Contract Nerds

Four Responses You Can Use on a Redline Call | New to Contracts

When on a contract redline call recently, I felt overwhelmed by the infinite ways I could respond to the counterparty’s request for more favorable indemnification language. This is what scholars call the tyranny of choice: more choice doesn’t always lead to the best outcomes. I thought to myself, “I really should distill down the many ways you can respond here into a few categories. That way I will have more confidence.” Thus, this idea for this blog post was born.

There are so many blog posts about redlining when you are sitting at your desk on your own time. In these situations, you can carefully consider a redline request, type out your comments in Word, etc. But when you are on a redline call, you are in the heat of the moment and are expected to respond in real-time.

So what do you do? Remember that a redline call is a negotiation of a contract. So the more prepared and the more confident you are, the more likely you are to achieve your desired outcomes. Whether you are new to contracts or more seasoned, here are four responses you can use to help navigate a redline call.

1. “Yes, we can accept that.”

When to use this response

Use this approach when you are confident that you can accept a redline request (and be sure to say it enthusiastically if the request is for a redline that has gone through many iterations of negotiation– celebrate the wins with your counterparty when you get them). You may be confident because your business has accepted this type of risk in a prior deal similar in size and scope to this deal, or you may have been advised to accept this request by your business teams or supervising attorneys. Or, perhaps, you can use this approach as a conditional acceptance, such as, “We can accept this so long as you can agree to our proposed changes in the section below.”

When NOT to use this response

Don’t use this approach when the redline request carries too much risk for your business or when you want to try to get better language out of your counterparty (but that is risky – take your win when you have it and use that momentum to get other wins).

2. “No, we can’t accept that because…

When to use this response

This approach is the inverse of the previous approach – for instance, use this approach when your business has never accepted a redline request like this one. The emphatic approach of your denial – not even suggesting other edits – should signal to the counterparty that that redline request needs to leave the deal or needs to be altered significantly. It is equally important to explain the reason for the rejection so your counterparty has some context and can use that justification to determine their next response.

When NOT to use this response

Unless you are trying to get even better language out of the counterparty, don’t use this approach when you are confident you can accept a redline request. It is risky to lie to your counterparties and to hold onto obvious wins.

3. “We can’t accept that, but how about this…”

When to use this response

Use this approach when you can’t accept the redline request as-is but you have an idea to improve the language. This approach is particularly useful if you have an internal document at your fingertips that will allow you to suggest other language (or perhaps you already know in your head what to suggest, or you have an easily readable contract playbook at your fingertips).

When NOT to use this response

Don’t use this approach if the other approaches are more applicable, i.e. you can or cannot clearly accept something, or, more importantly, you need time to think about the request.

But your most potent and safe response is the following…

4. “Understood. Let me think about it offline and get back to you.”

When to use this response

This approach is your best friend. This approach accomplishes a few things: (1) you haven’t committed your business to anything, (2) you’ve bought yourself time, and (3) you’ve shown your counterparty that you are a thoughtful person who isn’t just shutting them down immediately, even if you eventually tell them no. Use this approach when you are not certain whether or not you can accept a redline request and you don’t have  alternative language ready. Perhaps you need to get approvals or perhaps you need time to research. The good thing is, you don’t need to explain yourself.

When NOT to use this response

Unless you are trying to get better language and need time to consider your ask, don’t use this approach if you are certain that you can accept a redline request. Don’t waste the counterparty’s time and patience, two valuable resources in a negotiation.

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Tune in to more articles in the New to Contracts series by Jack Terschluse—Head of Legal and Head of Procurement at Balto­—exclusively here on the Contracts Blog. If you’re not already a subscriber, we welcome you to subscribe here to our weekly newsletter providing new articles, free events, and other resources on contracts. #contractnerds #newtocontracts

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Looking for a Standard NDA Template? Comparing Claustack vs. Bonterms NDAs

Contract standardisation is particularly valuable when there is a recurring need for a particular type of contract, and only a few factors typically vary from case to case. Non-disclosure agreements (NDAs) have long been viewed as a candidate for this, but achieving widespread adoption has proved more difficult.

Two recently-published NDA standards have seen widespread interest: Claustack’s oneNDA and Bonterms’ Mutual NDA.

Both are, in my view, excellent. In this article, I outline their similarities and then dive deeper into their differences.

Largely similar

The most important point is that they’re very similar indeed.

Both can be used free of charge.

The similarities in substantive terms are much more significant than the differences. For instance, the restrictions on use and disclosure, the exceptions and the provisions for deletion or retention are almost identical. They are also in line with my understanding of ‘what’s market’ in these areas. Boilerplate (e.g. entire agreement, waiver, equitable relief) is also very similar.

Their format is also similar. Both require you to fill in a few basic terms – called ‘variables’ in oneNDA and ‘deal details’ by Bonterms. In addition to the parties’ details, these principally include: purposeduration of confidentialitygoverning lawdispute resolution

The rest of this article focuses on the differences between the two standards.

High-Level Differences

I’ll start with three differences which may be more important to many people than the relatively slight substantive differences considered under the next heading.

Style. Bonterms NDA is written in modern American style, oneNDA in modern UK / European style. I find the latter more readable, but no doubt it depends partly on what you’re used to.

Length. oneNDA is 74% of the length of Bonterms. 777 and 1048 words respectively, ignoring the cover pages in both cases.

It’s for you to weigh the value of what Bonterms does with its extra word count (see the next heading) against oneNDA’s succinctness.

Modifications. oneNDA encourages you to limit your amendments to the ‘variables’ mentioned above, and asks you to remove the branding if you decide to go off-piste. To quote from the FAQ:

Why can’t I change or add my own text to oneNDA?

Because the outcome of everyone being able to add their own language to it is that everyone will end up with their own ‘flavour’ of oneNDA resulting in a world where we all have to go back to reviewing, redlining and negotiating. Not ideal and certainly not in the spirit of the initiative.

However, if you end up negotiating it and changing the language, please make sure you remove any reference to oneNDA and all branding.

By way of contrast, Bonterms has an additional box on its cover page, for you to make any amendment that you want to. It’s really up to you whether you prefer the discipline of oneNDA or the freedom of Bonterms.

Differences of Detail

I spotted eight differences of detail worth mentioning.

Points (1) to (3) are substantive, but their importance and appropriateness will depend on your context.

Points (4) to (8) aren’t likely to be significant, in my view, but I’ve laid them out anyway so you can judge.

There are some additional minor differences of wording and boilerplate which I haven’t mentioned, but nothing which I think is likely to matter to most people most of the time.

(1) Disclaimers: Bonterms has more

Bonterms has some disclaimer and reservation of rights language (sections 8 and 9) which isn’t in oneNDA. No doubt this reflects the US law background of the Bonterms NDA. A risk for you to assess under your chosen governing law.

(2)  Reverse Engineering: Bonterms prohibits

Both recognise that the recipient won’t be liable if they develop the same information independently. However, the Bonterms NDA goes on to prohibit reverse engineering (section 3(d)). That may be irrelevant to you. If relevant, your preference may vary according to whether you are mainly receiving or disclosing technical information.

(3) Export Controls: Bonterms addresses

Bonterms NDA goes beyond the core scope of an NDA by also prohibits export or production in breach of export controls (section 3(e)). I can understand why that’s there, given the fierceness of US regulation on that topic. Whether it’s a practical issue for you will no doubt depend on your context.

