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What to Include in a Licensing Agreement: The Licensor’s Perspective

If you are the owner of intellectual property (IP), it is imperative that you protect your rights by properly registering it and using a licensing agreement that safeguards your rights. For more general information, please read our blog titled “Understanding Licensing Agreements.”

When creating a licensing agreement, you first need to determine the scope of the license. You will want to keep ultimate ownership of the IP, but you can assign limited use rights. The license scope should be broad enough that others will want to use your IP. Generally speaking, unless the IP is custom-made, the license is usually nonexclusive, so you can sell or license the use of it to other parties.

In most circumstances, you will want to make it clear that the license does not allow the licensee to reproduce or pirate the IP in order to sell it to third-parties. However, if you allow the licensee to reproduce the IP, you will want to be paid royalties or ongoing maintenance charges in exchange for the resale license.

Other topics your license agreement should cover include:

  • How long the license will last
  • Outline any rights of the licensee to modify or combine the IP with other products
  • Set forth any prohibited uses of the IP
  • Establish whether there are rights to transfer or sublicense
  • Detail the warranties; Disclaimer of the UCC warranties
  • List the limitations on the licensor’s liability
  • Include a provision covering nondisclosure of protected information
  • Outline indemnity for infringement
  • Set forth available remedies
  • Establish the conditions for terminating the contract

There a numerous factors that must be considered and negotiated when creating a license agreement. The laws governing intellectual property can be complicated, so having a seasoned attorney assist you is invaluable. Contact Leslie S. Marell today to schedule your appointment.

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Independent Contractor/Freelancer Contracts

If you are an independent contractor or freelancer, you may be working for others without having a contract in place. Unfortunately, working without a written agreement makes you vulnerable to being taken advantage of. A contract is beneficial in many ways because it not only protects you legally, it also assists with scheduling issues and the overall relationship with your client because you both know what has been agreed upon and what should be expected.

Many freelancers start out believing they don’t need a contract, but most soon discover they were wrong when a client fails to pay or makes so many change requests that they don’t make any money on the job. Having a contract that allows you to charge for revisions helps ensure that you make a profit on your work.

Why are contracts so intimidating? For most people, it is the fear of the unknown. Having a contract attorney assist you with creating an agreement that works for your unique situation is important. Once you have the basic document drafted, you can use it with all of your clients, making revisions where needed to suit each job. Below are a few of the general areas you will want your contract to cover:

  • Classification is key. It’s very important to classify your workers as contractors for tax purposes. An oversight on your end can lead to trouble with the IRS. Make sure you properly classify your worker as an independent contractor and lay out a few of the key factors that point to a contractor relationship (behavioral factors and scope of control, for example) in writing.
  • Scope of work must be clearly defined. The work that your independent contractors will perform for your business should be confined to a certain scope, in order to properly differentiate them from an employee. This provision should therefore include a description of the services and work that your independent contractors will render for you.
  • Be specific about payment. Payment details should be clearly stipulated in the agreement. While payment by the hour, week, or month usually indicates that a worker is an employee, payment that’s made based on a particular job, project, or that’s based on a straight commission tends to be more common when it comes to independent contractors.
  • Explain who’s paying for expenses. It’s important that you specify who will pay for the expenses and take care of the supplies and other necessary purchases in the course of the work performed by the independent contractor. Usually, the supplies and expenses are covered by the independent contractor himself. But it’s best to have this in writing, just in case of a dispute.
  • No entitlement to employee benefits. Independent contractors are not eligible for most of the benefits that employees qualify for. This includes unemployment compensation (an independent contractor is also far more free to leave whenever he or she wants to), worker’s compensation, health insurance, and disability insurance.
  • Rate of pay. Your contract should clearly outline your rates and how the client will be charged. If you charge by the hour, you should include a minimum and maximum work-hour clause, which protects both you (in case you finish early) and your client (in case you take longer than expected).
  • Payment schedule. Most independent contractors require an upfront payment, with the remainder being paid in installments as the job progresses. Whatever your preference is for your payment schedule, make sure it is clearly set forth in the contract. You should also state how you should get paid and whether there is a grace period after the due date.
  • Point of contact. If you are dealing with a client that has several different individuals giving you feedback, it can get messy. Your contract should appoint a single point of contact that all communication should be funneled through. This prevents conflicts, confusion and double work for you.
  • Cancellation fee. If the project you are working on gets cancelled, you want to make sure you get paid for the work you have performed. You may charge a flat fee or establish a cancellation fee schedule, but you want to make sure you get paid for the work you did even if it won’t be used by the client.
  • Having a deadline protects both you and the client. The client needs to know when the project will be finished and you need to know how to schedule the work out. You also need a clause allowing an extension of your deadline if the client fails to provide the required information, feedback or approval in time.

