tag tweets of a particular flavor for easy searching later and “<” which means that I am commenting on what came before it.

Announcing the Software Licensing Education Series on DVD

The saying goes that you don’t appreciate someone else until you’ve walked a mile in their shoes. The same can be said for appreciating process. While it is still extremely easy to create new digital works in almost any medium, converting them – especially for sale – is still challenging.

So it gives me great pleasure to announce the availability of the Software Licensing Education Series on DVD.  While previously offered here as a digital download, I wanted to make these videos available to a much broader audience.  Teaming with CreateSpace has given me that opportunity.

The Software Licensing Education Series is video-based software licensing training.  Designed with even a novice in mind, the Series progressively moves from basic topics to those requiring more experience and background.  Built around a college-courseware format (100, 200, 300, 400 and 500 levels are available), the Software Licensing Education Series provides instruction in bite size pieces for optimal learning.

Pricing for the DVD set is $750 – significantly cheaper than the cost of most software licensing-related conferences and packed with way more instructional time (551 minutes… more than 9 hours of material).  The DVDs may be used in a business setting, too… and are re-usable over and over as needed.

Buy the Software Licensing Education Series now via DVD or digital download and start saving money and reducing risk today!  Oh, and get a 10% discount through the month of October on the DVD using discount code: 89YYH47X

This Week on The Web 2009-10-04

These are the discussions that happened around the web this week – maybe you already read about them, maybe you need to again.  Come join the party on twitter (follow me here and you’ll participate in the conversation live.)

I also realized that many of you might have no idea what you’re seeing below.  Sorry.  These are “tweets”, 140 maximum character messages sent via Twitter.  Within the Twitterverse individual users follow others and have followers (think of it like overlapping Venn diagram circles).  To read a tweet, you have to wade through a bit of jargon used to make the most of the 140 character limitation.  “RT” for example, is shorthand for “Re-tweet” and the @____ is the username of some other individual on Twitter.  Combined together, then, “RT @_____” means that someone else wrote a tweet that I found important and I now want to forward along to my followers.  The URL’s are then also shortened by shortening services like bit.ly to make the most of the character limitation, too.  Lastly, you might see “hash” identifiers “#______” which are ways to tag tweets of a particular flavor for easy searching later and “<” which means that I am commenting on what came before it.

This Week on The Web 2009-09-28

These are the discussions that happened around the web this week – maybe you already read about them, maybe you need to again.  Come join the party on twitter (follow me here and you’ll participate in the conversation live.)

I also realized that many of you might have no idea what you’re seeing below.  Sorry.  These are “tweets”, 140 maximum character messages sent via Twitter.  Within the Twitterverse individual users follow others and have followers (think of it like overlapping Venn diagram circles).  To read a tweet, you have to wade through a bit of jargon used to make the most of the 140 character limitation.  “RT” for example, is shorthand for “Re-tweet” and the @____ is the username of some other individual on Twitter.  Combined together, then, “RT @_____” means that someone else wrote a tweet that I found important and I now want to forward along to my followers.  The URL’s are then also shortened by shortening services like bit.ly to make the most of the character limitation, too.  Lastly, you might see “hash” identifiers “#______” which are ways to tag tweets of a particular flavor for easy searching later and “<” which means that I am commenting on what came before it.

Insurance Basics

Over the span of my career, I’ve seen thousands of insurance sections in various contracts.  At the beginning (and at certain employers), I would have to run this section by the insurance people in the event of any changes to our template language.  But as time went on (and with a different employer), we really only paid attention to the need for insurance certificates and the actual amount of coverage listed.  Then one day, I found myself in charge and needed to set the policy for how we were going to handle this oft-ignored/misunderstood area of the contract.  So I brought in the insurance folks to talk with me about this interesting topic.  [Note:  What I’m about to tell you is what I’ve learned as a result of countless deals and several discussions with dozens of insurance agents.  But if your insurance folks advise you differently, just remember where your bread is buttered.  Hint: it’s not by me.]

Insurance Types

There are five basic types or categories of insurance policies: Commercial General Liability, Professional Liability (errors and omissions type), Excess or Umbrella Liability, Workers’ Compensation, and specific liability policies for particular types of work (auto, boating, construction, etc).  Your contract should at least list the first four and optionally include reference to any other policies necessary based on the work you (or your vendor) are performing.  There are, of course, some caveats.

  1. Not all professional services will qualify for Professional Liability policies.  It’s conceivable that you (or your vendor) will not be able to provide this type of insurance because of the nature of the work completed.  However, many insurance companies will interview the insured organization and “create” a Professional Liability policy for that service – the key is to simply ask.
  2. Excess or Umbrella Liability policies can’t exist without a primary Commercial General Liability policy on which to hang (hence the term “excess”).
  3. Workers’ Compensation is MANDATORY.  In fact, in most contracts, you’ll see this called out as statutory Workers’ Compensation.  In other words, if state law requires it, the insured must have it.  If the insured is a sole-proprietorship (ie: they are their only employee), this policy probably won’t apply.  Again, however, it’s based on the state’s law in which the work is being performed.
  4. Specific Liability policies aren’t always easy to determine up front.  Who today can guess that you’ll need “boater’s insurance” five years from now?  If you don’t list these policies in the master agreement, simply remember to add them to a particular Statement of Work when needed.