(4)  Duration: oneNDA is simpler

Both standards allow you to specify theconfidentiality period. Bonterms offers ‘perpetual’ as a prefilled option, but that could be written into the oneNDA cover page variable as well.

Bonterms allows you to specify a set term for the NDA, in addition to the confidentiality period, whereas oneNDA doesn’t. I prefer oneNDA on this, as I feel having two periods is an unnecessary subtlety, but it’s not a huge deal.

(5)  Notices: Bonterms allows for post

Both standards allow for notices by email. Bonterms also provides (section 12) for a postal notice option. I can personally live without that, but no harm having it in the form.

(6)  Duty to protect: oneNDA is stricter

Both standards impose duties to use confidential info (CI) only for an agreed purpose, and not to disclose it. Clauses 3(a) and (b) of oneNDA. Sections 3(a) and (b) of Bonterms.

oneNDA imposes a duty to keep it secure but Bonterms NDA only requires reasonable efforts to protect. Clause 3(b) and section 3(c) respectively. Different concepts, clearly, and you may have a preference. But I would suggest reflecting on how big you think the difference is likely to be in real world information security terms.

(7)  Definition of CI: Subtle differences only

The definitions of CI start from slightly different places.

In Bonterms, something isn’t CI unless reasonably understood as confidential or marked as such (section 2). oneNDA doesn’t have those prior requirements (clause 2(a).

I slightly prefer Bonterms’ approach to this, but I doubt it will matter much in reality because:

Material which does not fit the Bonterms definition seems unlikely to be a source of a serious claim under oneNDA.

Both have exceptions (one NDA clause 1(d) and Bonterms section 4) and rights to disclose (clause 2 and section 5) which are almost the same, except for the reverse engineering point already mentioned.

I expect that these things will usually be more important than the subtly different definitional starting points.

(8)  Dispute resolution: Same in substance, but different prompts

Both standards allow you to choose governing law and an exclusive place for litigation.

oneNDA expressly offers arbitration as an alternative to litigation. But you could write that into Bonterms’ ‘additional changes’ box.Bonterms prompts you to choose venue as well as jurisdiction, a distinction of significance in US law. But you could write that into the oneNDA disputes variable box if agreeing upon litigation in the United States.

Conclusion

I think both standards are excellent and these differences are really only at the edges. Both can work very well. But I hope the list of differences is useful.

Postscript

This article is a slightly rewritten version of something I posted on LinkedIn. I was pleased to see that the leading people behind oneNDA (Electra Japonas) and the Bonterms NDA (Todd Smithline) commented positively on it in that form.

Needless to say, the opinions expressed are mine alone and there may be some subtleties of significance in your particular context or legal system. I used to work as a lawyer in England and Asia, but I haven’t done so for some years and my observations here are pragmatic ones from a business rather than legal perspective.

Also, bear in mind that this piece was written in October 2022, so you should check if either of the NDAs has been updated since then.

Bonus postscript (super-nerds only)

Bonterms NDA is licensed under CC-BY, an open source licence which allows you to amend it not only for your specific transaction but also to remix and republish.

oneNDA is licensed under the more restrictive CC-BY-ND (‘ND’ stands for ‘no derivatives’) and deliberately limits amendments, as noted above.

But I’m not going to get further into that topic as it’s a bit nerdish even for a website called ContractNerds!

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Simplifying Cryptocurrency Payment Clauses

Cryptocurrency has become and will remain a mainstay of the digital economy, whether we like it or not. This article focuses on an increasingly common scenario: where one party uses cryptocurrency (i.e., digital assets such as Bitcoin, Ether) to pay the other party under the deal instead of using standard currency.

The crypto economy presents some unique contractual risks. Players in the crypto economy should not shy away from (or fear) deploying contract drafting expertise to protect themselves from risk. In fact, over and above the simple types of clauses covered by this article, there is a unique opportunity for them to work with their lawyers to craft bespoke contractual clauses that can be used to allocate these risks between them and their deal counterparties.

Here are three very simple contractual clauses that can be deployed for cryptocurrency-related deals (deals where one party is paying the other party using cryptocurrency) but which can help protect the parties from several preventable risks.

1. Wallet Payments

In the cryptocurrency world, wallets are the new bank accounts.

For those unfamiliar with the technical aspects of the wallets- access to a wallet is through a unique private key relating to the digital wallet in which the cryptocurrency is held. Therefore, a holder of a wallet must keep these private keys secure to prevent unauthorized access. It is also important to note that if a private key relating to any wallet is lost, destroyed, or otherwise compromised or unavailable, access to the cryptocurrency in that wallet is generally lost forever.

A wallet address is typically a long string of letters and numbers and it is therefore easy to get it wrong. In addition, a transfer of cryptocurrency on the blockchain cannot generally be reversed.

Therefore, if you are making payments pursuant to an agreement using cryptocurrency, the receiving counterparty should confirm that:

they are giving you the correct wallet information (and you are not liable for any incorrect wallet information provided by them);they are making transactions from a wallet that they are authorized to access and that is capable of receiving that specific type of cryptocurrency.

From a practical perspective, you may want to confirm that the counterparty is agreeable to do a “test transaction” in a small amount to help mitigate the risk of the above scenarios occurring.

For large-value deals, parties should also factor in the risk that the fiat-cryptocurrency exchange rate could vary significantly during periods of market volatility. This could be a particular risk at a time when the time taken to transfer a cryptocurrency through the blockchain network is longer than usual because of congestion in the network or other factors. If you are the party transmitting cryptocurrency to settle a payment obligation, you should consider having the recipient provide a contractual confirmation that your obligation to pay is fully discharged when you initiate the transmission of cryptocurrency in the agreed amount through the blockchain network (irrespective of when it is received by them).

2. Regulatory compliance liability

Regulatory focus on the crypto economy is here to stay. There has been a particular concern among national and international regulators of late that cryptocurrency, because of its, pseudo-anonymous nature, could be easily used as a tool to facilitate financial crime.

Doing deals with a counterparty who happens to be engaged in a financial crime can have disastrous consequences for your organization. In addition to the reputational fall-out, there is a risk that you will have to hand over to a regulator any money that is later identified as the proceeds of a financial crime.

However, there is a very simple type of documentary armour that you can deploy to help protect your organization from this risk. The humble but powerful contractual tool that is a representation. As finance and M&A deal lawyers know well, a representation is often used in contracts as an indirect form of due diligence. Focusing a counterparty on the subject matter of a representation helps to speed up the process of identifying any actual or potential breaches (e.g., when they start to delete or trim down the subject matter of a representation is what is a classic due diligence “red flag” which then prompts a specific discussion on the exact nature of the counterparty’s concern with giving the representation).

As validation, see an example of some publicly available clauses used in contracts in the crypto economy.

Sample Representation and Warranties Clauses

Extract from the Coinbase Singapore Terms:[1]You hereby represent, warrant, and undertake to Coinbase that you are purchasing Digital Currency with funds which are from legitimate sources and which do not constitute the proceeds of criminal conduct, or realizable property, or the proceeds of terrorism financing or property of terrorists, within the meaning given in the Corruption, Drug Trafficking and Other Serious Crimes (Confiscation of Benefits) Act (Chapter 65A) and the Terrorism (Suppression of Financing) Act (Chapter 325), respectively (or any other equivalent law in a jurisdiction outside Singapore) and which are not derived from or related to any unlawful activities. You further undertake not to use the Digital Currency to finance, engage in, or otherwise support any unlawful activities.”  

