Contracts

A Contractual Acceptance Period is a Vendor’s Best Friend

October 15, 2014

I’ve often advised vendor-clients that one of the best ways to protect themselves is to include an acceptance clause in their agreements. This can be accomplished either through an explicit acceptance clause or a short warranty period, which can function as a de facto acceptance clause. For some reason, many customers seem to forget about the acceptance clause, giving the vendor a strong defense to a claim of breach. This is what happened in Samia v. MRI Software, decided by Massachusetts federal district court judge Nathaniel Gorton on October 9, 2014. Samia purchased computer software, consulting and technical support from MRI. The License and Services Agreement provided for a 30 day warranty period, during which Samia could notify MRI of any non-conformities and trigger a “repair-and-replacement” clause. This was, in effect, a 30 day acceptance period – Samia had 30 days to vet the software and notify MRI of any defects. This was the sole and exclusive remedy, and all other remedies were disclaimed. The contract contained a separate provision addressing defects related to custom work authorizations. Here, Samia had a 30 day acceptance period during which it could “test any project elements … and notify [MRI] of all potential deficiencies relative to the applicable specification for such work.” To make a long story short, Samia claimed to have found non-conformities and deficiencies, but it failed to given written notice to…

Read the full article →

Ninth Circuit Finds Barnes & Noble’s “Browsewrap” Unenforceable

September 12, 2014

Online companies have often found it challenging to create enforceble terms of service (“TOS”), and the courts aren’t making it any easier. Perhaps the courts have concluded that, now that the Internet is an established commercial medium, they are not going to cut vendors any slack. The latest decision illustrating this is the Ninth Circuit’s August 18, 2014 holding in Nguyen v. Barnes & Noble, holding that Barnes and Noble’s browsewrap agreement was not enforeable. A website “browsewrap” agreement is where the online terms are posted on a site, typically via a link on the site’s homepage. By contrast, a “clickwrap” requires the website user to take some affirmative action before engaging in a transaction (such as an online purchase). Typically this amounts to clicking a box on the site indicating that the user agrees to the site’s terms and conditions. Where the user is not asked to “check the box” and the website relies on the posting alone, things can get messy. Barnes & Noble tried to impose an arbitration clause on a consumer based on a browsewrap, but the Ninth Circuit held that B&N’s browsewrap was not enforceable. Here, as is often true in these cases, the issue came down to vague factors such as where the terms were presented, and whether “a reasonably prudent user” would be put on notice of the terms. In this case, B&N didn’t do enough: In light…

Read the full article →

Oh, Did I Forget to Tell You That Was Confidential? Better Overkill Than Underkill

July 9, 2013

A lot of non-disclosure agreements (NDAs) provide that if one party gives the other a document and expects it to be treated as confidential, the document must be marked “confidential.”  Or, if the confidential information is communicated orally, the party that wants to protect it must notify the receiving party in writing within a specified number of days. (“Hey, the stuff we told at our meeting on Monday relating to our fantastic new product idea? That’s all confidential under our NDA”). This was the situation in Convolve, Inc. v. Compaq Computer, decided by the Court of Appeals for the Federal Circuit on July 1, 2013.  The NDA at issue in that case provided that to trigger either party’s confidentiality obligations “the disclosed information must be: (1) marked as confidential at the time of disclosure; or (2) unmarked, but treated as confidential at the time of disclosure, and later designated confidential in a written memorandum summarizing and identifying the confidential information.” Big mistake. People sign agreements like this and a year later they have completely forgotten that they need to follow them. Or, employees come and go, the NDA is buried away someplace, and new employees are blithely unaware that they need to follow the terms of the NDA. That’s what happened to Convolve. It had trade secrets relating to hard disk drive technology. It disclosed the secrets at a meeting, but it failed to…

Read the full article →

93A Opinion in Baker v. Goldman Sachs: What Happens When You Mix In Equal Parts A Start-Up, a Fraudulent Purchaser, a Tech Bubble and a New York Investment Banker?

June 13, 2013

Earlier this year, on the eve of trial in Baker v. Goldman Sachs in federal district court in Boston, I published a blog post describing the facts behind this unusual case, which involved the acquisition of Dragon Systems by Lernout & Hauspie in a $600 million all-stock deal. Soon after the acquisition closed the market discovered that Lernout had fabricated its Asian sales figures. This was quickly followed by Lernout’s bankruptcy, which left Dragon (owned by the Bakers, husband and wife founders) holding worthless Lernout stock. (Baker v. Goldman Sachs – The Business Deal From Hell). The acquisition was negotiated and concluded in the first half of 2000, just as the technology bubble was beginning to deflate.  After a lengthy trial the jury ruled in favor of Goldman Sachs on all issues except the claim that Goldman violated M.G.L. c. 93A, the Massachusetts statute that makes illegal “unfair or deceptive acts or practices.” Under Massachusetts law, that claim must be decided by the judge. Now, Massachusetts federal district court judge Patti Saris has issued her decision on the Baker’s 93A claims, holding that Goldman Sachs did not violate 93A. This ruling is not a surprise; judges rarely find a violation of 93A when a jury rules against a plaintiff on the underlying claims, which in this case were negligence, breach of fiduciary duty and fraud. However, her opinion is a fascinating…

