Sample agreements and form contracts are freely available these days on the internet. If you haven’t found one that suits your needs or if you’ve decided that a custom contract drafted by an attorney will better protect your interests, you may want to consider preparing a term sheet.

Why should you prepare a term sheet?
This document, which will outline the basic points of your intended agreement, will not only make dealing with your attorney easier, and faster, it might even save you some money.

Identify the parties
Identifying the parties to an agreement is one of the most important steps to proper contract formation. Who signs an agreement and possibly more important, what their position in a company is, determines the extent of your ability to enforce the rights and obligations memorialized in the contract. If you will be signing this agreement, will you be signing as an individual or the representative of a company? Will your counterpart in another company be signing as well or, if this is going to be a form contract, will the other party be a customer?

What is the purpose of the contract?
Telling your attorney why you’re entering into this agreement will do more than help him/her write a title, it will give insight into the circumstances or industry surrounding the agreement. Write a short description of the type of agreement, such as “contract for marketing services related to local doctor’s office.” You may know what terms and provisions should be in your contract but an attorney will likely do some research before starting to draft the agreement to make sure it complies with industry standards and any applicable laws.

How long will the contract last?
The term of an agreement is another extremely important provision that is often overlooked in informal conversations between the parties before seeking legal advice. Will this contract be for a set length of time? A few months? A few years? Or will it continue until the parties agree to terminate the relationship? While your attorney can advise you on a favorable term for your position it is best to come prepared with at least some idea of how long the agreement should last.

How will payment be made?
Most contracts involve payment and, if everything goes well, payment will be made. If you are the party who will be receiving payment consider what form you would prefer payment to take. If you are the party who will be making payments discuss this with the other party to make sure their preferred method is reduced to writing. The method of payment will not only affect the physical act of payment it will also have an impact on terms that address late payments and possibly even penalties. Wire transfers and credit card or check payments over the phone can be made almost instantly but payments by check must be sent in advance.

Will there be penalties for late payment?
If payment is being made by check it might be reasonable to allow a few days for receipt because mail is often delayed, however if payment is made by wire transfer it might be reasonable to incur late fees even 24 hours after payment was due. If your business is depending on funds from the sale of goods or performance of services covered under an agreement any delay can negatively impact your livelihood. Late fees act not only as a deterrent to prevent late payment they can also compensate one party for expenses incurred for obtaining credit to continue operation of the business or even lost profits due to halted operation.

Can this contract be transferred?
If you’re contracting for the specific services of an individual or company you may not want to allow a transfer of the rights and obligations of the agreement but what about if one of the parties is sold?

What is the location of the parties and where will the contract be carried out?
If both parties reside in the jurisdiction where the contract will be carried out this information may not be necessary but when dealing with an entity in another state it is important to decide on the forum for legal disputes and the applicable law to be applied. Additional information, such as where the contract will be carried out, will help your attorney determine your leverage for making the forum convenient to you and your interests.

Will you be exchanging sensitive information?
Most contracts require at least one party to disclose sensitive information and trade secrets. Some of this information, such as client information may be protected by privacy statutes and any disclosure should be carefully guarded. Alerting your attorney to the possibility of such an exchange will allow him/her to include provisions to prevent unnecessary disclosure and to properly penalize any breaches.

Summary
Even a short list of key terms or contract expectations faxed to your lawyer in advance of a meeting or conference call will make your consultation much more productive.

Two district court decisions were handed down recently regarding the online auction site eBay that may be of interest to any eBay sellers out there. The first comes from the Western District of Washington and concerns the sale of copyrighted software, and the second is from the Eastern District of Pennsylvania and deals with the validity of eBay’s “forum selection” clause.

The First Sale Doctrine – Sales of Copyrighted Software Online

Copyright protection gives exclusive control over the sale and distribution of copyrighted works to the copyright holder. Sales by an unauthorized party are considered piracy. There is an exception to this protection, which applies to rightful purchasers of a work, called the “first sale doctrine.” Under this theory, if you buy a book, for example, while you don’t own any portion of the copyright, you are the exclusive owner of that copy, and are free to keep it or sell it as you wish. The entire “used goods” market, which is a large portion of the eBay marketplace, is dependent on the first sale doctrine.

Many “purchasers” of software are aware that when they buy software what they are actually buying is a license for its use from the seller. Software is handled that way to allow developers to have more control over the use of their products once they are transferred. In 2007 Autodesk, Inc., the developer of the AutoCAD software package, sent a takedown notice to eBay after discovering the sale of several AutoCAD packages by Timothy Verner. Mr. Verner acquired the software packages from a Seattle architecture firm (CTA), and not Autodesk, Inc.

According to Autodesk, it still owned the AutoCAD packages in Mr. Verner’s possession because it never transfered ownership to CTA and under the terms of the software license CTA was barred from transferring rights to a third party. Thus, Verner’s sales constituted copyright infringement, or at least contributory infringement, according to Autodesk. The District Court attempted to reconcile two lines of precedent regarding this issue but was ultimately unable leading it to side with the oldest precedent among the competing options. Ultimately Mr. Verner’s sale was held to be privileged by the first sale doctrine regardless of how restrictive Autodesk’s “license” was because the intent of the parties had been to transfer ownership. Autodesk never sought to reclaim ownership of any of its software packages, the packages were merely licensed to extend unenforceable control over its products in the stream of commerce.

Forum Selection Clause – Plan Your Trip to California

In Tricome v. eBay, Inc., the plaintiff argued that eBay’s forum selection clause naming California as the forum for disputes is unconscionable and should not be enforced. The plaintiff further argued that as a “form contract,” eBay’s terms of use constituted a procedurally and/or substantively unconscionable agreement.

While plaintiff contended that the user agreement containing the forum selection clause was a contract of adhesion since the plaintiff never had the opportunity to discuss or negotiate its terms, numerous courts have held that not to be the standard for deeming a contract to be one of adhesion. Additionally, even the terms of an admitted adhesion contract are enforced unless they are “so one-sided as to be oppressive.” eBay operates worldwide and it is not shocking for it to focus its legal defense in a particular forum rather than having to litigate in potentially hundreds or thousands of other jurisdictions.

So, if you’re an eBay seller, selling software in compliance with eBay’s terms is probably not going to cause you any trouble with the copyright holder but if you run afoul eBay’s rules prepare for a trip to California.