Extract from Coinbase U.S Terms:[2] “During registration for your Coinbase Account, or at any other time deemed necessary by Coinbase, you agree to provide us with the information we request for the purposes of identity verification, providing Coinbase Services to you, and the detection of money laundering, terrorist financing, fraud, or any other financial crimes and permit us to keep a record of such information.”  

Extract from Coinbase Europe Terms: “You may also be required to undergo “Enhanced Due Diligence”, where Coinbase may request that you submit additional information about yourself or your business, provide relevant records, and arrange for meetings with Coinbase staff so that Coinbase may, among other things, establish the source of your wealth and source of funds for any transactions carried out in the course of your use of Coinbase Services.”
Extract from a Business Combination Agreement:[3]   “In the past five years, no Company Group Member has purchased or sold Bitcoin, or any other digital asset, in a transaction involving a counter-party whose identity was not verified in accordance with the Company’s sanctions compliance policy and any applicable know your customer/anti-money laundering laws or regulations”.  

Accordingly, in any contract in which you accept cryptocurrency as payments, you should consider having the counterparty give a representation to the effect that:

The cryptocurrency and the source of funds for the cryptocurrency do not constitute the proceeds of a financial crime.The counterparty has acquired cryptocurrency only from sources that have been subject to AML/KYC procedures and are not in breach of laws relating to countering the financing of terrorism or economic sanctions. Going forward, it may also become market practice (if not a direct legal requirement) to obtain a representation that any cryptocurrency acquired has been so acquired in compliance with the technical requirements of a provision known as the “Travel Rule”. Further to the issue of the recommendations in this regard by the Financial Action Task Force, we understand that this is an increasingly “hot topic” in the cryptocurrency industry even for market participants who do not have to legally comply with the requirements of the “Travel Rule” as of date. [4]

3. Clauses on Governing Law and Jurisdiction

A critical risk mitigation tool for contract counterparties is the choice of governing law and jurisdiction. This is essentially choosing the turf for a potential contractual war. The transactional parties have the freedom to use this valuable legal tool in the form of choosing the right court to determine the rights and obligations of a new-age business since it would involve a careful and detailed analysis of a myriad of issues at the intersection of law and technology.

The parties need to carefully consider whether the courts that they are choosing would be willing and able to undertake such a sophisticated analysis. It is of course certainly worth considering the Singapore courts as an option. In the recent B2 C2 Quoine case, the Singapore courts undertook precisely such an analysis while adjudicating certain automated transactions conducted on a digitized cryptocurrency trading platform.

More practically you can get options of less intrusive and potentially less expensive forms of dispute resolution such as arbitration and mediation. These ADR tools are particularly useful in the crypto-economy as you have the flexibility to choose technical experts in the field if you are dealing with a “first-of-its-kind” issue.

Note: The views herein are my own and do not represent those of any firm or company that I am attached to. They do not constitute legal advice or opinion under the laws of any jurisdiction including Singapore.

[1] https://www.coinbase.com/legal/user_agreement/singapore

[2] https://www.coinbase.com/legal/user_agreement/united_states; https://www.coinbase.com/legal/user_agreement/payments_europe

[3] Section 4.26(e), (Core Scientific Holding Co.–Power & Digital Infrastructure Acquisition Corp. Agreement and Plan of Merger and Reorganization dated July 20, 2021 (governing law: Delaware)),  https://www.sec.gov/Archives/edgar/data/1839341/000121390021037837/ea144540ex2-1_poweranddigi.htm

[4] The proposed implementation of the Travel Rule by national governments has caused a big controversy in the crypto economy. For details on the Travel Rule, refer to https://www.fatf-gafi.org/media/fatf/documents/recommendations/Updated-Guidance-VA-VASP.pdf.

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How to Convert PDF Redlines to Word | Read Between the Redlines

Seventy-eight percent of contracts professionals learn how to redline contracts on the job. Let me say that one more time – 78% of contracts professionals learn how to redline contracts on the job. Not in school, not in a formal training program, and not from a mentor or boss. Those who did are the lucky few!

This lack of uniformity in the way we learn how to redline contracts causes many issues across the contracting lifecycle. Including miscommunications, lack of trust and transparency, reduced negotiation leverage, frustration, prolonged back-and-forths, and, ultimately, loss of revenue for your organization. We redline contracts all day long but none of us redline exactly the same. Ugh…

My name is Nada Alnajafi. I’m a seasoned in-house attorney, blogger, author, and speaker who loves working with, talking about, and writing about contracts. And I’m determined to transform the way us lawyers and contracts professionals redline contracts for the better.

In this newsletter, I’m going to show you how to master MS Word’s Track Changes features which will lead to faster contract reviews, less back-and-forth, more enjoyment of your work, and greater negotiation leverage.

If you’re interested in learning more about contracts, follow me on LinkedIn, check out my book Contract Redlining Etiquette, and subscribe to my blog Contract Nerds .

How to Convert a PDF to Word

Using Microsoft Office

This method works best for simple PDF documents that don’t contain a lot of graphics or columns. If the PDF has a lot of images, you should double check that those images were preserved. You might need to do a little formatting cleanup after the conversion.

Open Microsoft Word.Go to File > Open > Browse.Click on the PDF document that you want to convert to Word.You will receive a disclaimer message that looks like this. Click “Ok”.

If you receive an error message like the one below, then there were likely too many graphics or columns for Microsoft Office to make a good conversion. In that case, try one of the other options below.

Using Google Docs

For those of you who like using Google Docs and keeping everything in your Google Drive, you can use this method.

 Go to https://drive.google.com and sign into your Google account.On your Google Drive, click or tap on the New button from the top-left corner of the page.Select File Upload.Select the PDF file you want to convert and click Open.When it is done uploading, you should see a box on the bottom-right corner of the page telling you the upload was completed. Click or tap on the name of your PDF file.Google Drive then shows you a preview of the PDF file. At the top of the page, you should see a button called “Open with Google Docs.” Click on it.If you want to be able to use Word to edit the file next, click on File > Download and choose the Microsoft Word (.docx) file type.

Using Adobe

This method requires Adobe Acrobat or Adobe Editor. If you don’t have Adobe installed on your computer, then you can use the Adobe Online Converter for free. If you use this tool, make sure you have read through Adobe’s Terms of Use to understand how they will access and handle the content uploaded to the tool and any related restrictions. For example, Section 2.4 states, “You agree not to transmit, disclose, or make available Sensitive Personal Information to Adobe or Adobe’s third-party providers.”

Open Adobe Acrobat or Adobe Editor.Go to File > Save As.Select the PDF file you want to convert to Word.Under “Save as type,” scroll down and select “Word document (*.docx).”

The resulting Word version should preserve the formatting, redlines, and comments in the PDF. Because Adobe invented the PDF format, they’re usually better at converting it than Word.

How to Convert a Locked PDF to Word

When a PDF is locked with a password, it restricts anyone from making any changes to the PDF unless they input the correct password. So the first step would be to ask your counterparty for the password. If they decline or don’t get back to you then here’s what you can do to unlock the locked PDF.

Manual Workaround

This method works best for a clean PDF version. For example, if you are sent a template in locked PDF format. If the PDF has redlines, the conversion may not capture the formatting and redlines accurately.

