A federal appeals court has ruled that, at least under Massachusetts law, a company that acquired another company’s technology assets, for cash plus an earn-out, was obligated to use reasonable efforts to promote the tech­nology, so that the seller would have a shot at the earn-out payments. See this Law.com article about the First Circuit’s Sonora Scanners case, re­vers­ing and remanding a summary judgment in favor of the acquiring company (discussed on another point in this posting).

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“[A] recent California case delivered a blow to a tax preparation franchisor, finding the franchisor liable for its franchisees’ deceptive advertising and related activities.” Vicarious Liability Risks Continue, by Kimberly L. Sikora Panza and Robert A. Smith (Oct. 29, 2009, accessed Nov. 3, 2009).

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Smart vendors are judicious about investing time and resources in a response to a request for proposal (“RFP”) before they know whether they’re a serious candidate for the business.

With that in mind, here’s a “canned” preliminary legal response that I’ve found useful for vendor clients to attach to RFP responses.

Feel free to edit the text below for use in your own responses — of course, you shouldn’t rely on the text as a substitute for legal advice about your particular circumstances.

Warning: Once in a while, the customer’s procurement people can get their noses out of joint when vendors don’t fall all over themselves catering to the customer’s every whim. So, give some thought to whether you’d fatally p*** off Procurement by including this text in your response — and if so, whether you can live with that.

(That’s why many of the points below try to explain why the vendor is taking the positions it is. The hope is that the customer won’t reject the vendor for supposedly being an arrogant so-and-so.)

[Text follows:]

1. Only the final contract document can be binding

Detailed legal reviews and comments for RFPs involve some cost. Because those costs must eventually be covered by our pricing, our general policy is not to incur them at the initial RFP stage, and instead to wait until it is evident to both sides that we are likely to win the business.

(We take very reasonable positions in negotiating “legal T&Cs,” which we would be happy to confirm by sending you our standard contract form.)

Consequently, until both sides have agreed on and signed a final written contract, we do NOT agree, and we OBJECT, to the terms and conditions of an RFP or of any attached contract drafts, EXCEPT FOR the confidentiality obligation stated in paragraph 5 below.

2. Comments about future products or services are for your general information only

Our response to your RFP conceivably might describe a particular function or feature that we expect to release in a future product (or a future version of an existing product), or that we expect to include as part of a future services offering. If so, we are providing that information solely for your general information and not as a contractual commitment. If you need for us to make such a commitment, we would be glad to discuss that on a case-by-case basis, and to include whatever terms we agree to in the final written contract.

Here’s why: If we were to include a future-deliverables commitment in the final contract, that could affect the timing of our ability to recognize revenue. Certainly revenue recognition is our problem, not yours. But revenue-recognition issues could affect our willingness to offer the pricing and other terms you prefer, in the time frame you need.

3. Our RFP responses can be incorporated into the contract only on a case-by-case basis

Some customers want to incorporate particular portions of our response to an RFP into the contract as warranties or promises. We would be glad to discuss that with you on a case-by-case basis.

But we do NOT agree, and we OBJECT, to any blanket statement in the RFP, to the effect that the RFP and our response will be incorporated into the contract in their entirety.

We try hard to ensure that our RFP responses are accurate. But because of the number of RFPs we process, at this stage of the process we cannot subject each of those responses to the same (costly) level of technical scrutiny that we give to our contractual warranty commitments.

If this will be a significant concern for you, it would save time for both you and us if you could indicate which specific points are particularly important to you, so that we can focus on those points early on.

4. Our exceptions to your RFP statements might not be a complete list

We will make reasonable efforts to explain any conditions, exceptions, or limitations (if any) in our RFP responses. But we do NOT agree, and OBJECT, to the idea that, if for some reason we do not object to a particular point in your RFP, then we have permanently waived the objection and are required to accept that point as part of the final binding contract.