To learn more about protecting yourself with an independent contractor or freelance contract, call Leslie S. Marell.

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Need Help with your Contracts? Sign-Up for these Seminars Today!

In addition to her legal practice, Leslie presents seminars throughout the country to sales, marketing, and purchasing professionals on Business and Contract Law. Leslie developed and publicly presents the following seminars.

LEGAL AND CONTRACTS SEMINARS:

THESE WILL BE THE ONLY CALIFORNIA PUBLIC SEMINARS OFFERED IN SOUTHERN CALIFORNIA IN 2015

Tuesday, January 27, “Legal Aspects of Purchasing”  Long Beach, CA

Wednesday, January 28th,  Contracts: Reading, Writing & Negotiating,  Long Beach, CA

Wednesday, April 22, Ink the Deal: Negotiating your Customer Contracts, Long Beach, CA

To register: http://marell-lawfirm.com/contract-seminars/

In these seminars, Leslie will cover a wide variety of topics including defining key contractual terms and examples of their real world application, UCC terms, fighting the “battle of the forms,” and many other topics. All participants will receive a comprehensive manual (over 150 pages) which includes clear explanations of the areas and issues discussed in the seminar as well as sample clauses, contracts, and letters. She provides “hands on” experience in how to review, negotiate and write a contract.

SOFTWARE LICENSING

Wednesday, March 25th, Software Licensing: For the Business Professional, San Jose, CA

To register: https://www.eventbrite.com/e/software-licensing-for-the-business-professional-tickets-15021066414

Software licensing transactions are more complex and more important than ever. The constantly evolving legal, regulatory and technical landscape drives the need to stay current in a wide variety of key areas. The ability to structure, draft and negotiate complex software license agreements is critical to a successful transaction. This seminar is designed to address the important legal and practical issues that arise in drafting and negotiating software licenses.

Leslie S. Marell has been practicing business and commercial law for over 25 years. She is established in private practice and has extensive legal experience counseling companies in the areas of business contracts and transactions, purchasing, sales, marketing, computer and technology law, employment law and day to day legal matters. Let us provide your company the advice and guidance you need. CALL TO REGISTER FOR A SEMINAR TODAY!

 

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Understanding Licensing Agreements: From the IP Owner’s Perspective

Understanding what constitutes “intellectual property” (IP) and the importance of protecting it is important to any business owner. IP is anything that is created in an individual’s mind, including art, music, computer software, inventions, designs and trademarks. You can protect IP with a license, which is a type of contract that allows you to maintain control over your IP but transfers certain rights to a third party to use the IP.

The holder of the IP rights is called the “licensor.” The party that wishes to use the IP is called the “licensee.” By entering into a license agreement, the licensee pays money to the licensor for the right to use the invention or creative work. In many software license situations, the licensee is granted a non-exclusive right to use the IP. In other situations where the licensee has been involved in some development of the IP, the licensee may expect either ownership rights or exclusive rights to use the IP.

The primary way to protect your IP is to register for all rights that apply to your circumstance, such as:

  • Patents – inventions
  • Copyrights – original works of authorship
  • Trademarks – symbols, words, names or other designations used to identify goods made or sold in order to distinguish them from other similar goods

Intellectual property law can be complex, so it is important to confer with a knowledgeable attorney on how to protect and manage your IP rights. Once you have secured your rights to the IP, you can create your licensing contract.

