Part 2: Negotiating Technology Contracts with US Companies

Part 2: Negotiating Technology Contracts with US Companies

Enterprise Ireland has teamed up with Daniel Glazer a partner at Wilson Sonsini Goodrich & Rosati, where Daniel leads the New York office’s technology transactions practice and also advises Irish and other European emerging technology companies on US expansion, fundraising and strategic partnership transactions. This series will offer perspectives on setting up a business in the US and considerations for Irish companies looking to raise VC investment from US investors

US Expansion – Setting up the Right Way

This post has been written by Daniel GlazerWilson Sonsini Goodrich & Rosati and Robert MollenFried Frank Harris Shriver & Jacobson

After Irish startups start to establish themselves in the domestic market, many consider expanding their businesses to the US.  Whether or not actually on the ground in the US, Irish technology companies looking stateside will need to deal with US contracts that may contain unfamiliar terms and concepts.

This article addresses five pitfalls Irish companies should avoid when entering into technology contracts with US companies. These risks can be mitigated, but only if your company is sensitive to them during negotiations.

All US laws are not created equal

Although for simplicity’s sake this article will refer to “US law,” for the most part there is no single body of US contract law. Rather, each of the 50 US states has its own contract law, and your US partner likely will insist that the contract be governed by the laws of a US state with which that company is familiar. The larger US commercial centers, such as the states of New York and California, tend to have better-developed, more predictable contract laws.

The contract laws of the various states generally adhere to common themes, but each state’s laws have their own idiosyncrasies. For example, New York state law allows parties to select New York law to govern commercial contracts that bear no relation to New York, but only if the contract is worth more than $250,000.

As another example, California state law offers broad protection to technology developers, in some circumstances interpreting IP transfer language in a manner that recognizes a potentially unintended employment relationship between California technology developers and companies commissioning technology development.

Indemnification is expected

US commercial litigation is relatively common, in part because unsuccessful US litigants usually are not required to pay the prevailing party’s legal costs. Accordingly, there is a particular focus in US contracts on obtaining financial protection against litigation claims.

When contracting with a US company, your company most likely will be asked to defend the US company against certain types of claims and indemnify it for related losses. Common topics for indemnification include breach of confidentiality obligations, violations of law, damage to property, and personal injury.

Indemnification for intellectual property infringement claims asserted by third parties is a key provision in technology contracts, as US intellectual property litigation is particularly widespread and costly. Technology recipients typically will ask for an IP infringement indemnity from their providers, but the provider may seek to limit, eliminate or even reverse the indemnity obligation when the alleged infringement was the recipient’s fault (such as where the alleged infringement was caused by the recipient’s unauthorized use or modifications of the provider’s technology, the recipient’s failure to implement a work-around, or the provider’s compliance with recipient’s instructions).

Ensure appropriate confidentiality protection

US laws governing confidentiality obligations can be tricky. Your company should carefully consider the ramifications of any proposed limit on the duration of your partner’s obligation to protect your valuable confidential and proprietary information (characterized as “trade secrets” under US law).

Trade secret protection exists indefinitely under US law unless the information is disclosed without a duty of confidentiality or independently discovered; the long-secret Coca-Cola formula is perhaps the best-known example. Agreeing to term-limited confidentiality obligations for your company’s trade secrets creates a significant risk that your company will lose the ability to protect the information.

Beware joint ownership

Joint ownership of technology commonly is viewed as an efficient way to avoid difficult negotiations over intellectual property rights. However, joint ownership can result in uncertainty at best and, at worst, hinder your company’s ability to use and commercialize the jointly-owned technology.

The rules of joint ownership vary not only among the different types of intellectual property (e.g., patents, copyrights, trade secrets and trademarks), but also among various countries. Under US law, each joint copyright owner may commercialize the copyrighted work without the other joint owners’ consent, but must account for licensing royalties received and may not destroy the value of the work. This is different than, for example, UK law, which states that joint copyright owners cannot exploit their rights in the work without the other joint owners’ consent. It also is different than the US rule on joint patent ownership, which is that joint patent owners have no duty to account to the other joint owners for licensing royalties.

Joint owners can agree to modify these rules in their contract, but they likely will apply by default if the contract specifies without further elaboration that the parties are “joint owners” of developed technology.

