DRAFTING CONTRACTS IN THE DIGITAL AGE

Amit Singh Shareholder Stradling Yocca Carlson & Rauth, P.C. 858.926.3012 | asingh@sycr.com

Stephen Kong Shareholder Stradling Yocca Carlson & Rauth, P.C. 424.214.7013| skong@sycr.com

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CONTRACTS 101 REVIEW

• 3 Contract Elements: – Offer – promise something in exchange for something

• terms must be clear enough so each party understands what it is required to do

– Acceptance – indication of assent • Mailbox rule – effective when sent

– Consideration – anything of value by each party (e.g., peppercorn)

• Preexisting duty insufficient • If no consideration - illusory

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Basic Contract Principles

• Ambiguities Interpreted Against the Drafter • Course of Performance – parties’ conduct related

to the current transaction • Course of Dealing – parties’ conduct in previous

transactions • Usage of Trade – practice/method of dealing in

the trade • All of the above can be modified/eliminated by

agreement

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Battle of the Forms • Goods or Services?

– What are goods? – all things (including specially manufactured goods) which are movable at the time of identification to the contract for sale other than the money in which the price is to be paid, investment securities and things in action. "Goods" also includes the unborn young of animals and growing crops (UCC-2-105)

– Services - Common Law • Mirror image rule (counteroffer) • Last Shot rule – last document before performance (seller favorable)

– Goods “A definite and seasonable expression of acceptance or a written confirmation which is sent within a reasonable time operates as an acceptance even though it states terms additional to or different from those offered or agreed upon” (UCC 2-207)

• Non-conflicting terms create contract – Knockout rule for conflicting terms

• UCC Fills in gaps (buyer favorable) • Can counteract if assent conditioned on acceptance of new terms

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Battle of the Forms

• Mixture of Goods/Services – the question is whether the provision of goods or services predominates. IMC Chems, Inc. v Niro, Inc. (D Kan 1998) F Supp 2d 1328 (applying CA law)

• Software – “[s]oftware transactions often straddle the line between goods and services, so courts look to the ‘essence of the agreement’ to determine how best to characterize the transaction.” Gross v. Symantec Corp., No. C 12-00154 CRB (N.D. Cal. July 31, 2012)

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Digital Signatures

• “Electronic signature” means an electronic sound, symbol, or process, attached to or logically associated with a contract or other record and executed or adopted by a person with the intent to sign the record (15 USC 7006)

• Can be anything from a typed name in a document, to an image, to scans of an handwritten signature

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Digital Signatures • Electronic Signatures in Global and National Commerce Act (ESIGN)

– Interstate – Electronic signatures enforceable by default – Electronic records of contracts sufficient

• Uniform Electronic Transactions Act (UETA) – All states other than NY, IL & WA – A record or signature may not be denied legal effect or enforceability

solely because it is in electronic form – Electronic records of contracts sufficient – Parties must opt-in (can be inferred from context) – Doesn’t apply to wills/trusts, etc.

• Electronic Signatures and Records Act – NY • UK Electronic Communication Act • European Directive 1999/93/EC

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Digital Signatures • Email signature – “[A] printed name is not a signature

under contract law simply because the person deliberately printed his or her name. `[I]t is a universal requirement that the statute of frauds is not satisfied unless it is proved that the name relied upon as a signature was placed on the document or adopted by the party to be charged with the intention of authenticating the writing.' [Citation.] The evidence must also demonstrate that the person printing his or her name intended to execute the document.” (J.B.B. Investment Partners, Ltd. v. Fair (2014) 232 Cal.App.4th 974, 991-992 )

• Others – Fax – PDF

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Online Terms – Why Do We Need Them? Part 1

Typical Client Comment – “I’m Just Offering a Service, I’m Not Even Collecting Money Yet” • Needed to Preserve IP Rights?

– Not Necessarily But Keep In Mind Mandatory Patent and License Notices

• Limiting Liability For Types and Amounts of Damages

• Disclaimers

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Online Terms – Why Do We Need Them? Part 2

• Disclaimers • Termination and Suspension of Services and

Access • Regulatory Notices and Privacy Policies • Dispute Resolution

– Class Action Waivers – Mandatory Arbitration

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BrowseWrap vs ClickWrap

• BrowseWrap Does NOT Involve Any Affirmative Action to Signal Assent – In worst case scenarios, an inconspicuous link at

bottom of webpage • ClickWrap – User must check a box* affirming

consent to terms *The law technically does not require a checkbox but that is the clearest way of showing assent

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Real World Example of BrowseWrap Problems

• In re Zappos.com Inc., Customer Data Security Breach Litigation, 2012 WL 4466660 (D. Nev. Sept. 27, 2012).

• Zappos did NOT cause users to affirmatively consent to their terms – Court noted no evidence that users even

necessarily viewed the terms

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Real World ClickWrap Questions From Clients?