A license agreement does not have to be lengthy and complicated, but it must be uniquely tailored to meet your individual needs. You want to ensure the contract is clear and concise, but most importantly, enforceable. Federal law imposes strict civil and criminal penalties for unauthorized use of IP. Your license agreement should provide you with the ability to file a lawsuit to enforce your rights and recover certain remedies such as an injunction and monetary damages if the licensee misuses the IP. You may also be entitled to recover actual damages, which may include any money you lost as a result of the infringement. In certain cases, you may even be able to recover any profits wrongfully gained by the infringing party.

To learn more about license agreements or how we can assist you with other business-related matters, contact Leslie S. Marell today. For more information, please read our next blog titled “What to Include in a Licensing Agreement.”

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How to Expedite the Legal Review

When you are negotiating a contract with another party, it can be a complex and lengthy process. Below are a few tips to help expedite the legal review process before you even involve your attorney:

  • Before you give the other side a copy of the contract, talk over the major issues. Create a checklist of issues to discuss so you can determine where the starting point is for both sides before the negotiations even begin.
  • Once you discover the issues where the parties disagree, try to negotiate and reach an agreement on as many of them as possible. The more you can work through before the attorneys get involved, the better off you are likely to be. Even a “legal” clause such as the warranty provision should be discussed. Talk through what the warranty includes, how long it will last, and the deadline for fixing the problem.
  • Wherever possible, you’ll want to start working with a standard template; However you can’t rely on a standard template and simply fill in the blanks. Remember, this is a unique transaction that should include the deal points you have agreed upon. You will have to make revisions to any template to conform to the deal.
  • If the other party is making significant changes to the contract, don’t be afraid to ask questions about why they are being made. Asking these questions will provide you with information about the other side’s concerns, which is critical in reaching an agreement.
  • Discuss the business aspects of all clauses, even the “legal” or standard clauses. For example, if the supplier insists on inserting a limitation of liability, ask what the supplier expects it should be responsible for if their product is defective and it’s in the field.
  • Get creative in finding solutions to avoid problems, or minimize their impact. For example, in the purchase of capital equipment, you might discuss some form of limitation of liability in exchange for the supplier providing no charge monthly preventative maintenance and on site spare part consignment. Talk in real world terms with real world approaches to heading off the problem of faster resolutions.

Most importantly, don’t simply “hand off” the contract to your attorney. Schedule a meeting with your lawyer to discuss what has been negotiated between the parties and the reasons for the other party’s exceptions. You should stay engaged in the process and encourage your counterpart to do the same.

If you follow the above tips, it will reduce the time involved in the legal review process and help ensure you achieve a positive result. When you are ready to involve an attorney, contact Leslie S. Marell.

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Why your Contract Should Contain a “Defense Clause”

A “defense clause” is a provision that establishes the duty to defend the other party to a contract in certain circumstances, such as preparing for and defending a lawsuit. It is commonly found in an agreement in conjunction with indemnification clauses and hold harmless provisions.

The party that has undertaken the obligation to defend is given control over the defense. In contrast to indemnification, the duty to defend is usually triggered when there is a claim, not after a judgment has been rendered or loss has been established. Thus, indemnification and the duty to defend are two separate provisions creating distinct rights and obligations.

Agreeing to the duty to defend is a significant undertaking. There is a significant amount of time, money and effort that must go into preparing for and defending litigation. The defending party can hire its own lawyer to handle the trial for the party being defended, which can be a downside to agreeing to a defense clause. The specifics governing how counsel will be selected and who has authority to settle the claim should also be detailed in the defense clause.

Some parties, especially those that are self-insured, prefer to retain control over their own defense. As such, they try to negotiate a defense clause out of the contract. If you want to retain control over your own defense at trial, avoid the defense language and focus on the indemnification and hold harmless provisions.