5. Our confidentiality obligations are limited unless we enter into a separate confidentiality agreement

We will treat as confidential any non-public information that we first received from you in our discussions about the transaction contemplated by your RFP (other than information that we also receive from other, non-confidential sources, or that we independently develop ourselves).

We will be happy to discuss including suitable confidentiality provisions in the final written contract.

We would also be willing to enter into a two-way nondisclosure agreement to protect both parties during our pre-sale discussions. We can provide a reasonable form of agreement if you wish.

Otherwise, though, for the reasons summarized in point 1 above, we do NOT agree, and we OBJECT, to any confidentiality provisions in your RFP itself.

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I stumbled upon a request for proposal (“RFP”) containing provisions that pretty much always increase the time, cost, and difficulty of getting a contract to signature, for both buyer and seller. Here are a few examples (all emphasis is mine).

RFP language: The basic Contract is attached to this RFP as Exhibit A. The boilerplate contract provisions/terms and conditions are not negotiable.

DCT comment: It would speed things up if the RFP were to indicate which specific provisions were not negotiable, instead of leaving the supplier’s lawyer guessing.

RFP language: Please note the attached basic contract is representative only.

DCT comment: It’s not clear what that’s supposed to mean.

RFP language: A response to this RFP is an offer to contract with [Customer] based upon the terms, conditions and specifications contained in this RFP. * * *

Respondent’s Response to this RFP, including any attachments thereto, will be incorporated as part of the executed contract to the extent the response does not conflict with this RFP. * * *

This RFP will become part of the terms and conditions of all responses and any contract awarded as a result of this RFP. … Any exceptions must be expressly agreed to by [Customer] in writing ….

DCT comment: Taken together, this language arguably means that, if a supplier submits a response to the RFP, the customer has the right to deem that the supplier has submitted an offer containing no exceptions, proposed modifications, etc. — and, by accepting that “offer,” to force the supplier do business on the original terms of the RFP.

Would a court enforce such an interpretation? I don’t think any of my clients would be interested in finding out.

A responding supplier might therefore do well to respond, “we are NOT responding to this RFP, and we do NOT offer to contract with [Customer] on its terms and conditions, because it contains unworkable requirements and terms and conditions — however, we would be willing to discuss doing business with [Customer] along generally the following lines ….”

RFP language: Respondents guarantee and warrant that their RFP responses will meet or exceed all specifications of this RFP.

DCT comment: Leaving aside the redundancy of “guarantee and warrant,” a more-workable approach would be to include the following yes-or-no question in the RFP: “Does your response meet or exceed all specifications of this RFP?” and then have the respondent certify the accuracy of that particular response.

RFP language: Notwithstanding any disclaimers in any RFP response or other Respondent document and notwithstanding any other provision of this RFP or the contract to the contrary, Respondent warrants and guarantees that all services shall meet all specifications of the executed contract and Work Orders, if any, including but not limited to this RFP.

DCT comment: It’s understandable that a customer would want to ensure that its RFP specifications found their way into the reps and warranties of any resulting contract. But these provisions violate the basic DRY (Don’t Repeat Yourself) principle of contract drafting.

A better approach would be to include the following yes-or-no question in the RFP, with the response to be certified as true by the supplier: “Does your response to this RFP indicate your willingness to warrant compliance with the specifications set forth in Schedule X, as stated there without modification?”

RFP language: Respondent may not assign this RFP and any resulting contract, in whole or in part, and may not assign any right or duty required under the RFP or awarded contract without the prior written consent of DOI.

DCT comment: A non-assignment clause like this is often a deal-killer if it doesn’t include a carve-out for strategic transactions such as sale of business assets. See this note as well as these sample clauses for more information.

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See this Loeb & Loeb memo. (Hat tip: Lexology)

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Here’s an object lesson about the importance of double-checking the consumer opt-in language before committing to a big spam-type marketing campaign.

