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09:33:07 PM

Philip Storry's post Intellectual Property, Organisations, Notes, People... (Pick three.) reminded me of something I had a strong urge to blog about last year, but I restrained myself. Now that I'm out of the consulting biz, I don't feel as much need for restraint about it. In fact, now that I think about it, things like this may have played a larger role in my decision to get out of consulting than I had previously realized. What I'm talking about is ridiculous contract clauses that no rational person should sign but which too many big companies and their misguidedly overzealous attorneys expect them to.

Here's a prime example. I was asked to sign a substantial agreement, described to me as an non-disclosure agreement, in order to allow a potential client to give me details of a project and access to some existing source code so that I could prepare a bid. Although I was told an NDA was all that was required, what was sent was far more than an NDA. It was a consulting services agreement, complete with the following clause:

6. Work Product Consultant agrees that (a) all designs, inventions, improvements, discoveries, developments, ideas, and the written or other tangible form of expression of the preceding, that are usable by Company in its business or relate to Company’s future business activities and which are either (i) conceived, created, or made, or (ii) reduced to practice or embodied in a tangible form of expression, by the Consultant, individually or jointly with others, on the Consultant’s own time and without use of Company facilities and equipment, during the period of Consultant’s consulting relationship with the Company and for two (2) years thereafter (referred to collectively as “Intellectual Property”), will belong to the Company for all purposes, including the purposes of copyright, trademark, patent and all other intellectual property law; (b) Consultant will promptly disclose and hereby assigns and agrees to assign to Company all of the Consultant’s rights, including copyright and patent rights, in the Intellectual Property; (c) Consultant will execute all documents and do all other things necessary to assist the Company in protecting its intellectual property worldwide, including obtaining patents and trademark and copyright registration; and (d) in the event the Company is unable, after reasonable effort, to secure the Consultant’s signature for such purposes for any reason whatsoever, Consultant hereby irrevocably designates and appoints the Company and its duly authorized officers and agents as the Consultant’s agents and attorneys-in-fact, to act for and in the Consultant’s name, behalf and stead, to execute and file any such assignments, applications or other documents and to do all other lawfully permitted acts to further the obtaining and protection of such patents, copyright or trademark registrations or other rights with the same legal force and effect as if executed by the Consultant. However, this paragraph 6 shall not apply to any developments, inventions, discoveries, ideas, or the written expression of such ideas, that Consultant has developed and reduced to practice prior to the consulting relationship with the Company, a complete list of which is included at the end of this Agreement (“Prior Inventions”). Consultant also hereby waives, to the fullest extent permitted by law, all claims to moral rights in any Intellectual Property.

I returned the agreement to them with a note detailing why I could not possibly sign it, and offering to send them my own agreement with terms that were more fair and appropriate. The response was quick and final: it's this agreement, or nothing. The decision was a no-brainer.

Some fellow consultants that I talked to about this while it was transpiring have told me that my reaction was a mistake. and that I should have simply said to them "You sent me the wrong agreement. Please send a simple NDA." Remember, this was before the bid. My friends' point was that I could have made that statement without indicating that I had any problems with the full agreement, which would stand a better chance of keeping the discussion going. My thinking, though, was that even if they did send me a simple NDA, and I submitted a bid and they decided to give me the contract, this same contract would have reared its ugly head again. By that point, I'd be more invested, and so would they, but would they be invested enough to be willing to back down from their terms? Somehow I doubted that.

Let's boil down the terms above to simple, plain English. Everything I do on my own time, alone or with others, with or without the use of any of the client's computers, for the period of the contract and for two years afterward, belongs to the client, even things they did not contract for or pay for. The only qualification is that the work must be "usable" by the client in its present or future business, but this is meaningless because the contract does not obligate the client to disclose all of their business interests to me, and it doesn't -- and can't possibly -- define what the client's future business interests are. The only exclusion is for work I've done before the term of the contract and which I disclose to the client in writing at the time of signing the agreement. Work I'm doing for other clients simultaneously could not be excluded, and even work I had started for other clients previously would have to be disclosed to this client in order to be excluded -- and that, of course, would violate confidentiality agreements with those other clients so it was out of the question.

So for the privilege of bidding on, possibly be awarded the contract, and therefore getting paid for three months of work, I would either break contracts with existing clients or get their permission to disclose their property to a third party, and I would have to sign away two years of rights to everything I do -- and that's actually the generous view because the termination clauses of the contract could have allowed the client to cut the project short and still retain their two years of rights to everything I do. No sane, competent, experienced and honest consultant could sign that agreement, but somebody did. Not me, but somebody. Somebody who had no intention of living up to the letter of the terms, or somebody naive enough to believe that an overly restrictive agreement such as this one is guaranteed to be thrown out of court in the event of a challenge. That belief, by the way, may even be true -- but no competent attorney would ever advise you to count on it. A competent attorney would tell you that good agreements are designed to avoid disputes, and that their most important purpose is to avoid at all costs ever putting anything that you depend on from being left up to the discretion of a court.

