Technology contracts: creative relationships require creative agreements

This week we are delighted to feature a guest post from Olivia Whitcroft.

Picture the scene: it is 1993 and the forward-thinking Telecommunications Manager at Big Industry Ltd has decided to introduce e-mail communication. A provider is selected, phone lines and modems are discussed, and fees and set-up dates are agreed. A contract is drawn up and sent (by post) to the provider for review.

It soon becomes clear to the provider that he has been sent an agreement for fax machine maintenance. It details response times for fixing hardware faults, and addresses paper and ink cartridge replacement. He raises these concerns and is told that Big Industry will accept a few tweaks, but there is no time for lengthy negotiations. The provider therefore signs the contract and the parties move forth into the unknown territory of providing e-mail within a framework of fixing fax machines.

This story represents the frequent disconnect between the terms of technology contracts and the services which are actually being provided. With the rapid development of technology, small providers are often first on the scene with innovative opportunities, but insufficient time and resources are given by their (often larger) customers and partners to consider a bespoke contract. The provider is presented with "standard" terms which range from something slightly inappropriate to complete nonsense!

More up-to-date examples include mobile app services under contracts for face-to-face or web delivery; or resellers of technology services appointed using end user agreements. Software development agreements often do not reflect intended use of source code or copyright. Provisions on use of data are frequently unsuitable: identifying one party as a data processor, when it clearly behaves as a controller; promises to keep data in the UK, when it is entrusted to a US cloud provider.

So what? you may say. Well, the purpose of a written agreement is to document how a relationship is intended to work, which may act as a guide to the parties' actions (such as delivery of services and payment), protect certain assets (such as copyright and know-how) and give a clear basis for recourse in case something goes wrong. Inappropriate terms may fail to achieve any of these benefits. Sooner or later, one party may want something to be done or may dislike something which the other party has done, and will seek to rely on the contract to protect or defend itself. Unfortunately, the legal position may be extremely hazy!

Taking one extreme, the parties may need to comply with the terms as written even though they had something else in mind. This may happen where the contract is very disadvantageous for a party, but is not completely removed from the core intention. At the other extreme, the agreement may be ineffective for mistake or lack of certainty. This is generally unhelpful for both parties, but may result in one side being put at a greater disadvantage.

Where possible, a court will try to construe the wording of a contract in a way the parties intended, may imply terms to give effect to that intention, or could order a mistake to be rectified. This could assist, for example, if the word "fax" has been used and it is clear that the parties intended to use the word "email" (née "e-mail") in context. However, these remedies are unlikely to be feasible if the terms can reasonably be given their ordinary meaning, or are very far removed from reality.

Other legal problems may include breaches of data protection law for insufficient security obligations, or invalid onward licences of unassigned intellectual property.

Resolving the consequences of inappropriate terms can therefore be time-consuming and costly, and may not achieve the desired result for one or both parties. The message is not new: a contract needs to be tailored to the context of the intended relationship. Standard terms can be useful for the basics, but bashing out terms to apply un-amended to all technological scenarios is unlikely to be achievable.

If there are limited resources and budget to negotiate a "perfect" contract, some middle ground could be reached, showing some flexibility in approach and obtaining appropriate input from those who understand the technology. To start with, a short agreement may be an option, with a clear description of the intended relationship, but without addressing every scenario. This is likely to be better than a mesh of terms which sound good legally but are potentially useless in practice.

Just over 20 years down the line from introducing email and new technology continues to inspire creative opportunities for Big Industry. It is now looking into BYOD, big data, the internet of things, 3D printing and augmented reality, and is bringing on board new providers and partners to assist. All it has to do is ensure that it is also creative with the terms governing these relationships. Remember: if all you have is standard terms, everything looks like a fax machine.

Olivia Whitcroft, principal of OBEP (www.obep.co.uk)

olivia.whitcroft@obep.co.uk

This is an abridged version of an article originally published by the Society for Computers and Law: http://www.scl.org/site.aspx?i=ca0&r=2&x=glbszt6r