Print out of the locked PDF document.Re-scan it as a PDF using a PDF scanner. Note: Of course, this only works if you have a PDF scanner at your home-office or office.Then convert to Word using one of the steps above.

Negotiation-Based Workaround

If you’ve tried all of the above options without success, then your last option is to use your negotiation skills to get your counterparty to send you an unlocked Word version of the redlines. I recommend working with your internal business clients who can leverage their relationship to get a Word version.

After designing and implementing several contract review processes for various types of companies, I’ve learned that sending a template in a locked or PDF format rarely benefits anyone. It usually just wastes time by adding unnecessary back and forth emails and messing up document formatting when we try to DIY a workaround solution. In addition, using a restrictive format sends a dismissive message to your counterparty and damages the relationship before it has even begun.

Plus, the reality is that if someone really wants to change a document, they can and they will. The document format is not going stop a good contract expert from getting the required third-party intellectual property indemnification clause. We will either request an unlocked version or just DIY it to save time and headache.

So what should you do if you want to reduce the frequency of contract negotiations, speed up the contract review process, and avoid losing business? Check out this article for some practical ideas that will convince you stop relying on PDFs to speed up the negotiation process. There are other, more collaborative and relationship-friendly ways to reach the same goal of fast contract reviews.

Interested in more contracting fun?!

Join me in upcoming discussions about contracts:

On November 16th at 12pm PST, join me and Foster Sayers, GC of Pramata, for an exciting virtual webinar on Redlining Contracts Like a Jedi Master! Register for free here.Subscribe here to the weekly Contract Nerds newsletter for more expert tips on contracting.Plus learn about how to avoid making these four redlining faux pas that can cause “redlining rage” amongst your peers

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Do’s and Don’ts of ESG Clauses From Both Sides

You may be thinking to yourself, “ESG Clause. What is that?” But Environmental, Social, and Governance (ESG) clauses are starting to pop up in template agreements. And there is a good reason for it.

Public and multi-national companies are under increasing scrutiny on their ESG practices from regulators, investors, activists, and customers. In many cases, companies are also held accountable for the environmental and social practices of their suppliers. As a result, they want contractual guarantees of good ESG practices.

So how can we manage ESG risk better? Here are some do’s and don’ts for suppliers and customers.

As a supplier:   

Don’t over-commit.  

Your company may have excellent environmental and social practices. It may be tempting to assume these comply with international guidelines, accept the provision, and move on. Here’s the rub – even if you comply already, documenting your compliance with multiple schemes is time-consuming and expensive. If you are required to do this on demand for a client, it will disrupt the business. And when your client realizes you are not prepared, you will lose credibility.

Do ask the client what they are really concerned about.  

The clients may be asking for this representation because they are concerned about carbon footprint, human rights violations, or any number of other issues. Once you understand your client’s concerns, you can propose language that addresses those concerns in a manageable way. The advantage to clients is that a more narrowly tailored provision will strengthen their ability to request targeted documentation and call a breach if necessary. The advantage to you is that you can focus your ESG actions on what matters to your clients.

Do create a proactive ESG or sustainability program and documentation.

If your clients are concerned about ESG, your company should find a way to address those concerns proactively. You can do this by participating in GRI reporting, creating an annual sustainability report, committing to the UN Global Compact, and many other ways. Having documentation of your practices will make clients who are concerned about ESG much more likely to want to work with your company and help steer off difficult contract negotiations around ESG.

As a customer:

Do your supplier due diligence.

A lot of ESG risk can be managed through due diligence. Ask suppliers to provide information on their ESG practices as part of the RFP process. Leverage a third-party ESG rater like Ecovadis or create your own diligence questionnaire. If a supplier does not meet your ESG standards, not contracting with them at all is much better protection than you will be able to achieve through an ESG clause.

Don’t ask for the moon.

It can be tempting to just add a laundry list of standards into a template and call it good. This would be a mistake. Engaging with voluntary guidelines, reporting, and ratings requires significant investment on the part of your suppliers. If you require multiple forms of reporting and ratings, you will end up limiting yourself to very large suppliers. Or suppliers who are willing to sign any contract representation, regardless of whether it is true.

Do develop a tailored ESG template clause.

Start by identifying the purpose of your ESG clause. What environmental or social risks are likely to come from your supply chain? What issues are your investors and customers most concerned about? What information from your supply chain are you legally required to report on? Use the answers to these questions to write a clause that states clear and measurable requirements. Once you have this, it will be easier to stick to the clause in negotiations and enforce it where necessary.

This is new territory for many contract drafters. Here is an example (though not necessarily recommended) ESG clause:

Contractor represents that it is in full compliance with ESG international rules and regulations such as (but not limited to): United Nations Guidelines, United Nations Global Compact, International Environmental regulation, and OECD Guidelines for Multinational Enterprises.

Contactor indemnifies Customer for any to comply with the abovementioned rules and regulations. Customer may terminate the Agreement if Contractor does not provide proof of compliance satisfactory to Customer within 30 calendar days of receiving a written notice from customer of the need for immediate remediation. Customer also reserves its rights to pursue any legal actions against Contractor. If Contractor or its directors, officers or employees are convicted or accused of a criminal offense related to ESG, Customer may terminate the Agreement without notice.

The Customer can request any evidence or document that it has complied with the ESG international rules and regulations throughout the duration of the Agreement.

There aren’t a ton of precedents. So often the result is an extremely broad provision that requires suppliers to follow multiple sets of voluntary international guidelines. I have seen provisions that require suppliers to follow OECD Guidelines, the UN Global Compact, International Environmental Regulation, and more. Many of these guidelines are just that – guidelines. They don’t provide a clear standard that could be used to measure breach.

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The corporate paradigm has changed. Businesses can no longer confine themselves to watching the bottom line. We are expected to do better. We must be good corporate citizens and contribute to solving complex global challenges. ESG clauses are yet another sign that corporate behavior matters. The legal profession has a unique opportunity to set the new standard. Let’s work together and get this right.

For more advice on how to improve your company’s ESG performance, follow me on LinkedIn where I frequently post advice on this subject for legal counsel.

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4 Ways Legal and Sales Can Drive Faster Deals

When it comes to closing deals, Sales and Legal are bound together in a three-legged race — ultimately working together but feeling burdened by the pull or drag of the other teammate. But the most successful teams have figured out how to work in lockstep, and the key is transparency.

To dig into how Sales and Legal can cut the entropy and focus on wins, we asked Lexion’s Sales Director, David Smart, and Senior Legal and Business Operations Manager, Krysta Johnson, how they manage communication and expectations to keep deals agile.

Here are 4 practices Legal and Sales teams should prioritize and tips for implementing an accelerated sales mindset.

1. Align on priorities and value — early

From Krysta (Legal): I frequently ask David (Sales), “I have these three deals on my plate. Which is the most important to you? Which one should I do first?” Align on priorities and ensure you understand that you’re doing the work they think is the highest value first.

When working with individual account executives, this can be tricky, so Legal and Sales team leaders should discuss priorities before involving the larger group. Sales leadership must be able to reassure their team that Legal is aligned with their goals while also ensuring the Sales team is doing their part.

From David (Sales): When I look at my sales team, I ask, “Are we doing what we can to ensure things are going to be done effectively and efficiently at the end of the month?” We have to plan ahead.