The net result: the corporate attorney who wrote this agreement for the client succeeded in doing one thing: he guaranteed that the people who provide consulting services to the client must either be naive or dishonest.

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Comments :v

1. Nathan T. Freeman04/18/2006 07:02:17 AM

Or believe that the agreement would never actually be upheld if the client attempted to enforce it.

IANAL, but my understanding is that, much like non-compete, these clauses are rarely upheld. And almost never in the case of contract work-for-hire.

Not that it excuses what they wrote. I'm just saying that's why someone might have done the work anyway.

2. Richard Schwartz04/18/2006 08:15:46 AM

Nathan, I agree that it is almost certainly unenforceable, but two years of IP rights is a heck of a lot to bet on it. Most people probably don't think about it this way, but two years of IP rights can be a lifetime of security. Imagine what happens if a year later you come up with a killer product idea and pitch it to VCs. They love the idea and plan to give you $10m to fund it; but then they do their due diligence and they turn up this contract. They go running away because they'll never bet $10m on the risk that it could all be lost to your former client. Even if they also strongly believe that the agreement is unenforceable, they'll probably not bet on someone naive enough to have signed it. (And I say this despite my understanding that VCs don't mind at all if you're naive enough to sign an agreement that is grossly in their favor!)

3. Jerry Glover04/19/2006 01:01:21 AM

Reminds me of the Inventions and Discoveries clause of an employment agreement I ultimately had to sign for a previous employer. Basicly it stated that anything I created, even on my own time, related to technology was the property of the company. California has black letter law (statutes) to limit those clauses to strictly what is related to the company's business, but there is nothing in my jurisdiction nor any case law that I could discover. It doesn't really matter how "unenforceable" it might seem if you're the one that will have to foot the bill to test it in court.

4. Alan Bell04/19/2006 06:08:05 AM

I wouldn't sign that.

5. Ken Yee04/20/2006 06:12:18 PM

I see this kind of lame clause all the time: "Everything I do on my own time, alone or with others, with or without the use of any of the client's computers, for the period of the contract and for two years afterward, belongs to the client, even things they did not contract for or pay for"

Then I strike it out, initial it, sign it and explain to them that this clause only somewhat makes sense for their FULL-TIME employees and even then is a bit devious. I've been able to get it struck out every time I've done this so far, even as a full-timer in the past. Must be lucky I guess...or I ran into lawyers which weren't total d*cks

6. Philip Storry04/30/2006 04:32:34 PM

Yeah, nicely spotted Mr. Shwartz!

The blatant land-grab IP attitude annoys me. I almost turned it into a full seperate post, but decided to ignore the dark impulse and just put it in as an almost-sidebar.

I'm glad someone picked up the ball and posted something sensible on the subject though. Thanks!

7. fdsgfdg08/25/2006 04:39:20 PM

8. Paul Sexton08/25/2006 06:44:54 PM

Mine happened when a big company bought our software project. It's a done deal, everyone is happy, then we find out the deal is contingent on everyone signing an agreement that said we couldn't "compete" by working on any project that in the other company's sole judgement "competed" with them for the next 3 years. The executive type that sent us this agreement said we should all just work on something else ("Excel" was his suggestion) Of course, they were free to seize anything that looked valuable for the next 3 years, his verbal offer notwithstanding.

Turned out to be a feint: we got a manageable agreement by refusing to sign (while our management sweated.) We even got a maintenance contract.

9. Gary Petersen08/26/2006 12:28:00 AM

If the company OWNS everything I do after I leave them, I say put up a porn site and put "OWNED BY THE X.Y.Z COMPANY" as they clearly have rights to all your work. Continue to come up with items to drive them insane as you're not their employee any more so they can't really do much besides claim its NOT their property which the contract says different.

I've found these contracts best handled by quietly changing the copy in a way that makes it usable and signing it. Most never read the changes and its not an issue. Some see it and it turns into a back and forth with their legal staff that I drag out to the maximum duration which often has got me enough time to show I'm worth keeping. Sure, one or two have cut the time short but most have let me keep working and wrote off the legal dept's requirement as they collected a signed contract when I started.

Changing "for 2 years after" to "for 2 hours after" really fixes a huge part of the offending contract above. Adding "in exchange for a arbitrated compensation" to all sentences above also fixes this up well.

In my experience, the people doing the employing really do want you and idiot lawyers try to get people to sign crazy stuff because nobody fires them for it.

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