The rule (OK, a guideline): Don’t ask the other side to agree to something that you wouldn’t accept if the roles were reversed.
This week, I helped a client negotiate changes to a prospective customer’s standard nondisclosure agreement [1]. The form included a statement that my client consented, in advance, to the entry of an injunction if my client breached the NDA’s confidentiality obligations; the form also waived any requirement that the customer post a bond as a prerequisite to obtaining an injunction against my client [2].
I asked that both provisions be deleted. The customer’s lawyer (who was fairly junior but knew her stuff) and I went back and forth for a few minutes about those issues.
The customer’s lawyer finally asked me: If I were representing her client, wouldn’t I ask for a bond waiver too? I said no, I wouldn’t; I explained that:
- I understood why she wanted a bond waiver, but we can’t know in advance what the circumstances might be; a one-size-fits-all solution would be too dangerous here;
- That’s why the law calls for judges to exercise discretion, taking all the circumstances into account, in deciding (A) whether or not to grant an injunction at all, and (B) if so, how much the bond should be.
So let’s just allow the law to work, I argued. Happily, the customer’s lawyer tentatively agreed to delete the bond waiver (subject to checking with her business people).
Her question, about what I would do in her shoes, reminded me: As I’ve recounted before, when I was general counsel for a software company, our standard software license agreement was quite customer-friendly, in ways that we knew we could support. That paid off, not just in getting our deals closed more quickly, but also on a couple of occasions when we were acquiring software licenses from other companies. On each of those occasions, the other company agreed that, instead of negotiating their one-sided license agreement form, we could just use our form, because with that form we were equally happy being on either side of the agreement. That worked for the other companies, and as a result, we were able to get to signature much sooner [3].
Notes
[1] See the Common Draft confidentiality-agreement checklist, which links to contract clauses with extensive annotations and commentary.
[2] See the Common Draft injunctive-relief provisions, especially the bond waiver clause and its commentary.
[3] In 2009, it was reported [the link is now dead] that an unidentified company had had its sell-side negotiators review the standard contract forms used by the company’s buy-siders, and vice versa — and that each group of negotiators became “apoplectic” about the terms that their colleagues were demanding.
Follow me
Signing a business contract:
Are you aware of any instance where a specific performance clause actually influenced a judge’s actions?
If you’re referring to a stipulation for injunctive relief (as discussed in the main post above), the answer is yes — see the discussion in the Common Draft commentary.
If you’re actually talking about specific performance of a contract, there are any number of cases where injunctive relief was granted to enforce confidentiality agreements and non-compete agreements.