As I recently finished a week of arbitration over bitter disputes about a long-term agreement and business relationship, I was reminded again of what a company can do to reduce the risks of litigation and to increase its chances of success if litigation were unavoidable.
Walk away at the beginning.
Sometimes your company will do best by not getting into a relationship. The DRTV industry remains in transition. Companies fold, companies are acquired, companies change directions. Job tenure for decision-makers is often short. Even before your company starts any serious talks about a distribution agreement or other deal, check out the DRTV company. If it is publicly held, read its SEC filings (10-K's, 10-Q's or other filings). If it is private, get a Dun & Bradstreet report and do some credit checking on the firm.
Get answers to these questions: How often is the company in lawsuits? Does the company have the credit worthiness or financial stability to do what is promised? Are there regulatory actions against the company? Does the company appear to take inappropriate short cuts? What you learn may tell you not to start or finish negotiations. Sometimes the best deal is the one that does not happen.
Get the main points in writing.
When you shake on a deal, make sure all the points important to your company are in writing. The person you dealt with may not be with the company in the near future. Memories fade as time passes. Changing financial or strategic considerations may “modify” the other company's interpretation of the deal.
With intellectual properties — copyrights, trademarks, and patents — certain kinds of agreements have to be in writing to be enforceable. When you can, use simple and plain and unambiguous language.
Have a lawyer review your agreement.
In the 24 years I have tried or litigated matters, I find too often that the contract at dispute was never truly reviewed by a lawyer. Lawyers, by training and experience, can help draft written language that a court will enforce. A lawyer can help replace ambiguous or contradictory provisions which will surely invite disputes. A lawyer can shorten or enlarge the number of “main points” that should be in the contract. Sometimes simple language will not be entirely possible. “Legalese” can be essential to protect certain kinds of intellectual property rights. For example, suppose your product is a self-help manual, along with tapes, which is not completely finished. Suppose you contemplate that the other company will help finish the product. If you want to ensure your continued ownership of all the copyrights in the product, then your contract needs to spell out that agreement.
Maintain your contacts.
If the decision-maker or your primary contact leaves the other company, find out who will be the replacement. Do not assume any “corporate memory” will infuse the person taking over the project. Especially do not assume that the successor would have taken time to read the contract or that he/she was properly informed of the obligations.
Document changes.
Reality will always intrude on the contract. Anytime either party agrees to an important change, document the change. Write a letter; send an e-mail; fax a note. Keep a copy in your files. You can always remind the other party of an agreed-upon change by referring to the documentation.
Remind the other party of what the contract requires.
Some contracts contemplate long term relationships. Do not rely on your or someone else's memory of what the contract says. Periodically re-read and review the contract. If the other company is not living up to anything important, tell it that you expect compliance. If the problem is not quickly resolved, document your notice in writing.
Police royalty accountings.
Be diligent in checking your royalty statements and accountings. If there are errors, do not procrastinate. Bring the errors to the other company's attention. Use any audit rights contained in the contract.
Get legal advice on breaches.
States differ in the statutes of limitations for breaches of contract. If there is a breach, get legal advice on what you can do and when you will be barred from any legal action.
If your contract contains alternative dispute resolution (“ADR”) provisions, find out what you should do to maintain your rights or to initiate such procedures. Choose your lawyer carefully if you decide that ADR or litigation is likely. You may need an experienced litigator to work with you on your strategy and tactics. An experienced litigator may be your best choice on how best to avoid expensive ADR or litigation. Make sure you are fully informed by your lawyer of the probable litigation expenses and costs associated with different approaches.
Organize and save your important records.
If your company has no choice but to be in ADR or litigation proceedings, you will find that having your important records regarding the contract will be more than worth their storage costs. Important records include negotiation documents which can explain contract provisions, records of changes agreed to between the parties and records of communications about disagreements. With respect to intellectual property rights, your company should maintain the records relating to the creation, authorship, invention, and ownership of such rights to copyrights, patents and trade marks.
Daniel Woo is a Seattle attorney who represents publishers, technology companies, marketers and direct response companies. Any comments or suggestions for future subjects can be sent to [email protected].