Read the full article →

“Yet Another Hierarchical Officious Oracle” Is Unable to Create an Enforceable Online Agreement

May 14, 2013

“Yet Another Hierarchical Officious Oracle” is Yahoo!, of course. And, its lawyers should be embarrassed by Yahoo!’s inability to create enforceable online Terms of Service (TOS). The issue arose in Ajemian v. Yahoo!, decided by the Massachusetts Appeals Court on May 7, 2013. In this case the plaintiffs were the administrators of a decedent’s estate. They wanted access to the decedent’s email account to let his friends know of his death and memorial service, and later to locate assets of his estate. Yahoo! refused to provide the online password, and the administrators filed suit in Massachusetts to compel access. Yahoo!, in turn, argued the suit should have been brought in California and, in any event, it was too late. These arguments were based on Yahoo!’s terms of service which provide, in part, as follows: You and Yahoo agree to submit to the personal and exclusive jurisdiction of the courts located within the county of Santa Clara, California…. You agree that regardless of any statute or law to the contrary, any claim or cause of action arising out of or related to use of the Service or the TOS must be filed within one (1) year after such claim or cause of action arose or be forever barred.” The decedent in this case had opened his account in 2002, and he died in 2006. In the interim Yahoo! had updated its…

Read the full article →

D. Mass. Judge Stearns: Advertising Claims Create Express Warranty Despite Disclaimer in EULA

May 6, 2013

Assume a software vendor makes advertising clams regarding its product’s functionality. However, its end-user license agreement (EULA) is very narrow – it provides a 30 day  express warranty that (i) “the medium (if any) on which the [s]oftware is delivered will be free of material defects” and (ii) that “the software will perform substantially in accordance with the applicable specification.” Assume further that that software performs in a manner consistent with the “applicable specification” (the user manual) but inconsistent with advertising claims for the product. In fact,  not surprisingly given that this case is in federal court, it malfunctions and wipes out the data on the purchaser’s hard drive.  You might think that the EULA would prevent a purchaser from claiming breach of express warranty, but under Delaware law (and the law of most states) you would be incorrect. AVG Technologies is the seller of PC TuneUp. In Rottner v. AVG Technologies, Massachusetts U.S. District Court Judge Richard Stearns, applying Delaware law (as stipulated in the EULA) ruled on this issue in the context of AVG’s motion to dismiss. He held that AVG’s advertising claims must be viewed as part of the express warranty for PC TuneUp, despite the EULA’s attempt to disclaim them: I am confident that the Delaware courts would consider PC TuneUp’s claimed functionality as an express warranty separate and apart from the EULA’s content-less warranty provisions.  … Here, although the EULA disavowed…

Read the full article →

You Want to Blog for Huffpost? Well, I Have to Warn You – We’re Pretty Darn Selective!

December 13, 2012

A lot of people blogged for The Huffington Post for free between 2005 and 2011. But after Huffpost was sold to AOL for $315 million in 2011, they had second thoughts about their generosity. They filed a class action seeking compensation for their work based on claims of unjust enrichment and deceptive business practices, seeking one-third of that money for the bloggers. The trial court, and now the Second Circuit, rejected their claims. As the Second Circuit stated early this week in Tasini v. AOL (2d Cir. Dec. 12, 2012): Plaintiffs’ basic contention is that they were duped into providing free content for The Huffington Post based upon the representation that their work would be used to provide a public service and would not be supplied or sold to “Big Media.” Had they known that The Huffington Post would use their efforts not solely in support of liberal causes, but, in fact, to make itself desirable as a merger target for a large media corporation, plaintiffs claim they would never have supplied material for The Huffington Post. The problem with plaintiffs’ argument is that it has no basis in their Amended Complaint. Nowhere in the Amended Complaint do plaintiffs allege that The Huffington Post represented that their work was purely for public service or that The Huffington Post would not subsequently be sold to another company. To the contrary, plaintiffs were…