Developing an end-of-deal checklist can put Sales teams in a better position at the end of the month. This provides a clear outline for what still needs to be done so they can collaborate with Legal as necessary and helps them focus on their own work. Getting contracts reviewed, getting language in front of customers, and completing security reviews earlier in the month creates a better working relationship between the teams.

2. Build trust through transparent methods

Sales teams are asked to trust that Legal is handling contracts, but that’s hard to do if they can’t quickly check on the status of a deal. Nobody wants to be the person filling up the Legal team’s inbox or sending endless Slack messages. Yet sometimes, it feels like the only way to get through.

Sales and Legal teams reach their shared goals through distinctly different processes. Developing ways to 1) share what the process looks like and 2) ensure everyone can reference this information will enable leadership to minimize friction.

Legal tech is an excellent example of how using the right tool can directly impact the business’s bottom line. Lexion’s contract management software, for example, features a workflow component that tracks everything related to a specific task, including project status, approvals, communications, document versions, etc. It integrates seamlessly with Salesforce and HubSpot, too, so that team members can track the status of tasks with legal, see the latest activity, check signature status, and more without having to leave the comfort of their CRM.

Image 1 – Lexion can embed legal task activity, signed contracts, and more inside your CRM.

This kind of transparency has numerous benefits:

Promotes a culture of trust between teamsHelps to set expectations appropriatelyProvides insight into how both sales interpret each task and legal

The redlining process is a prime example of sales and legal learning from each other through workflow transparency. David (Sales) explains, “We’ll look at [a contract] and say, ‘Not many redlines, so this should be easy,’ or ‘Lots of redlines; this is going to be difficult.’

But there can be a small redline that has a huge impact and can take a lot of time, or you can have something with easy redlines, and we can go right through it. Those indicators aren’t necessarily good ones for whether the process will be difficult or not.”

Krysta agreed, noting that she immediately goes to specific sections in every contract to determine how complex the negotiation process will be. Items like indemnification or limitation of liability are always on her radar, whereas a sales account executive might not understand the complexity and importance of wording surrounding those contract terms. Being able to refer to the workflow and see changes in near real-time can help to inform future deals.

With Lexion, legal can also track the time it takes to negotiate and execute contracts on first party versus third party paper (which often take longer to close). With that data, legal and sales can share the understanding that oftentimes one of the biggest steps toward closing deals faster is by asking prospects to use the company’s first party paper.

3. Practice operational education

Reliable tools can do a lot for a team, but having background information makes those tools even more valuable. David believes legal teams generally have a good idea of how sales teams operate, especially during the end-of-month hustle. He also acknowledges that people put themselves under pressure by not preparing for that anticipated time crunch. From the outside, this can look like a lack of respect for the legal team’s time and resources.

To help prevent this, schedule regular check-ins between Sales and Legal. This could be a meeting at the start of the month to review goals and check in again before the month’s end. (Allow extra time during end-of-quarter and end-of-half meetings, as there will likely be more ground to cover.)

It’s important for Sales to help Legal understand the pipeline, goals, and key metrics so the two can work together to remove points of friction throughout the process. Similarly, Legal should educate Sales on how it can best help them improve key metrics, hit sales targets, and reduce conflict. Setting expectations and designing processes together gives sales and legal the best shot at working smoothly and effectively to close more deals in less time.

David and Krysta schedule one-on-ones at least twice a month to discuss current deals, account executive feedback, and how specific deals are forecasted to close that given month are tracking. This is in addition to their end-of-month meetings when they take time to prioritize deals and evaluate the likelihood of which ones will close and which will require more work.

Legal and Sales teams should also review other items together, such as:

What resources does the other team regularly have?How do they manage workloads?Where could they use more help?What does a typical day look like on this team?Which times of the week, month, and quarter are busiest for them?

Legal tech can also provide valuable metrics that identify workflow bottlenecks, which sales teams can use to plan their contracting timelines accordingly. Johnson uses these metrics reports to determine which tasks can be automated (i.e., functions that take up the most volume) and to see where each contract spends most of its time. People typically think contracts get stuck in legal review, but that’s not the case.

Image 2 – Lexion provides task insights to quantify Legal’s value, root out roadblocks, and improve efficiency.

“More often than not, it’s in counter-party review, or there’s a business unit that needs to approve,” Johnson said. Being able to show this to Smart’s team means “they can check in and increase that deal velocity … I can push that along and decrease the amount of time a contract is in that stage.”

Access to metrics also empowers sales teams to be more proactive in future contract negotiations. Smart said, “If we usually have issues with a specific section of the agreement, or our terms will be redlined around the same area, we can get familiar with what we can and can’t do. We can have conversations and set expectations with the customer upfront so that we’re not running into unforeseen issues at the end of the month.”

4. Let go and learn from each other

There are good and bad risks in business. To legal departments, though, all risk is bad risk, and it can be easy to get hung up on nailing down every last detail before moving a contract forward. However, Johnson said it’s important to know when to trust the other team and move on.

“We’re trained to spot risk and prevent it, but sometimes there’s a risk it’s okay to take,” she said. “You have to get comfortable sometimes letting business make those decisions and understanding that there’s a difference between business risk and legal risk. While they might intermingle, sometimes you have to let things go.”

In these situations, it’s important to compromise. Sometimes, one side or the other won’t get exactly what they want, but it’s vital to know what sales and legal can or can’t concede.

Getting [the business side] to understand, ‘We’ve conceded on all these points, but we can’t on this one,’ and teaching them why that’s important — educating each other. David teaching me [about business risk] and me teaching him, and his account executives, about some of the legal concepts builds trust.”

Partnering with sales and providing scalable value is possible and becomes more challenging as the sales organization grows (and the legal team probably doesn’t). Join us on Tuesday, November 8th, at 3pm ET / 12pm PT, as Jessica Nguyen, Chief Legal Officer at Lexion and seasoned B2B SaaS attorney, and Joe Colliss, Director of Legal at Lacework, bring their years of legal operations experience to explain how to build a scalable and trusted legal team effectively. 

Save your seat for the webinar here.

The post <a></a>4 Ways Legal and Sales Can Drive Faster Deals <strong></strong> appeared first on Contract Nerds.

How to Draft and Review Three Important Data Security Terms

With the severity of penalties for mishandled data, Customers would do well to look long and hard at service agreements with their Service Providers. 

Data security terms can be found sprinkled throughout a master agreement or compiled in one place like a data security or data privacy addendum. Either way, if you are sharing or receiving personally identifiable information or other sensitive data, you’ll want to make sure that your defined terms are sufficiently drafted whether you are using your own template or a third party template.

These three defined terms set the foundation for data security clauses to follow: 1) Authorized Employees vs. Authorized Persons, 2) Personal Information vs. Highly Sensitive Personal Information, and 3) Security Breach.

1. Authorized Employees vs. Authorized Persons

Who is authorized to view or use the data?  This question is commonly answered by defining a specific term for this group of people, usually called “Authorized Employees.” Alternatively, this has been called Authorized Users, Authorized Persons, or Authorized Personnel. Regardless of what we call it, it is important to look at how this term is defined.

For example, “Authorized Employees” may only cover actual W2 or full-time employees of the customer. If your organization hires contractors, then consider expanding the definition to include employees, contractors, agents, auditors, and more. You may even need to define what you mean by “employees” and specify whether previous employees are included. Another element to consider is whether you want to set pre-conditions for this user group, such as having a written confidentiality agreement in place.

