Understanding Customer Agreements MARCOS CABELLO PHUC DO AND
Understanding Customer Agreements MARCOS CABELLO, PHUC DO, AND KEVIN MORRISSEY
Agenda • Intro to Customer Agreements • Sales of Goods • Contract Basics • Reps & Warranties • Service Agreements • Terms of Service 2
What is a customer agreement? • Contracts with third parties • May create obligations for both parties • Two types of agreements we will be discussing today: • Contracts for sale of goods • Service Agreements • Intro to service agreements generally • Independent contractor agreements • Terms of Service 6 ft. 3
Sale of Goods
Defining Features of Contracts for Sale of Goods • Agreement between two or more parties agreeing on the sale of goods • Obligation of buyer to buy • Obligation of seller to sell • The agreement should specify: • • Description of the good(s) to be sold The quantity of goods to be purchased The price per unit and/or total price Terms of payment • Typically payment will be made on or after delivery of the goods • Conditions • Representations and Warranties • "End game" provisions: Conclusion of term, termination, breach or failure to perform 5
Contract Basics: Representations and Warranties • Why do we care? • Form the basis of the bargain • It outlines what you expect to be getting out of the agreement (e. g. buying a house or a car) • Examples: • • • The car is a 2010 Toyota Corolla. The car has 90, 000 miles. House was built in 2001. Roof is six years old. A swimming pool is on the property. • The swimming pool is in good condition. All necessary equipment/machinery is operational (e. g. water heater). • Representation • An assertion/statement of past or present fact • True on the date the representation is made • Given to persuade another party to enter an agreement or take some action 6
Contract Basics: Representations and Warranties • Warranty • • A promise, by the maker of a statement, that the statement made is true, and, if the statement is false, the other party will have a breach of contract claim 7
Reps & Warranties as Risk Allocation • Representations and warranties as risk allocation mechanism • Each rep and warranty = liability • Generally broad statements may be higher risk because there is no "wiggle room" • e. g. compare "gas tank in car will be exactly half-full" with "gas tank in car will be approximately half-filled" 8
R&W Example Section 3. Representations and Warranties of Seller represents and warrants to Buyer that: (a) Ownership. Seller owns the Equipment, which to Seller's knowledge is not subject to any liens or encumbrances. Vs. (b) Ownership. Seller owns the Equipment, which is not subject to any liens or encumbrances. 9
R&W Example Section 3. Representations and Warranties of Seller represents and warrants to Buyer that: (a) Equipment's Condition. The Equipment is in workable condition, regular wear and tear expected. Vs. (b) Equipment's Condition. The Equipment is in good and adequate condition, wear and tear expected. Vs. (c) Equipment's Condition. The Equipment has been maintained in all material respects with the manufacturer's recommendations and used only in accordance with the manufacturer's operating manual. Buyer may inspect the Equipment prior to Closing. 10
Warranties and the Uniform Commercial Code (UCC) • Two types of warranties under the UCC: • Express • Implied • Merchantability • Fitness for particular purpose • Implied warranties created by conduct & custom 11
Warranties and the Uniform Commercial Code Cont. • Disclaiming warranties • Implied • Disclaiming Warranty of Fitness must be in writing and conspicuous (e. g. WRITING) • Disclaiming Warranty of Merchantability must mention the word "merchantability" and if in writing, must be conspicuous • Other ways of disclaiming implied warranties: • "As is" and/or "with all faults" language • No implied warranty when buyer examined goods/had chance to examine and missed defect Note: many states have statutorily mandated warranties for various consumer goods – therefore they may not be disclaimed and remedies for breaches of these warranties may be more generous for consumers who can establish a breach 12
Service Agreements
Service Agreements • What are they? • Agreement between a service provider and a client • Examples: • Independent Contractor Agreements • • • Consulting • Web Development • Tax Preparation Professional Services Agreements Construction Contracts Catering Contracts Cell Phone/Internet Contract Guest Speaker Agreement 14
Breaking Down Service Agreements • Identify the parties • Who provides the service? • Who pays fees and expenses? • Statement of work • • What is the project or service? Frequency of services? Frequency of supervision over the project? BE SPECIFIC • Fees and expenses for services • Flat fee for project? • Hourly, weekly, or monthly payment structure? • Equity in the venture? 15
Breaking Down Service Agreements: Common Contractual Provisions • Agreement Term and Termination • How long will the term of the contract be? • Termination • Confidential Information Protection • Define "Confidential Information" • Non-Disclosure obligations • What to protect: • Client lists • Trade secrets • Business strategies 16
Breaking Down Service Agreements: Common Contractual Provisions Cont. • Proprietary Rights (IP Rights) • IP rights in anything that a service provider creates/invents • A contractual proprietary rights provision protects IP rights and may assign all IP created or produced to the party who is paying for the services • Includes IP licenses • Indemnification Provisions • If a third party sues, who out of the company or the service provider pays? 17
Should your Services Agreement include a non-compete? • If you are hiring the service provider • Non-competes may help protect you from intellectual property theft • But, it may damage your working relationship • You likely can accomplish your goal with an NDA • As the service provider • It is almost NEVER a good idea to agree to a non-compete clause • If you sign, you limit your ability to bring in new business 18
Terms of Service
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Terms of Service • General agreements for computer and mobile applications/services • Explains the application/service • Lays out rules of relationship • Not required by statutes 21
Why have a Terms of Service? • Protect business from user misunderstanding and uncertainty • Prevent users from misusing service • Protect content from theft or misuse • Limit liability for errors that may emerge from your service/app/content 22