Insurance Limits

Typically, when talking about Insurance Limits, we’re really talking about the maximum dollar value of each policy.  Some organizations love to go for broke on this – asking for $10M minimum aggregate and $5M per occurrence, etcetera.  Lets break down the distinction and then talk about dollars.

  1. “Minimum aggregate” refers to the total amount of money recoverable under the specific policy regardless of the number of claims for the entire life of that policy.  If a $1M aggregate policy is claimed upon by 1000 people equally (over the span of the policy’s life), the most each person would get is $1000.  ($1,000,000 / 1000 = $1000).  But things don’t usually work out that way.  Rather, these same 1000 people might claim at different times during the life of the policy.  If the first of those thousand people recovers $900,000 from the $1M aggregate, there will only be $100,000 left to satisfy the other 999 future claims.
  2. “Per occurrence” then is a limit on the per-claim reimbursement/coverage.  The per occurrence limit is usually 1/2 the value of the minimum aggregate.  So if you have a $1M aggregate policy, you will then typically see a per occurrence limit of $500,000.  This partially helps with the problem from the end of the last section, where the first claimant receives an abundance of the value of the policy, leaving little remaining value to any other aggrieved party.
  3. Excess or Umbrella Liability policies usually only list a “not less than” amount which is almost always 2x the minimum aggregate of the Commercial General policy.  For our example here, if the CG had a $1M minimum aggregate, the Excess or Umbrella limit would be not less than $2M.
  4. Statutory Workers’ Compensation almost never lists an actual dollar limit.  Again, because it’s based on different state laws (which could change like the tides), most contracts simply state that the insured will meet the requirements of the law, whatever they happen to be at the time.

Dollar limits on insurance policies can get really interesting in a hurry, partially because of the nature of the work that many professional services organizations perform and partially because of the nature of insurance policies in general.  In most cases, I ask for insurance dollar limits that are far and above what I would ever expect the value of the work performed to be.  This freaks out my vendors – they worry that they won’t be able to get a $10M policy (or, more accurately, won’t be able to afford it).  But I have to remember something that they would rather I didn’t – that their single insurance policy is covering the work that they do for EVERYONE.

That’s right, the nasty little insurance secret that no one really wants to discuss is that almost 100% of the time, the policy that covers your work is also covering 100+ (or 1000+) other jobs.

But wait, you say, I am named as an additional insured.  That bumps me to the head of the line.  Not so fast.

Insurance Certificates and Additional Insureds

In almost all cases, the customer is able to get the insured to provide them an insurance certificate directly from the insurance company as proof of the existence of the policy.  And in many cases, the customer (as well as its officers, employees and agents) can also be added as additional insureds to the Commercial General Liability policy only (even if you want to be an additional insured on the other policies, most insurance companies won’t allow it).  The customer then asks to have the insurance certificate even state that the customer is a named additional insured entity.  What you don’t see, however, is all of the other additional insureds.

What you’re really looking for, then, is to find a way to make sure that the policy limits are going to cover the work that the vendor is performing for you – and making sure that you’re going to be able to fully recover that amount in the event a claim is properly brought.  The solution?  Ask the vendor to get a specific policy just for you – on a “primary and noncontributing basis” and including a waiver of subrogation in favor of you.  The vendor might still balk at this – you’re asking for an individual insurance policy.  But you can now decrease the policy limits to be more manageable because now you know that this policy is just for you.  So the overall cost to provide insurance to you for the work performed might actually be less than if you required the vendor to increase the policy limits to extraordinary heights.

Oh, and don’t forget that you want the certificate of insurance to indicate that the Excess or Umbrella Liability policy is a “following form policy”.  This means that if the excess or umbrella policy has terms or conditions that conflict with the Commercial General policy, the CG policy terms will control.  But there is some controversy given current insurance practices which may make this difficult.

Insurers

Many customers also want to be certain that the insurance company providing the policy is reputable.  There are different ratings institutions, but I prefer A.M. Best with a rating of no less than A-, Class X.  The A- means that they’re still in the Excellent rating category and the “Class X” is an indicator of their financial health (X is actually a Roman numeral) with an adjusted policyholder surplus of $500-750M.  This is to ensure that the money actually exists to cover the upper limits of any potential claim.

Policy Changes

Relatively speaking, insurance is easy to obtain.  It’s not always cheap, though, so there have been times where insureds have made financial decisions to decrease policy limits or change coverage types as a cost-savings method.  If you’re a customer, you want to know about this as it’s happening (and not at the start of the next year when the next insurance certificate arrives with lowered limits, leaving you to wonder when the change actually happened).  So always remember to include language in your insurance section that requires the insured party to notify the other of any changes to the policy within 30 days of any adverse change (you really don’t care too much if limits are increased).