Here’s an example of a narrowly-defined user group (pro-service provider):

Authorized Employees means employees of the Service Provider who need to know or otherwise access Personal Information to enable the Service Provider to perform its obligations of this Agreement.

Here’s an example of a broadly-defined “Authorized Persons” term (pro-customer):

Authorized Persons means (i) Authorized Employees and Service Provider’s contractors, agents, auditors, and service providers of Service Provider who need to know or otherwise access Personal Information to enable Service Provider to perform obligations of this Agreement, and who are bound in writing by confidentiality and other obligations sufficient to protect Personal Information per the terms and conditions of this Agreement.

2. Personal Information vs. Highly Sensitive Personal Information

What’s the difference between Personal Information and Highly Sensitive Information? In cases where a contract involves the sharing or exchange of more than one type of data, be very clear as to the differences between how those data types are defined and distinguished, as well as how they are to be handled.

Personal Information

The definition of Personal Information will likely need some breadth, so the term can encompass the varying focus or scope of different privacy laws.  Industry-standard is to follow the GDPR guidelines for EU or global agreements while provisions conforming to California’s CCPA/CPRA have taken the lead domestically.  

Here’s an example of a well-defined “Personal Information” term:

Personal Information” means information provided to the Service Provider by or at the direction of the Customer, information which is created or obtained by the Service Provider on behalf of the Customer, or information to which access was provided to the Service Provider by or at the direction of the Customer, in the course of the Service Provider’s performance under this Agreement that: (i) identifies or can be used to identify an individual (including, without limitation, names, signatures, addresses, telephone numbers, email addresses, and other unique identifiers); or (ii) can be used to identify or authenticate an individual (including, without limitation, employee identification numbers, government-issued identification numbers, passwords or PINs, user identification and account access credentials or passwords, financial account numbers, credit report information, student information, biometric, health, genetic, medical, or medical insurance data, answers to security questions, an individual’s internet activity or similar interaction history, inferences drawn from other personal information to create consumer profiles, geolocation data, an individual’s commercial, employment, or education history, and other personal characteristics and identifiers), in case of both subclauses (i) and (ii), including, without limitation, all Highly Sensitive Personal Information. The Customer’s business contact information is not by itself deemed to be Personal Information.

Highly Sensitive Personal Information

While both types of information will need to be secured, Highly Sensitive Personal Information will need to be encrypted when transmitted and encryption may even be required when data is at rest on a mobile device or media. For U.S. companies, the National Institute of Standards and Technology (NIST) is a great place to start in that it is a must to be a part of the DoD supply chain and puts a business in a good place to address updates necessary for GDPR compliance. 

There is no statutory definition for Highly Sensitive Personal Information, but it is commonly defined as information that carries a greater risk if disclosed, including social security numbers, financial data, and medical and health information.

Here’s an example of a well-defined “Highly Sensitive Information” term:

Highly Sensitive Personal Information” means an (i) individual’s government-issued identification number (including social security number, driver’s license,  state-issued identification number); (ii) financial account number, credit card number, debit card number, or credit report information, with or without any required security code, access code, personal identification number, or password that would permit access to an individual’s financial account; or (iii) biometric, genetic, health, medical, or medical insurance data.

3. Security Breach

A breach of security or other event that causes data loss is the number one risk of sharing data between companies. This type of event is defined as a “Security Breach” or alternatively a “Security Incident” or “Data Loss”.

Customers should attempt to define Security Breach broadly to include potential, threatened, and actual data-related incidents because potential incidents often become reality. Customers appreciate the extra notice time. On the other hand, the service providers will want to minimize notification responsibilities and liability by narrowing the definition of a Security Breach to only actual incidents.

Here’s an example of a broadly-defined Security Breach term (pro-customer). The term becomes more narrowly defined (pro-service provider) if subclause (ii) is removed:

Security Breach” means [(i)] any act or omission that [materially] compromises either the security, confidentiality, availability, or integrity of Personal Information or the physical, technical, administrative, or organizational safeguards put in place by the Service Provider [(or any Authorized Persons)], or by Customer should Service Provider have access to Customer’s systems, that relate to the protection of the security, confidentiality, availability, or integrity of Personal Information , or (ii) receipt of a complaint in relation to the privacy and data security practices of Service Provider (or any Authorized Persons) or a breach or alleged breach of this Agreement relating to such privacy and data security practices. Without limiting, a compromise includes any unauthorized access, disclosure, or acquisition of Personal Information.

These terms and definitions are by no means exhaustive, but the goal is not to be exhaustive.  Hopefully, this list can provide a gateway into the intricacies of data privacy and cybersecurity terminology for a practitioner or two in a practice area that is growing faster than anything the legal industry has seen in decades. Stay tuned for part two of this articlecoming soon!

The post <strong>How to Draft and Review Three Important Data Security Terms</strong> appeared first on Contract Nerds.

How to Reject Redlines the Right Way and Avoid Disappearing Redlines | Read Between the Redlines

When reviewing and responding to contract redlines, the reviewer has three choices: 1) accept the redlines, 2) reject the redlines, and 3) counter (or negotiate) the redlines.

We already covered how to accept redlines the right way in a previous post. Here, we will cover how to reject redlines the right way and avoid disappearing redlines. Disappearing redlines are spooky and inefficient. Most people don’t even know they’re doing it. They just don’t know any other way. Until now…

My name is Nada Alnajafi. I’m a seasoned in-house attorney, blogger, author, and speaker who loves working with, talking about, and writing about contracts. And I’m determined to transform the way us lawyers and contracts professionals redline contracts for the better.

In this newsletter, I’m going to show you how to master MS Word’s Track Changes features which will lead to faster contract reviews, less back-and-forth, more enjoyment of your work, and greater negotiation leverage.

If you’re interested in learning more about contracts, follow me on LinkedIn, check out my book Contract Redlining Etiquette, and subscribe to my blog Contract Nerds .

What are Disappearing Redlines?

In order to combat the transparency problem that is rampant in our profession, we need to make sure that every move we make to alter the contract is visible to the other party.

To reject a redline, most people click the Reject button in the Track Changes menu. I’ll explain why that’s not a recommended approach.

Clicking the Reject button causes “disappearing redlines” because it reverts the text back to the original without any trace that a change was just made to the contract. Poof! Gone! The other party may not notice that you rejected it unless they run a document compare or conduct side-by-side review. What’s worse is, they’ll probably assume that you accepted the redline. This can seem misleading and result in distrust.

For example, let’s say a counterparty proposes the redlines show below.

The contract reviewer accepts most of it, but does not want to agree to California governing law. So they click the Reject button and the language reverts back to the original Delaware governing law. Like this:

If the other party were to glance at this Jurisdiction clause, they would initially assume that all of their proposed redlines were accepted. But upon closer look, we can see that it was not.

Here’s what to do instead of using the Reject button.

Avoid These 4 Rage-Inducing Redline Faux Pas for More Efficient Contract Negotiations | Read More

Instead of the Reject Button, Do This…

There’s an easy way to say no to a proposed redline while fostering collaboration and transparency. Instead of using the Reject button, do this:

1. Strike your counterparty’s redlines using the backspace button.

2. Insert new redlines reflecting the original terms that you want to revert back to.

3. Provide an explanatory comment explaining your reason for declining their changes.

If you’re interested in learning more about contracts, follow me on LinkedIn, check out my book Contract Redlining Etiquette, and subscribe to my blog Contract Nerds .