Common Terms of Service Provisions • IP Ownership and rights • Prohibited activities • Payment • Dispute resolution • Termination process 23
To. S IP Ownership and Rights • 3 b. "You retain copyright and any other rights You already hold in Content which You submit, post or display on or through, the Services. " • 10. "Zoom. . . retain[s] ownership of all proprietary rights in the Services and in all trade names, trademarks, service marks, logos, and domain names ("Zoom Marks") associated or displayed with the Services. You may not frame or utilize framing techniques to enclose any Zoom Marks, or other proprietary information (including images, text, page layout, or form) of Zoom without express written consent. " 24
To. S Prohibited Activities • 3 d. "You agree that You will not use, and will not permit any End User to use, the Services to: • (i) modify, disassemble, decompile, prepare derivative works of, reverse engineer or otherwise attempt to gain access to the source code of the Services; • (ii) knowingly or negligently use the Services in a way that abuses, interferes with, or disrupts Zoom’s networks, Your accounts, or the Services; • (iii) engage in activity that is illegal, fraudulent, false, or misleading, • (iv) transmit through the Services any material that may infringe the intellectual property or other rights of third parties; • (v) build or benchmark a competitive product or service, or copy any features, functions or graphics of the Services; or • (vi) use the Services to communicate any message or material that is harassing, libelous, threatening, obscene, indecent, would violate the intellectual property rights of any party or is otherwise unlawful, that would give rise to civil liability, or that constitutes or encourages conduct that could constitute a criminal offense, under any applicable law or regulation; • (vii) upload or transmit any software, Content or code that does or is intended to harm, disable, destroy or adversely affect performance of the Services in any way or which does or is intended to harm or extract information or data from other hardware, software or networks of Zoom or other users of Services; • (viii) engage in any activity or use the Services in any manner that could damage, disable, overburden, impair or otherwise interfere with or disrupt the Services, or any servers or networks connected to the Services or Zoom's security systems. • (ix) use the Services in violation of any Zoom policy or in a manner that violates applicable law, including but not limited to anti-spam, export control, privacy, and anti-terrorism laws and regulations and laws requiring the consent of subjects of audio and video recordings, and You agree that You are solely responsible for compliance with all such laws and regulations. " 25
To. S Payment • 8. "You agree that Zoom may charge to Your credit card or other payment mechanism selected by You and approved by Zoom ("Your Account") all amounts due and owing for the Services, including taxes and service fees, set up fees, subscription fees, or any other fee or charge associated with Your Account. Zoom may change prices at any time, including changing from a free service to a paid service and charging for Services that were previously offered free of charge; provided, however, that Zoom will provide you with prior notice and an opportunity to terminate Your Account if Zoom changes the price of a Service to which you are subscribed and will not charge you for a previously free Service unless you have been notified of the applicable fees and agreed to pay such fees. You agree that in the event Zoom is unable to collect the fees owed to Zoom for the Services through Your Account, Zoom may take any other steps it deems necessary to collect such fees from You and that You will be responsible for all costs and expenses incurred by Zoom in connection with such collection activity, including collection fees, court costs and attorneys' fees. You further agree that Zoom may collect interest at the lesser of 1. 5% per month or the highest amount permitted by law on any amounts not paid when due. You may cancel your subscription at any time. If you cancel, you will not be billed for any additional terms of service, and service will continue until the end of the current Subscription Term. If you cancel, you will not receive a refund for any service already paid for. " 26
To. S Dispute Resolution • 18. "If You are located in the United States, You agree to resolve disputes only on an individual basis, through arbitration pursuant to the provisions of Exhibit B. The parties expressly waive any right to bring any action, lawsuit, or proceeding as a class or collective action, private attorney general action, or any other proceeding in which any party acts or proposes to act in a representative capacity. " 27
To. S Termination Provisions • 9. "The Zoom website contains information on how to terminate Your Account. If you have purchased a Service for a specific term, such termination will be effective on the last day of then-current term. Your Order Form may provide that a Renewal Term will begin automatically unless either party provides notice of termination at least thirty (30) days prior to the commencement of the next Renewal Term. If You fail to comply with any provision of this Agreement, Zoom may terminate this Agreement immediately and retain any fees previously paid by You. Sections 1 and 3 through 20, inclusive, shall survive any termination of this Agreement. Upon any termination of this Agreement, You must cease any further use of the Services. If at any time You are not happy with the Services, Your sole remedy is to cease using the Services and follow this termination process. " 28
Terms of Service Acceptance • Clickwrap • Conspicuous language needed for certain provisions • Disclaimers • Limits on Liability • Arbitration • Easily understand To. S is preferable 29
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Red. Box To. S Failure 31
Red. Box To. S Failure 32
Key Points • Sales of Goods • Risk can be allocated between seller and buyer by the reps and warranties • Service Agreements • Pay close attention to how the service description is drafted in the agreement language • Terms of Service • Mentally walk through your service/application to identify issues • Ensure acceptance • Simple is better 33
Questions? • For more information or to schedule a time to meet with us, please visit the Startup Law Clinic’s website: https: //sites. bu. edu/startuplaw/ • Eligibility: BU and MIT students 34
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