FAQ – Contracts

Every business executes transactions with other parties many of which constitute legally binding contracts.  Written contracts provide evidence of each party’s rights and responsibilities.  When transactions involve the acquisition or the exploitation of an intellectual property, written contracts are critically important to define the intellectual property rights involved and whether those rights are being sold or licensed, and, if licensed, whether the rights are exclusive or non-exclusive, the territorial limitations of use, if any, the duration and many other terms.

Contracts can be formed in a variety of ways depending on the facts and circumstances.  They can be formed by oral agreement, commencing performance, written agreement, and electronically via a manifestation of assent.  The sequence of events leading to the formation of a contract generally includes an offer, an acceptance of the offer, an exchange of consideration or something of value between the parties, and a lawful purpose.

Generally, a written contract is preferred over an oral contract because all parties have something to refer to that defines the scope and nature of their rights and responsibilities. However, a written contract is not always necessary for a contract to be legally enforceable.

What happens will in large part depend on the facts and circumstances of your specific situation. What can happen is that a court may not recognize your agreement as being an enforceable contract. If you do not have your agreement in writing, then you will have to rely on corroborating evidence to prove that you have a contract.  Another possibility is that you may not obtain all the benefits of your bargain.  In other words, the terms of your agreement may not be clear enough to be enforceable.  Or, you may find that your memory differs from the other party’s when it comes to crucial points of your agreement.

Intellectual property rights are created by law.  Contractual rights are created by agreement of the parties to the contract, provided the contract has a lawful purpose.

The first thing to keep in mind about a “standard form” is that it represents the author’s perspective of how a transaction should occur.  For example, a “standard form” publishing agreement could be prepared by an author’s agent or by a publishing company.  In either case the resulting “form” will likely include provisions that are favorable to the party drafting the form.  You should never assume that a “standard form” will only contain provisions that are favorable to your side of the transaction.  Always read the entire “standard form” and make your own judgment based on your own objectives and legal risk tolerances.  It is always wise to consult with a competent attorney.

There are also pluses and minuses to using a standard form contract for multiple independent transactions.  On the plus side, using a standard form is quicker and tends to make your transactions more uniform.  If your transactions tend to not be negotiated much by the other side, then this route may work well in your situation.  However, the more flexibility you may need to close your transactions, the more difficult it may be to use a standard form contract.  You should always keep in mind that, even though most of your transactions may occur in a relatively standardized way and under relatively standardized terms and conditions, you never know when the other side may try to negotiate changes.