Many Terms, Privacies and business contracts may look the same to an
untrained eye, but a competently drafted document will prevent your business
from being sued somewhere in Mexico or ending up with no legal recourse for
wrongful acts of others. You should seriously considering the following clauses when drafting website Terms of Use, Privacy Policy, End User License Agreement, or a business contract.
Binding Arbitration Clause ensures any disputes are resolved
quickly, inexpensively and confidentially in your hometown jurisdiction. Unlike the court
proceedings, arbitration is confidential, informal and you do not necessarily
need an attorney to represent you because arbitrators are not strictly bound by
the legal procedures and the law. Many commercial arbitrators are pro-business, have significant
business background and can relate to the issues you are facing. All of the
above means that you will get to state your case in plain English, in private,
to people that can relate to the issues you are dealing with. So, generally
speaking, you have a better chance of winning at arbitration than at trial but
even if you lose, at least you will not usually have to spend large sums of
money on attorneys.
States have a strong policy favoring arbitration,
Nevertheless, sometimes courts strike down arbitration clauses that are deemed
unconscionable, especially when they are buried in pages of other legal mumbo
jumbo and the party offering the clause is a dominant sophisticated party
(business), offering a deal on a “take it or leave it” basis to an individual
consumer. In California, we often see arbitration clauses invalidated in
employment contracts, or contracts of adhesion such as clickwraps, shrinkwraps
that nobody ever reads, even though, yes, they should. To prevent this from
happening, it is important to make sure the arbitration clause is brought to
the consumer’s attention and the consumer understands that both parties are
signing away their constitutional right to a jury trial. A properly drafted
arbitration clause is a good deal for both parties and will withstand the
judicial scrutiny, considering the states’ strong policy in favor of
arbitration. Without arbitration, many consumers simply wouldn’t know where to
start filing a lawsuit, and the costs of trial are often more than the case is
worth.
Important note to software companies and developers:
European pro-consumer countries have gone the route of statutorily limiting the
scope of arbitration and other presumptively unfair clauses in consumer
contracts. As a result, in such pro-consumer countries, I cannot offer the end
user a software license with the standard US happy-go-lucky arbitration
clauses, disclaimers and limitations of warranties. Normally, it is best to
include Indemnification Clause (see below) which makes the distributor in that country
liable for making EULAs compliant with the local law. Read Software Licensing Issues for US Businesses in Europe and Japan to get an idea of potentially problematic software/mobile application licensing clauses in foreign jurisdictions.
Indemnification (or “Hold Harmless”) is an important Clause that acts as your insurance for another party's wrongdoing. Suppose, somebody hired you to develop a website or a mobile application and gave you the pictures to use. Pictures turned out to be from a copyrighted clipart, the owner of which now sues you for copyright infringement. Indemnification clause guarantees that your client will be responsible for your legal fees and other expenses incurred while defending against this.
Neutral Venue Clause is a great way to limit liability for
websites that act as a platform for users to interact, make deals, aggregate or
share information such as online reviews. Examples are websites which are
platforms for people to offer services or products to each other or the public
at large, websites that compile reviews regarding a certain industry or types
of products, websites that contain interactive features such as forums and chat
rooms, matchmaking/dating websites. Neutral venue clause states that you are a
not a party to any deals users enter into (even if you collect a fee for your
service), therefore, you cannot be held liable for any monetary, reputational damages,
bodily injury or deaths arising out of the users’ activities, deals,
contributions and interactions on your site. For example, if your website has a
forum and user(s) posted links to copyrighted movies, books or any other third
party intellectual property without your knowledge or approval.
Choice of Law/Governing Law and Jurisdiction Clause ensures you will not get sued in another state or a foreign country when a customer over there buys a product or service from your website. Under the current statutory and case law, such a customer may sue you because your website could be deemed as “reaching out” to his jurisdiction by virtue of being out there on the Internet. This is especially true with websites that have interactive features (as opposed to merely informative sites with just your contact info) encouraging users to submit forms and orders.
Limitations/Disclaimers of Warranties clauses are pretty standard but you need to know which ones to choose for your particular business model because not all liability can be disclaimed and you risk a lawsuit if you are too greedy.
Non-Solicitation, Non-Circumvention clauses are particularly useful if you are a middle man or woman that does not want to be cut out of the deal. For example, you are a real estate broker or you are running a website that matches buyers and sellers. So, you include non-solicitation and non-circumvention provisions which prevent parties from dealing directly with each other in order to avoid paying your fee.
Liquidated Damages is a lump sum payment for breach of
contract. For example, you rent an apartment out to commercial or residential
tenants. You have a duty to mitigate damages and try your best to re-rent in
case of an early breach (and to provide accounting within 21 days of tenant
moving out). However, some tenants breach during the high season, some during
the slow times, you have “midnight movers,” and it’s always difficult to figure
out exactly within the California-prescribed statutory 21-day period how much
exactly will any particular tenant owe you before you re-rent the property.
When the 21 days are up, you have to refund the unused portion of the deposit,
even though the place is still not re-rented, and good luck suing ex tenant,
especially if he or she moved out of state (if you even know the new address).
So, instead of going through this trouble, you include a clause that the fee
for early lease termination is two months worth of rent and the security
deposit may be used for it.
In order for a liquidated damages clause to be valid, two
conditions must be met: 1) the amount of the damages identified must roughly
approximate the damages likely to fall upon you, and 2) the damages must be
sufficiently uncertain at the time the contract is made that such a clause will
likely save both parties the future difficulty of estimating damages.
Cumulative Damages Clause ensures that you get to add up
your fees and penalties, without any one of them being exclusive of another.
Severability Clause means that if any provision of your
contract is held invalid, the rest of the contract still stands, even though
the plaintiffs will often try to invalidate the whole contract.
Entire Contract Clause basically means that the contract represents the complete and final agreement. It prevents people from claiming there are some terms not listed in the contract that affect your deal.
Reporting to credit agencies gives you more leverage in debt collection because clients are less likely to default on their debt. Reserving your right to pursue debt via debt collection agencies gives you another advantage, even though the debt collection agencies are required by law to stop contacting the debtor if he or she tells them to cease communication.
Entire Contract Clause basically means that the contract represents the complete and final agreement. It prevents people from claiming there are some terms not listed in the contract that affect your deal.
Reporting to credit agencies gives you more leverage in debt collection because clients are less likely to default on their debt. Reserving your right to pursue debt via debt collection agencies gives you another advantage, even though the debt collection agencies are required by law to stop contacting the debtor if he or she tells them to cease communication.