• Do I Really Need to Have User Agree? • What Kind of Language Do I Need To Show

User? • Does There Need To Be a Checkbox?

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Factors In Enforceability of ClickWrap

• CLEAR NOTICE OF TERMS – Tell People That They Are Agreeing to Terms

Through Their Action and Make Terms Available For Viewing

– Make Clear Link Can Be Easily Identified Is To Terms And Have Link Be Working

Nguyen v. Barnes & Noble, Inc., 763 F.3d 1171 (9th Cir. 2014) Lays Out Elements Nicely

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Factors In Enforceability of ClickWrap

• CLEARLY OBTAINING AGREEMENT – Does Language Make Clear That Terms Are Being

Agreed To? The Outcome Can Hinge On a Few Terms

Friedman v. Guthy-Renker LLC, No. 2:14-cv-06009-ODW, 2015 WL 857800 (C.D. Cal. Feb. 27, 2015)

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Real World ClickWrap Questions From Clients?

• Do I Really Need to Have User Agree? • What Kind of Language Do I Need?

– Clear Notice That CONTRACT Terms Are Being Agreed To (As Opposed to Financial Terms)

• Does There Need To Be a Checkbox? • What Happens If

Application/Website/Software Not Necessarily Online? – Safest Approach Is To Flag This Issue

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MODIFYING TERMS

• Arguably Most Important Part of Terms Does this look familiar? “We may update our terms from time to time. Please check back periodically to review the latest terms. Any revised terms will take effect when posted on this site.”

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MODIFYING TERMS – How To Do It

BE REASONABLE!! 1. Get Contact Information For Giving Notice 2. Have Time Period Before Revised Terms Go

Into Effect 3. Give User Opportunity to Agree? What If User Says No? Did You Preserve Right of Termination? You Can’t Force People To Agree to Terms But People Generally Do Not Have Right to Continuous Service

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Thank You – Questions?

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Amit has practiced corporate law for over 19 years. He is a corporate governance and business transactions expert, with extensive experience in venture capital and private equity transactions, mergers and acquisitions, joint ventures, technology transactions and general corporate law. Amit counsels companies and investors in a broad range of industries, including life sciences, software, hardware, communications and networking, internet, manufacturing and distribution and medical devices. Amit earned an LL.M. (Corporate Law) from New York University School of Law in 1999 and a J.D. in 1998 from University of California, Hastings College of the Law. He is a member of the State Bar of California and the State Bar of New York. “Amit has been our outside corporate counsel for the past 5 years. As the GC of Ansun, I have worked with about a dozen local law firms, and Amit is our go-to lawyer for corporate matters. He is a pleasure to work with. He is always available and responds to issues quickly and very efficiently. If he doesn't have the answers immediately, he makes sure to get them within a reasonable amount of time. In addition, he's a skilled and creative problem solver, while maintaining the highest of ethical standards. I cannot say enough good things about Amit and his capabilities as a corporate attorney!”

Mikael Havluciyan General Counsel

Anun Biopharma, Inc.

Amit is a shareholder in Stradling's corporate and securities lawand technology transactions practices.

Amit Singh, Esq. Corporate Shareholder

Office: San Diego asingh@sycr.com (858) 926-3012

EDUCATION New York University School of Law, LL.M. (Corporate Law) (1999) University of California, Hastings College of Law, J.D. (1998) PRACTICE AREAS Corporate Law Private Equity Startups and Emerging Companies Venture Capital Mergers and Acquisitions Technology Transactions

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Stephen has extensive experience with technology transactions, intellectual property licensing, content and media transactions, the intellectual property aspects of mergers and acquisitions, and open source counseling. He has represented clients in a wide variety of industries, including:

• Commercial software • E-commerce • Consumer electronics • Retail • Fashion

Prior to joining Stradling, Stephen was senior corporate counsel for Sony Computer Entertainment America LLC (Sony PlayStation). While at Sony, he represented the U.S. R&D and Strategic Business Development groups for the Sony entity responsible for PlayStation matters in North and Latin America. Before working at Sony, he was a partner in the technology transactions group at Townsend and Townsend and Crew (now Kilpatrick Townsend).

Stephen T. Kong is a shareholder in Stradling's Corporate and Intellectual Property practice groups and is chair of the firm’s Technology Transactions practice group.

Stephen T. Kong, Esq. Corporate and Intellectual Property Shareholder

Office: San Francisco - SOMA skong@sycr.com (424) 214-7013 EDUCATION Emory University, J.D. University of California, San Diego, B.A. PRACTICE AREAS Antitrust and Unfair Competition Corporate Law Corporate Partnering and IP Transactions Intellectual Property Intellectual Property Counseling and Patents Copyright Trademark