Use the present tense

Language intended to assign rights to your company should reflect a present transfer of rights (e.g., the counterparty “hereby assigns” its rights), not a future promise to transfer (e.g., “will assign” or “agrees to assign”). Under the latter formulation, your US partner’s failure to deliver the promised assignment may result in a breach of contract claim, but not necessarily ownership of the relevant IP rights.

This distinction figured prominently in a case recently decided by the US Supreme Court, which found that the “agree to assign” language was merely a promise to assign – a promise that the inventor could not keep due to his subsequent present assignment of rights to a competitor. Although this is clearly a worst-case scenario, it highlights the importance of drafting the transfer of rights in a manner that will withstand scrutiny under US law.

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Business moves quickly in the digital age, and there is understandable reluctance to potentially lose a deal crucial to US expansion due to an excess of caution over legal terms.

However, having a US-qualified lawyer conduct at least a brief review of your company’s US agreements – typically for a pre-agreed fixed cost – will help ensure you get the deal you think you’re getting.

 

Daniel Glazer leads the US expansion team, and the NYC Tech Transactions practice, at Silicon Valley-based Wilson Sonsini.  He can be reached at daniel.glazer@wsgr.com.

Robert Mollen advises European companies on US matters at Fried Frank in London.  He can be reached at robert.mollen@friedfrank.com.

 

 

Global Shares, a market leader in Equity Plan Administration software, continues rapid expansion with new appointments, new offices and launch of new Software

Global Shares, a market leader in Equity Plan Administration software, continues rapid expansion with new appointments, new offices and launch of new Software

Shareholder and Stock Plan Services is a complex business and Global Shares offersGlobal Shares 2 highly innovative web based solutions. The SaaS Company has clients in 100+ countries who benefit from the use of their next generation software for their equity plan management. This number is set to grow swiftly with some strategic developments.

 

Global Shares has unveiled a major expansion plan for 2015 marking the culmination of a comprehensive phase of software development. As the Company gets ready to launch its new Software Products onto global markets a number of key announcements have been made:

Company Announcements & employee growth

The Company has appointed 4 new key Executives to drive the company’s momentum forward. These include the announcement of new Board member, IT entrepreneur, David Raethorne. A new Marketing Department will be managed by Aisling Riordan and Kathie Zedack joins the US team as Client Relationship Manager.

 

David Raethorne, Director

David Raethorne, Director

Further developments:

  • New ‘ROW’ Sales Team
  • New restructured US Sales Team and Operations Departments
  • 20% YOY growth at the Company’s employee base in Cork, Ireland
  • Re-seller partners (Elian, Continential Stock, IFG, Capita & others) actively introducing Global Shares to new markets
  • Overall employment expected to more than double in the coming three years.

New offices

A new London Office will open in January located at St. Paul’s beside the London Stock Exchange while earlier in 2014 the company relocated to larger offices in New Jersey.

New APSS Software

Global Shares has launched a campaign promoting its exceptional new APSS software product, targeted at Irish-based companies who are operating employee share incentive schemes. The software is applicable to both public and private companies who have Irish employees.

Speaking about the recent developments, Tim Houstoun, CEO of Global Shares said,

We have grown substantially in the last two years and we now have the opportunity to further our success to date.  Our equity compensation management solutions are the best-in-class and our mission now is to communicate the strength and depth of our product and service offering to the market. We welcome all our new Team Members and look forward to a productive 2015

To find out more visit: www.globalshares.com  or to keep abreast of our latest software developments subscribe to our Global Blog here. See our latest software in action here.

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More about Global Shares:

GS-LOGOweb2Global Shares offer market leading employee equity plan software solutions and consultancy services across the globe. With offices in North America, Ireland, UK and China they provide unrivalled, innovative software solutions for Private, pre-IPO and Public companies including a range of equity administration and financial reporting (IFRS & US Gaap) tools that are fully customizable to each customer’s needs.

As ambassadors of the Equity Industry their delivery of state-of-the-art software solutions sits alongside the provision of award winning consultancy and administration service to their customers. Their client portfolio stretches across 5 continents and varying jurisdictions; delivering a personalised experience to each user. Global Shares have built a formidable list of high quality clients such as Cargill, Nokia, Ambev, UniCredit, Telefonica, Ambev, Sallie Mae, LivingSocial and many others.

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