Tech Counsel Update: Badly Written Contracts

It's me, Mark Grossman, I’m back—and so is Tech Counsel Update.

Horribly written contracts for tech deals cross my desk every day. They are lawsuits waiting to happen.

When a lawyer writes a contract, the goal should be to tell a clear story about the deal, with a tilt toward their client. Too often, what I see isn’t tilt. It’s illiteracy.

When I started practicing law, I was exposed to “sophisticated” corporate deals. The documents were professionally written, internally consistent, and drafted by bright lawyers. There was a disciplined contracting process, and the lawyers involved understood what they were doing.

Then there's tech contracting.

Usually, the first draft comes from the tech services provider. Usually, that first draft reflects the wisdom of a 20-minute-old startup – and that includes sophisticated vendors. All that’s missing are pimples on the documents.

I once had a deal with IBM. They wrote the Master well. However, four people wrote the four exhibits and none of them had read the Master – or the other three exhibits. Clown show.

The formula is simple: Poorly written contracts lead to war. In our society, we call this legalized and ritualized warfare “civil litigation.” Some speculate that it’s an improvement over dueling. I don’t. I’m all for dueling. See the case of Burr v. Hamilton. Spoiler – It did not go well for Hamilton.

Assume New People

When parties negotiate a deal, they often assume that the people cutting the deal will be the people implementing it. I start from the opposite assumption.

I assume that none of the people at the negotiating table will be involved after the parties sign the contract. People sell businesses, companies promote them, and consultants move along. Things always change.

When that happens, whoever knew what the contract “really” meant is gone. The written document must stand on its own. When someone resists clarifying a clause by saying, “Come on, you and I know what it means. Just trust me,” I sometimes respond this way:

“I do trust you. I assume you’re so good at what you do that you’ll be out of here doing bigger and better things in about four minutes. It’s not you I don’t trust. It’s the person I don’t know who will replace you that I don’t trust. So, let’s clarify the clause.”

By the way, I’m usually less sarcastic when it’s a real deal.

You know you have a well-written contract when someone who knows nothing about the deal can read and understand it. If your contract doesn’t meet this standard, you need to write one that does.