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By Hunter Farrell<\/p>\n
When technology companies are ready to form a legal entity, raise funds from angel investors or private equity, or sell themselves to an acquirer, they typically find an experienced corporate attorney to handle the matter.\u00a0 However, when they are contemplating entering into transactions to buy, sell, license or develop the technology-based products or services necessary to operate their day-to-day business \u2013 transactions that, in the aggregate, are crucial to the ongoing survival of the company \u2013 they often decide that they can handle the deals through the use of non-specialist attorneys or, worse, standard forms downloaded from the Internet.<\/p>\n
I think there are some critical, significant benefits to using a technology transactions (\u201cTT\u201d) attorney, however.<\/p>\n
Non-TT Attorneys May Be Less Familiar with Industry-Specific Issues and Risks
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Technology companies that already have corporate counsel handling corporate formation, governance or financing matters sometimes decide that it would be more efficient and cost-effective simply to have the corporate counsel manage licensing and other technology transactions.\u00a0 Alternatively, some companies decide that it would be cheaper to farm the project out to generalist attorneys available through legal temporary placement agencies or through foreign legal outsourcing arrangements.<\/p>\n
But different industries in the technology space have very different business models.\u00a0 Accordingly, in each industry sector there are different standard legal and business issues and risks that are critically important.\u00a0 A TT attorney who has had extensive, repeated exposure to transactions in a specific industry will generally be more familiar with, and have a more nuanced understanding of, business practices and contractual issues and risks for that industry.\u00a0 This allows the TT specialist to advise clients on industry norms and establish the most favorable business terms.\u00a0 Corporate attorneys, generalist \u201ctemp\u201d attorneys and outsourced foreign attorneys don\u2019t normally have the same regular exposure to transactions in an industry and may have little or no awareness of certain key issues and risks.<\/p>\n
Downloaded Form Agreements Must Be Appropriately Adapted and Negotiated
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Early-stage companies sometimes see the wealth of contract forms available on the Internet and conclude that it would be quicker, cheaper and nearly as effective to download a form and paper a transaction without the assistance of an attorney.\u00a0 While it is true that a wide range of high-quality, industry-specific form agreements are available on the Internet, these forms cannot often be used properly as an \u201coff-the-rack\u201d solution.<\/p>\n
First, except in the most basic transactions (e.g., a simple assignment of a domain-name registration), technology deals generally have numerous unique deal terms.\u00a0 A downloaded form is very rarely going to match all of these terms perfectly. \u00a0Thus the form is typically going to require significant adjustment of numerous interrelated provisions.\u00a0 It may also be the case that the selected form is not entirely appropriate for the client\u2019s deal.\u00a0 A TT attorney who regularly drafts and edits transactional agreements is likely to do a significantly better job of ensuring that the selected form is appropriate for the deal and client, and that any adjustments are made with clear, industry appropriate language that minimizes legal risk and results in a consistent overall agreement.<\/p>\n
Second, when a non-lawyer sends out a downloaded form for a deal, an attorney representing the other side may decide to make significant modifications to the form.\u00a0 The non-lawyer is then faced with the challenge of analyzing the risks and issues created by the changes and negotiating appropriate compromises.\u00a0 A TT attorney who routinely negotiates agreements in the industry will be more effective at spotting and negotiating any issues and proposing substitute language.\u00a0 This levels the playing field when negotiating with much larger companies that are represented by sophisticated counsel.<\/p>\n
Avoiding Critical Mistakes<\/b><\/p>\n
At this point, you might be thinking, “Does it really matter if the contract is not perfect?\u00a0 If it covers all of my key business terms, is it really important to obsess about obscure risks and minor inconsistencies?\u00a0 Life has some risks, and I know a lot of companies that get by fine without paying a specialized attorney to review this stuff.”\u00a0 My response is:\u00a0 while it is likely that nothing bad will happen, do you really want to roll the dice with your core IP assets or the critical vendor products and services you need to operate your business efficiently?<\/p>\n
As the saying goes, it’s not a problem until it becomes a problem.\u00a0 If the business relationship unfolds as planned, you might never find out if your agreement is full of holes.\u00a0 When a relationship sours or a third-party lawsuit comes out of left field, however, one of the first things the parties will do is reach for the contract.\u00a0 If that document doesn’t correctly specify the appropriate transfer of rights, performance obligations of the parties, or limitations of liability, for example, it is too late to fix those problems after a dispute has started.\u00a0 And those gaps in the contract can have major consequences for the ongoing survival of the business.\u00a0 In future blog posts, I plan to delve into some specific types of contracts and highlight some areas in which inadequate language can cause real problems.<\/p>\n
Lawyers That Actually Help Drive Revenue!<\/b><\/p>\n
One final point I want to make is that a well-crafted contract, or contracting strategy, can help a business work more efficiently, earn more revenue and\/or reduce costs.\u00a0 A TT attorney who is more familiar with contractual norms for the industry can help a client get a better economic deal.\u00a0 In addition, a clearly written agreement that spells out all of the necessary performance obligations of the parties will help facilitate a smooth working relationship between the parties and avoid squabbling about ill-defined responsibilities.\u00a0 As a result, the company operates its business with fewer expensive delays.<\/p>\n
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