The post How to Reject Redlines the Right Way and Avoid Disappearing Redlines | Read Between the Redlines appeared first on Contract Nerds.

How to Convince Your Boss You Need Contract Management Software

So…you see the value in contract management software, eh? But your boss or executives don’t seem to get the full picture. Well, you are not alone in this scenario.

According to a recent case study regarding how Manitoba’s contract operations fared during the pandemic, many leaders failed to recognize the importance of leveraging contract management software to help the system survive.

One struggling supply chain professional explained:

“I was asked plenty of times, how many contracts do you have in place and who are your suppliers, and what’s your top ten? I’m running spreadsheets to do contract management, and we manage roughly 3,000 contracts here on Excel spreadsheets! It’s mind-boggling…” [1].

Additionally, another study found that the implementation of smart contracts increases income and reduces risks – while increasing process transparency for both enterprises and third-party suppliers [2].

Presenting scholarly analyses and data regarding the return on investment of contract management software is an excellent start to convincing your boss. But how else can you make your case for contract management software?

Let’s explore three steps that will help you convince your boss to get on board with contract automation.

#1 – Define the “Why” Behind Your Contract Software Recommendation

Human beings resist change unless they understand why they should change. The first thing you can do to convince your boss is to clearly define the “why” behind your contract management software recommendation.

Start with the pain points: Explain the negative consequences that arise (or can arise) from your team’s current manual contract process. Perhaps you have trouble with version control, contract storage, and missed key dates. This part can really grab your boss’s attention.Dig deeper into those pain points: Take a closer look at how these pain points apply to the industry in which your organization functions. Prove the inefficacy of not only current contracting processes in general – but how they more broadly negatively affect the specific industry or organizational processes. For example, if you work in legal, high volumes of mismanaged contracts can increase the potential for compliance violations and contract failure.Explain the solutions to paint points: Detail which contract management software features would address your stated paint points. Perhaps numbered version control, a secure contract repository, and automated key date reminders and notification reminders are your top selling points.Explain industry-specific features: Dive deeper into your recommendation with coverage of industry-specific features and configuration options that can help you tailor contract management software to your team’s specific needs.

#2 – Face Challenges Convincing Multiple Stakeholders

In order to make your case for contract management software, you need to identify who the business decision makers are and what is important to them.

Are you speaking to General Counsel – focused on legal compliance and business strategy?

Are you speaking to a CIO – focused on cyber security for business operations?

Is it a lawyer – focused on accurate contract language and efficient contract collaboration to meet deadlines?

Maybe it’s another type of C-suite executive.

Regardless of who you need to convince to implement contract management software, make sure your case aligns with what matters most to that decision-maker.

#3 – Leverage Contract Management Software Demos and Free Trials

Your boss will want to be sure you are in the know regarding your contract management software recommendation. As such, you should be sure to leverage free contract management software demos and trials to learn about how your team would use contract management software in practice.

Hands-on experience with the product you are trying to recommend will drastically increase the sturdiness of your case. Also, being able to visualize the contract management system will bridge the gap between imagination and reality.

Get Started With Making Your Case for Contract Management Software!

Now that you know how to make your case for contract management software for your boss, it’s clear that you have some work to do. Make sure to diligently attend to the steps above, as hard work and research dramatically increase your chances of having your contract management software recommendation approved.

[1] Metge, Colleen J., and Md Anisul Islam. “Manitoba 2020: How centralizing the healthcare supply chain helped with pandemic management.” Healthcare Management Forum. Vol. 35. No. 2. Sage CA: Los Angeles, CA: SAGE Publications, 2022.

[2] Garina, I. O., and P. A. Drogovoz. “Smart contracts functionality analysis and game-theoretic modeling.” AIP Conference Proceedings. Vol. 2383. No. 1. AIP Publishing LLC, 2022.

The post <strong>How to Convince Your Boss You Need Contract Management Software</strong> appeared first on Contract Nerds.

SaaS and Taxes: Is it Taxable Software or a Non-Taxable Service?

States, eager to replenish their coffers, are doing their darndest to convert SaaS products into taxable, electronically-delivered software. Every state auditor on the hunt for a mega assessment turns to the vendor’s service agreements, searching for any hint as to how the SaaS products should be treated – as services (typically not taxable), or as software (taxable). To make this determination, auditors look at how a SaaS vendor describes itself in its SaaS agreements.

In the interest of arming contract negotiators with knowledge, the thrust of this article will highlight some key provisions auditors hone in on. We’ll focus our review on the Salesforce Main Services Agreement (the “Agreement”). Does Salesforce describe its products as a service or software? Let’s dive in and see!

How Does Salesforce Describe Itself?

The duty to pay taxes is a matter of state law, not a contractual obligation. A SaaS vendor who has nexus (e.g., a strong enough connection) with a state is required to collect any applicable taxes and pay those collected taxes over to the state, regardless of what its services agreements states. Unfortunately, the obligation to collect (or not collect) applicable taxes is not something that, under the laws of every state that levies a sales or use tax, can be contracted away.  If there is an inconsistency between a state law regarding the payment of taxes and the contract, the state law will govern. At best, the tax section of the contract gives the vendor a contractual right to go after its customers for taxes it was assessed by a state on the sale of SaaS product to that customer- though whether the vendor really wants to do that is a business decision fraught with the risk of jeopardizing valuable customer relationships.

The provision of most SaaS agreements dedicated to taxes may seem the most obvious starting point, but it is the least interesting, and quite frankly least significant, of the nuggets auditors look for. 

As noted, auditors are looking for how a SaaS vendor describes itself.  So, for purposes of our example, how does Salesforce describe itself?

Section 5.6 of the Agreement calls on Salesforce’s customers to be responsible for paying all taxes associated with their purchase of the Salesforce product.  In the preamble and continuously throughout the Agreement, Salesforce describes itself as “SFDC Services.”  However, when you look at the definition section, “Service” is defined as “products and services”, which could signal that there is taxable software bundled with non-taxable services. 

What About a Bundled Software and Service?

This suggestion is bolstered by two other references.  First, Section 3.4 prohibits “licens[ing]” or “sublicense[ing]” Salesforce’s services. Auditors often assume that only software (not services) can be licensed.  Second, Section 6.3 refers to “program code created by or for” a customer–signaling software.  Throughout the Agreement, Salesforce refers to non-Salesforce applications “that interoperate with the Services.” This suggests that the Salesforce platform has a software component to its services. Where a bundle of software and services exists, unfortunately, the taxable component (software) taints the entire package, making the whole thing taxable.

New York has tried to argue that the language of Section 6.5 proves SaaS products are indeed software.  It doesn’t.  Section 6.5 means only that the terms on which SaaS offerings are sold to the federal government must be sold on the same terms as those offerings are sold to the general public. The state’s effort is indicative of how little auditors understand the tech industry and the danger to SaaS companies that can come from an inexperienced auditor.