Read the full article →

Baker v. Goldman Sachs – The Business Deal From Hell

December 10, 2012

An interesting “David v. Goliath” jury trial is scheduled to begin in Massachusetts U.S. District Court Judge Patti Saris’s Boston courtroom this week. The case has received a fair amount of press coverage, but not nearly enough in my opinion.  (Steven Syre Boston Globe column today, July 2012 NYT article). The events in Baker v. Goldman Sachs date back to the heady days of the dotcom era. In short, James and Janet Baker (pictured here) spent much of their careers pioneering speech recognition technology which they commercialized under their company Dragon Systems, based in Newton, Massachusetts. The Bakers were legendary in the Massachusetts tech community in the 1990s – home-based technologists who came up with a promising-today, sky-is-the-limit-tomorrow technology. In 2000 they sold Dragon for almost $600 million to Lernout & Hauspie, a Dutch company. Unfortunately, they were paid fully in Lernout stock, and almost immediately after the sale Lernout was discovered to have been cooking its books.  The stock went to zero, and so did the consideration the Bakers received for their company. For the Bakers, this was a business catastrophe of mythical proportions.  One day they owned an immensely valuable company that that owned technology they had spent decades developing.  The next day they had sold the company in exchange for almost $600 million of Lernout stock.  Within a few months, their company was gone and their stock worth…

Read the full article →

District of Massachusetts Case Shows Challenges in Software Development Litigation

November 29, 2012

Custom software development agreements that go awry and end up in litigation are notoriously difficult cases. The reasons for this (to name just a few) are the finger-pointing (“your fault, no yours”), the complexity, ambiguity or incompleteness of the functional/technical specifications, the presence of third-party developers or hardware vendors (who can also be blamed), and the obscure, technical nature of the cases, which make them distasteful to judges and dull to juries. Massachusetts U.S District Court Judge Richard G. Stearns issued a rare decision in one of these disputes last week. The case, Liberty Bay v. Open Solutions, involved loan origination software developed under a standard, milestone payment-based License Agreement. After a four year development project plagued with difficulties the Client terminated the agreement and the software Vendor filed suit, seeking the balance owed under the license agreement. The Client, for its part, wanted a refund of monies paid and additional consequential damages. Each side asked the court to issue summary judgment in its favor, and Judge Stearns wrote a decision addressing the contentions. The background of the case is typical of thousands of similar projects.  The project went off-schedule almost from the start. After a series of delays and defective deliveries the Client terminated the agreement and demanded a refund of monies paid to date. The Vendor asked for more time, and the Client agreed to provide it. However, subsequent…

Read the full article →

Online Agreements – Easy To Get Right, Easy To Get Wrong

October 16, 2012

It’s easy to create an enforceable online “click-wrap” agreement.  But, as two recent cases remind us, it’s also easy to do it wrong.  Two recent cases are a reminder of this. In the first case, In re Zappos.com Security Breach Litigation, Zappos was sued in connection with a large data security breach. Responding to the predictable class action lawsuit, Zappos argued that the plaintiffs were required to arbitrate under Zappos’ online user agreement. However, Zappos didn’t have a ‘user agreement,” it only had terms and conditions.  And, it did not require purchasers to “click through” to indicate acceptance of those terms.  The terms, which included the arbitration requirement, were under a link users were not even required to access while making a purchase, much less consent to. Quoting the court: we cannot conclude that Plaintiffs ever viewed, let alone manifested assent to, the Terms of Use. The Terms of Use is inconspicuous, buried in the middle to bottom of every Zappos.com webpage among many other links, and the website never directs a user to the Terms of Use. No reasonable user would have reason to click on the Terms of Use, . . . . . . The arbitration provision found in the Zappos.com Terms of Use purportedly binds all users of the website by virtue of their browsing. However, the advent of the Internet has not changed the basic…

Read the full article →

First Circuit: Company’s Vague Contract Insufficient to Prevent Supplier From Competing

September 5, 2012

A contract between a company and its supplier states that the supplier shall not “develop any other product derived from or based on” the company’s product.  Can the company enforce this provision against the supplier when the supplier develops a product that does not appropriate any trade secrets or novel features of the company’s product? Not according to a decision of the First Circuit issued on September 4th. Where the features of the product are well known in the art, and there has been no appropriation of novel features of the product, such a contract provision cannot be used to enjoin sales of the “derived” product: “a private contract may restrict copying of an idea that was not in the public domain at the time of contracting, but may not withdraw any idea from the public domain.” Contour Design, Inc. v. Chance Mold Steel Co., Ltd. (1st Cir., Sept. 4, 2012)

Read the full article →

The Road Goes on Forever, But the Lawsuits Never End: ConnectU, Facebook, Their Entourages

January 18, 2010

The ConnectU/Facebook legal saga is truly astounding.  Imagine a mature Oak tree.  Now give the it properties of Kudzu vine (the “vine that ate the South”).  Each branch of this tree is another lawsuit involving ConnectU, Facebook, the principals, and their lawyers. Now, a new branch has burst forth.  Wayne Chang has sued ConnectU and its lawyers in Superior Court Business Litigation Session in Suffolk County, Boston, claiming that Chang is entitled to as much as 50% of the value of the ConnectU/Facebook settlement (so called, since ConnectU has challenged the finality of the settlement). You can read about the ConnectU/Facebook saga here, or wait until the movie comes out. Here is the complaint in the Chang case, and apologies to Robert Earl Keen. Chang v. Winklevoss Complaint

Read the full article →