When you are negotiating a contract, it is wise to retain counsel early in the negotiation process to help ensure the agreement is drafted to meet your needs and protect your best interests. Indemnification, hold harmless and defense clauses significantly impact the degree of your liability. Leslie S. Marell can help you understand the extent to which you are taking on or shifting risk in your agreement. To ensure that your contract provides you with the most protection from liability available, contact us to schedule an appointment. Our office is located in Torrance, California, but we proudly serve businesses of all sizes from all over the country.

 

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Indemnification Clauses

Most contracts contain indemnification clauses, but few parties take the time to read them or fully understand what they mean. Although the language used may appear to be “boiler plate” or standard contract language, an indemnity clause can be a significant part of the agreement that you want to negotiate for your benefit.

An indemnification clause imposes an obligation on one party (or both parties in certain circumstances) to compensate the other party for any loss or damages outlined in the provision. The compensation provided for in an indemnification clause is separate from other contractual damages. A common form of damages provided for in an indemnification clause is the loss associated with one party having to defend a lawsuit filed by a third-party.

By way of example, if Car Seller enters a contract with Part Maker, Car Seller may seek to be indemnified by Part Maker if the part is found to be defective. Thus, if Car Seller is sued by a driver that was injured by the defective part, Part Maker could be held liable for Car Seller’s reasonable attorney’s fees and costs incurred in defending the lawsuit.

Indemnification clauses can be written very narrowly so the indemnification obligation only arises under specific circumstances, or it can be written more broadly so the indemnification obligation arises for any loss that results out of an event resulting from the agreement. Additionally, the parties covered by the indemnification clause can be narrowly or broadly defined. It may state that only the entity is indemnified, or it may include the entity’s officers, directors, trustees, employees, agents and affiliates. Finally, the indemnity may set forth a higher standard of “gross negligence” instead of “negligence.”

There are numerous factors to be considered in indemnity clauses. Don’t assume the clause protects you because it appears to be standard language. Contact Leslie S. Marell to discuss indemnification and to ensure that you are protected before you sign a contract.

 

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Essentials for Employment Contracts

When your business is ready to hire employees, it is essential to get legal help. An employment contract can be used to outline the legal relationship between your entity and your employees so there is no confusion regarding the rights and duties of the parties. Having an agreement in writing can help your business avoid misunderstandings and litigation in the future.

An employment contract should be drafted to meet your business’s specific needs and the job position covered in the agreement, but below are a few factors to consider:

  • The contract should set forth all information regarding how the employee will be paid, including salary, hourly wages, commissions and bonuses.
  • The hours the employee is expected to work should be defined, as well as whether the worker is expected to perform his or her job duties in the office or if he or she has the ability to work remotely.
  • If your business intends to grant equity in the company to attract employees, the terms should be detailed in the employee contract. This includes addressing topics such as the type of stock grant, exercise price, options for acceleration and vesting term.
  • Any benefits that will be provided to your employees should be covered in the agreement. Examples of benefits to address are 401k or pension programs, health insurance, vacation and sick leave, maternity or paternity leave and other similar perks of the job. The contract should specifically discuss any requirements that must be met before the benefits can be exercised.
  • You should have your employee sign a non-disclosure agreement (NDA). This could be a stand alone agreement, or it could be made a part of the employment contract. It is important to describe what must be kept confidential, as well as the consequences of violating the NDA provisions.
  • In most situations, you will want the contract to specify that the employment is “at will.” Otherwise, you should clearly set forth the term of employment. Additionally, the grounds for termination should be outlined and if compensation will be paid upon termination.
  • If your business is in a competitive industry, you may want to consider including a covenant not to compete for a certain period of time after the employee stops working for you. However, since the courts do not favor restraining an individual’s ability to work, you should obtain legal counsel in drafting these provisions and to determine if they are enforceable in your state. For example, California holds non-competition agreements to be unenforceable.