Simon & Schuster hired a marketing firm to send out text-message advertisements for a Steven King horror novel. A subscriber received one of these text-message ads on her cell phone. She sued in federal district court for violation of the Telephone Consumer Protection Act (TCPA), seeking class-action status.

Simon & Schuster offered several defenses.  One was that the subscriber had supposedly consented to receive advertisements by checking an opt-in box when she signed up for a free ring tone. (The TCPA provides an exemption in such cases.) The trial court dismissed the case on that ground (and others).

But it turned out S&S wasn’t out of the woods.

The Ninth Circuit appeals court overruled the trial court. It said that the opt-in language was not broad enough: the language gave consent only to receiving ads from the cell-phone carrier, Nextel, and its affiliates. The appellate court said that Simon & Schuster was not a Nextel affiliate in any sense of the word; it did not even have a direct contractual relationship with Nextel, let alone the kind of control relationship usually necessary.

Oops.

FOOTNOTE: See the Definition clauses – general section of the FirstDrafter library for definitions of ‘affiliate.’

The plaintiff hasn’t won yet, because there are still more facts that have to be determined first. According to one commentator, though, Simon & Schuster could be looking at a class-action damage award of as much as $100 million. They’d have to sell a lot of Steven King novels to pay for that. (I’m betting on a settlement.)

Further reading:

• Court opinion:  Satterfield v. Simon & Schuster, Inc., No. 07-16356 (9th Cir. June 19, 2009) (reversing and remanding summary judgment in favor of defendant)
• Adam Snukal (Reed Smith), A mobile marketer’s horror story
• Eric Goldman, Ninth Circuit Revives TCPA Claim–Satterfield v. Simon & Schuster

Hat tip: Lexology.

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A letter of intent — aka an LOI, sometimes known as a memorandum of understanding or MOU — is the equivalent of comfort food; it’s something you can show your boss to reassure her that the transaction you’re supposed to make happen is moving forward.

The most useful function of a letter of intent, though – arguably its only proper function – is to make it clear that the parties do not intend to enter into a binding contract at that time — that they will do so only through a formal, signed, final written agreement. That makes it more difficult (although not impossible) for one party to claim later that the parties had reached an oral agreement.

ADDED 7/1/09: See Letters of intent: Use with caution!, Weightmans Commercial Property Focus [UK], May 2009 (summarizing case in which court held LOI to be a binding contract, not just a precursor to one).

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Amazon.com is dropping its online marketing affiliates in North Carolina and Rhode Island.  It did so to avoid having to deal with recent sales-tax legislation in Rhode Island and North Carolina. These bills would require Amazon and other companies to collect sales tax for in-state sales if they had any online marketing affiliates in the state. Amazon is disputing the constitutionality of the new provisions. (For a more extensive background discussion, including comments from representatives of the affiliates, see the two linked articles above, from the Wall Street Journal.)

I was curious whether Amazon’s affiliate agreement allowed it to terminate this way.  The answer seems to be "yes."  I used The Wayback Machine to look up a March 2006 version of the Amazon affiliate agreement.  It says in paragraph 12, "Either you or we may terminate this Agreement at any time, with or without cause, by giving the other party written notice of termination." Amazon is probably glad someone on their legal team thought to include that language.

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A multinational team claims to have qualified for Netflix’s $1 million prize for coming up with an improved algorithm for recommending specific movie rentals to subscribers. The contest is a real bargain for Netflix:  it gets thousands of contestants doing free R&D work for them (not to mention the free publicity associated with the contest), while having to pay the prize money only to the winner (plus smaller annual best-progress prizes).

The contest rules appear to be a useful resource for anyone drafting rules for a similar contest for R&D, marketing, etc.

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Pillsbury Winthrop lawyer Sanjay Jose Mullick writes about laws restricting the possession of encryption technology, and the surprising possible consequences if those laws were to trap a traveler carrying a laptop computer or a smartphone such as the Blackberry or iPhone.

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