• Athletes’ Scandals Spark Interest in Endorsement Insurance – NYTimes.com
  "[T]he stock prices of the seven publicly held companies that have or had sponsorship deals with [Tiger Woods] lost $12 billion in market value in the month after Woods’s statement in December that he was taking a leave from golf …." Companies are increasingly seeking to buy insurance to cover potential lost sales when this happens; the insurance gets more expensive as the morals clause gets more specific.  (HT:  Contract Alchemy http://bit.ly/bulDjb)

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I’ve sometimes written into contracts that multiple non-material breaches of a contract, even if cured, can add up to a material breach. A UK court held that this was the case in a lawsuit by British Gas against global consulting-firm Accenture (formerly Andersen Consulting) over alleged defects in a customer-billing system. See this article by Stuart McGinn of the respected London law firm Bird & Bird.

Evidently the contract defined Fundamental Defect using and/or language that allowed for aggregating multiple breaches in this way:

a fundamental breach of Clauses 15.2.1 and/or 15.2.2 and/or 15.1.1(i) [the warranties] … which causes a severe adverse effect on the British Gas Business; [Emphasis added.]

In hindsight, it would have been better for Accenture to use just “or” instead of and/or.

Also of interest was the court’s holding that money paid by British Gas’s parent company to its own customers to resolve billing problems were not ‘consequential damages’ – see these comments on that subject.

For more information on this case, see:

• British Gas sues Accenture over billing ‘shambles’ – The Sunday Times, May 11, 2008
• Aggregating Fundamentals – Society for Computers and Law, Nov. 13, 2009
• GB Gas Holdings v Accenture – Jones Day, Jan. 2010

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• Dell arbitration agreement in box not enforceable because customer had no opportunity to return product | Morrison Foerster

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Something else we discussed in class yesterday: Suppose a customer company has a lot of bargaining power. And suppose the customer uses that power to force a vendor to make some tough concessions in a contract negotiation.

The customer’s negotiators might well regard those concessions as an entitlement: We’re the big dog; of course we get what we want.

But they should recall that ultimately, all contracts have to be performed by people. And people will almost certainly be influenced, not just by the words of the contract, but by their employer’s then-current interests — and by their own personal interests as well.

If the vendor’s people feel they’ve been crushed by the customer, they’re unlikely to harbor warm and fuzzy feelings for the customer. (This is at least doubly true if the contract later proves to be a train wreck for their company — most business people know that being associated with a train wreck is seldom good for anyone’s professional reputation.)

The vendor’s people are not likely to be motivated to go above and beyond for that customer. They may be tempted to “work to rule,” to use an expression from the labor-relations world — to do just what the contract requres, and no more. That does neither party any favors.

The reverse can be true when the shoe’s on the other foot. Suppose the customer thinks that it’s been taken advantage of by a vendor. When it comes time for renewals, or repeat business, or recommendations to other companies, that vendor probably won’t have a lot of brownie points with the customer’s people.

The lesson for contract drafters and negotiators: Even if you’ve got the power to impose a killer contract on the other side, think twice before you do so. You could be setting up your client to have to deal later with a wounded tiger.

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• Software Reseller Agreements | Wahab & Medenica
• Answering When Your Guaranty Is Called – Farella Braun & Martel
  A useful survey of guaranty issues, including some of the whys and whens as well as tips on dangerous boilerplate.

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During a discussion yesterday in my contract-drafting class, I pointed out that —

• Contracts are not computer programs that will be carried out, exactly as written, by mindless, disinterested robots. Quite the opposite: contracts try to encourage human beings. We generally aren’t mindless, and often we’re anything but disinterested;
• Legal obligations are just one type of human motivator in the toolkit. Steven Weatherley gets it right in his groundbreaking Pathclearer article: Legal obligations are a blunt instrument: They can be difficult, expensive, uncertain, and time-consuming to enforce.

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I plan on spending some time in my contract-drafting class talking about this case:

• British Sky Broadcasting contracted with EDS to develop a customer relationship management (CRM) software system, and eventually filed suit when things didn’t go as planned.
• The judge concluded that EDS made fraudulent misrepresentations when one of its senior UK executives lied to Sky about EDS’s analysis of the amount of elapsed time needed to complete the initial delivery and go-live of the system (see ¶ 2331 and ¶¶ 194-196.)
• The judge also concluded that during subsequent talks to modify the contract, EDS made misstatements that didn’t rise to the level of fraud, but still qualified as negligent misrepresentations (see ¶ 2336).
• One clause in the contract capped the potential damage award at £30 million — but by its terms, that limitation did not apply to fraudulent misrepresentations, and the judge held that the limitation didn’t apply to negligent misrepresentations either (see ¶¶ 372-389).

After the decision was handed down, Sky announced that it expected the damage award to be at least £200 million. Had it not been for the misrepresentation claims, the pure-contract damages presumably would have been capped at £30 million. The difference works out to about US$270 million.

One of the most interesting aspect of the judge’s opinion, it seems to me, is its detailed exposition of the facts, which illustrate the ’sausage factory’ by which technology deals sometimes get made — and how even just one vendor representative can make a deal go terribly wrong for his employer.

Hat tip: ContractsProf blog.

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• Global Arbitration Review
  I just discovered this collection of arbitration articles; the ones I glanced at were by name-brand law firms.

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Suppose a contract contains a one-way attorneys’ fees provision — for example, a provision in a technology license agreement that the licensor can recover attorneys’ fees incurred in enforcing the license agreement.

And suppose the contract is governed by California law.

It appears that, under California Civil Code § 1717(a), that contract provision is automatically and non-waivably treated as a “loser pays” prevailing-party provision.

That is, if the technology licensor brings suit to enforce the license agreement, but the licensee is found to be the “prevailing party,” then the licensee can recover its attorneys’ fees even though the contract doesn’t say so.

I’ve updated the California choice-of-law cheat sheet to reflect this.

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Something I’ve been doing for awhile is to capitalize IF and THEN in a complex sentence, and to use colons and semi-colons to set them off. For example:

IF: A Product includes computer software, including for example software embedded in hardware; THEN: Reseller may not copy, disassemble, decompile, or reverse engineer the software, nor assist or knowingly permit others to do so, without Provider’s express prior written approval.

(Bold-faced emphasis added.)

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