Commercial Agreements — quick tips from our lawyer

Tom Judge (2 minute read)

• Stating the obvious: all money that flows in and out of a company should do so pursuant to a contract
• Stating the slightly less obvious: the materiality of a contract, particularly for a tech company, sometimes has little correlation with the revenue that derives from it. Rather, it may relate to protection of IP, data, or the surety of its cyber-security and/or supplier contracts

Here are my high level thoughts on the key points to focus on for your material contracts:

• When YOU are drafting the contract (e.g. employment, consultancy and developer agreements, as well as your key commercial contract(s))
• Most contracts are not looked at after they are entered into. However, when they are, it is usually because there is disagreement — so when negotiating, don’t just live in the sun, but forecast the rainy day scenarios that may come up and cater for them as best you can
• Get professional advice:
• Whilst you would prefer to spend your money on other things, if you get these key, repeat contracts correct upfront, it should largely be a one-off cost and will save you potentially huge hassle (and further cost) down the road
• I particularly recommend seeking professional advice for commercial contracts which involve high levels of regulation or data
• Nonetheless, if you want to give it a go yourself, see the next section for things to keep an eye on
• When the counterparty sends you the first draft of the contract (e.g. material commercial agreements)
• Beyond the key commercial terms, think through the following questions, remembering that the resultant contractual provisions will often be reciprocal:
• IP
• Is it clear who owns the existing IP?
• If the contract creates new IP, is it jointly shared or do you own the IP you contribute?
• What happens to IP once the contract terminates?
• Liability:
• Where does the counterparty’s liability stop and yours begin?
• Have you avoided being on the receiving end of indemnities, and particularly uncapped indemnities?
• Is your liability capped proportionately (e.g. potentially by linking it to the total amount paid under the contract in the last 6–12 months)?
• Confidentiality:
• Is the contract and information that is disclosed between parties to be kept confidential?
• Termination:
• Are you happy with the length of contract?
• Have you avoided a situation where the counterparty has better termination rights than you?
• Are you comfortable with the clauses that survive termination?
• Have you avoided termination that triggers onerous rights (i.e. one-off payments or change in IP ownership)?

Finally, if you think through the above points carefully, you should avoid most scenarios for argument or even litigation. However, where that does occur, ensure that the governing law and jurisdiction provisions work for you.