To ensure that your employment contract provides you with the most protection from liability available, contact Leslie S. Marell to schedule an appointment. Our office is located in Torrance, California, but we proudly serve businesses of all sizes from all over the country.

 

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Electronic Contracting: Think Before Hitting “Send!”

It is becoming a common practice for parties to use email to negotiate, review and revise contracts. While the internet makes it convenient and quicker, it can also inadvertently lead to liability. Courtrooms across the country are seeing an increase in the use of “electronic evidence.” You don’t want an opposing party to use your email exchanges as evidence of (or to disprove) the existence of a contract.

Pursuant to the Uniform Electronic Transactions Act of 1999 which has been adopted in all 50 states, a legally binding contract can be formed by use of electronic records. Electronic communications, including email, and even text messages, can be used to form binding legal contracts if the individuals have actual or apparent authority to do so. The essential requirements of a contract must still be met for the agreement to be enforceable, including an offer, acceptance and consideration exchanged between the parties. If the electronic evidence clearly establishes that these basic requirements have been met, it may be sufficient to prove the parties intended to be contractually bound and that a valid contract was formed.

How do you protect yourself when conducting contract negotiations via email? It is imperative that you are clear and succinct in outlining your intentions. All of your employees should receive detailed training regarding your business’s policies regarding electronic correspondence and to be careful in email to avoid terms such as “offer” or “accept” and to avoid unconditional “promises”. If you do not wish certain employees be able to form binding contracts by email, you should require that a prepared, blanket disclaimer paragraph be automatically inserted into every email that is sent from such employees. The disclaimer should include a statement that the sender of the email does not have authority to legally bind the company and any commitments on behalf of the company must be confirmed by either the appropriate department (such as purchasing) or the person’s manager. You should also include a statement that your business does not intend to be bound by an electronic contract and that all electronic correspondence is considered non-binding until the agreement is signed by the parties. Finally, if the other party gives you an indication that they are relying on your emails as forming a contract, you should take immediate action to set them straight. The quicker you clear up any confusion or misunderstandings, the less likely you are to be held liable.

To learn more about electronic contracts and how to protect yourself or how we can assist you with other business-related matters, contact Leslie S. Marell today.

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Protecting Your Trade Secrets Requires More than a NDA

There are several industries that require valuable intellectual property to be shared with third parties. In order to protect intellectual property, most businesses use confidentiality agreements or non-disclosure agreements (NDA). However, there are certain circumstances where having a NDA may not be enough.

In the case of nClosures, Inc. v. Block & Co., the Seventh Circuit Court of Appeals ruled that a NDA signed between the designer of a product and the manufacturer was unenforceable because the owner of the intellectual property failed to take reasonable steps to protect its confidentiality.

Facts of the case

nClosures was the designer of protective cases for electronic tablets and other similar devices. Block agreed to manufacture the cases for nClosures and executed a confidentiality agreement protecting nClosures designs. However, five months following nClosures’s initial sale of the cases, Block began selling its own competing product.

Decision

A lawsuit for violation of the NDA was filed by nClosures. Block moved for summary judgment, which the trial court granted. The trial court reasoned that nClosures could not enforce its NDA because it had not taken reasonable actions necessary to safeguard its case designs. More specifically, on appeal the Seventh Circuit ruled that nClosures failed to enter into NDAs with other parties who had access to the designs of the cases. Furthermore, nClosures did not mark its design drawings as “confidential” when they were given to Block and failed to limit electronic of physical access to the designs. The court ruled that because nClosures did not take reasonable steps to protect the confidential status of its designs, its NDA with Block was unenforceable.

Practical advice

If you are the owner of a trade secret, the take-away from the nClosures decision is that securing a confidentiality agreement is essential, but also not enough to protect your intellectual property by itself. You must exercise due diligence in protecting the confidential nature of your trade secrets. Failure to be vigilant could result in nullifying the enforceability of your NDA.

If you have questions regarding the nClosures decision or how we can assist you with other business-related matters, contact Leslie S. Marell to schedule an initial consultation.