Hybrid SaaS: Multi-state Taxes for Multi-state Users

Agreement terms that govern usage present both challenges and opportunities.  Sections 3.2 and 3.4 of the Agreement indicate that “users” are subject to limits on their usage of the Services, described in their order form.  An auditor would likely request copies of those order forms for further evaluation.  While the Agreement is careful to always refer to Salesforce’s offerings as services, SaaS vendors should take care to ensure that their order forms and supporting documents use consistent terminology.  To refer to the offerings as subscription services in the Agreement, but software subject to a license on the order form could undercut their protection on audit. 

However, the reference to customer usage also indicates that there could be multiple users on the same subscription.  If those users are based in multiple states, SaaS vendors may want to request a Multiple Points of Use Statement from their customers, providing more detail as to the states in which the users are based, and the percentage of users in each state.  This allocation will allow the SaaS vendor to concentrate its potential tax obligations only in those states that treat SaaS as taxable – and only to the extent of the users in that state.  Without this statement, the subscription will be sourced entirely to the headquarters state of the purchaser – and if that state taxes SaaS, the vendor (and its customers!) could be on the hook for substantially more taxes than may be necessary.

Conclusion

Taxes – and tax implications- hide in plain sight throughout SaaS agreements. Both vendors and their clients should be on the alert for the common traps for the unwary, and for the potential opportunities to minimize their tax liabilities. 

The post SaaS and Taxes: Is it Taxable Software or a Non-Taxable Service? appeared first on Contract Nerds.

Read Between the Redlines | How to Change Your Author Name

Redlining contracts can be frustrating when you don’t know how to use MS Word’s Track Changes features to your advantage. According to a recent poll, 91% of contract negotiators (myself included) use Microsoft Word’s Track Changes to redline contracts. But no one ever taught us how to leverage Track Changes for contract review purposes. Until now!

In this newsletter, I’m going to show you how to master MS Word’s Track Changes features which will lead to faster contract reviews, less back-and-forth, more enjoyment of your work, and greater negotiation leverage.

My name is Nada Alnajafi. I’m a seasoned in-house attorney, blogger, author, and speaker who loves working with, talking about, and writing about contracts. And I’m determined to transform the way us lawyers and contracts professionals redline contracts for the better.

If you’re interested in learning more about contracts, follow me on LinkedIn and check out my book Contract Redlining Etiquette and my blog Contract Nerds .

Author Names in MS Word

I’ll show you how to change your author name.

MS Word likes to call new users “Author.” That’s the default setting. Unless you and the other parties negotiating a contract go in and change the Author Name, you’re all going to be called “Author” and that’s going to make it really difficult to identify who wrote which redline.

What we know: That we don’t want to be called “Author.”

What you need to decide: How do you want to label yourself in the comments?

What to Call Yourself?

What’s in a name?

That which we call a rose

By any other name would smell as sweet.

Ah yes, the age-old question. What’s in a name? And would our redlines smell as sweet if they were labeled with “Author”? I think not.

When you are drafting, reviewing, or negotiating a contract, the name you use within MS Word indicates many things, including:

Who drafted the document?Who is negotiating for Legal versus another business group?Who cares about what?Who is taking the lead on the negotiations?How your counterparties will address you?Which company you represent?Who should you lookup on LinkedIn?

Similarly, the other parties’ Author Names will tell you a lot about who you are working with. So when you are deciding what to call yourself within MS Word, consider what type of information you want to communicate with your label. Do you want to communicate your name and company? Your name, company, and group? Your level of seniority?

My personal preference is to use the initials or short form for my company, and then my full name. Like this:

FT – Nada Alnajafi

That’s sweet!

When you’re working with various internal parties on a deal (such as Data Privacy or InfoSec), it can be helpful to indicate which group you are representing. Like this:

FT Legal – Nada Alnajafi

Even sweeter!

Or do you want to keep this information under wraps and fly under the radar a little bit longer? If so, then perhaps a catch-all with your company’s name would be more appropriate at this time.

FT

Either way, we (you) are so much more than just “Author.”

So, how do you currently label yourself and what does it say about you? Do you want to keep it or change it? If you’re ready to change your Author Name, follow the steps below.

Follow These Steps to Change Your Author Name

1.Go to the Review tab.

2. Click the Tracking down arrow.

3. Click on Change User Name…

4. Go to the center of the Word Options box where it says “Personalize your copy of Microsoft Office.” Change the User name and Initials. Note: Whatever you type in here will be displayed in the Comments.

5. Check the box next to “Always use these values regardless of sign in to Office.” This Author Name will be applied to all existing and new documents, unless you change it.

6. Save the document, exit, and re-open it.

Interested in more redlining fun?! 

If you’re interested in learning more about redlining best practices and contracts in general, check out my newest book Contract Redlining Etiquette (also available in India now!) and subscribe to the Contract Nerds blog. It’s safe to say that I’m a total #contractnerd! Are you?

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Planes, Trains & Automobiles: Three Advantages of a Litigation Background in Contract Negotiations

I have been a litigator for six years. And now, I want to move in-house to engage in the most satisfying part of being an attorney—collaborating with my clients from day one to be a constructive part of building their business. The biggest hurdle standing between me and my dream job is the notion that litigators don’t have adequate contracting skills.

But many litigators devote their lives to contracts just as ardently as transactional attorneys. Over the course of several job interviews, I waffled about how to explain this. After ample time spent condensing my observations into a cohesive narrative, I fell back on my love of cinema for an appropriate analogy.

So, with due respect and reverence to John Hughes, let’s talk about Planes, Trains, and Automobiles to demonstrate three ways that litigators can add value to an in-house legal team.

Litigators as Air Traffic Controllers

Legal departments are airports. Contracts come in and out constantly, varying in size, complexity and nature. In-house counsel must be adept at multitasking and prioritizing. They must not only understand the project in front of them, but where that project fits into the company’s current operational footing and its short- and long-term goals.

Air traffic controllers do the same thing. Though admittedly, seeing planes land and take off is probably far more exciting than watching emails sail in and out of your inbox.

Litigators use these skills daily. For example, I managed five to fifteen matters, involving up to twenty-five individual clients, daily. That work included ensuring I was on top of necessary deadlines and that I understood my client and the environment in which we were operating. Tracking rulings and opinions in other cases, keeping an eye on upcoming legislation, and being aware of my client’s personal, professional or institutional challenges was critical to achieving an optimal result for them.

The same is true for attorneys within an organization. In my conversations with them, many general counsel cannot sufficiently emphasize the significance of being able to keep on top of various, demanding workflows and keep up when a flurry of activity disrupts that flow. Litigators live this experience, often exclusively working on situations others would call a crisis.

The air traffic controllers in the tower keep the airport functioning at optimal efficiency through even the most significant challenges. If your team needs someone who can handle surprises, crises, or just a big pile of work with grace and efficiency, you want a litigator.

Litigators as Train Inspectors

Contracts are fundamentally trains conveying goods, services, licenses, and promises of all kinds down the track. When all goes well, they speed up, slow down, and get to their destination without incident. But, unfortunately, trains derail. A derailing can lead to quick negotiation, arbitration or litigation.

When litigation arises, the litigator steps in as a train inspector. They didn’t load the train. They didn’t lay the tracks. They neither built nor conducted the locomotive. Their job is determining who and what made the train derail.

That is a unique, valuable insight in contract development. In-house counsel work to minimize risk, but litigators build their careers on seeing the wreckage first-hand. That experience gives them a keen eye for dangerous provisions and how to avoid their pitfalls, which they can offer in hindsight.

But we can turn that hindsight into foresight.

Put the derailed train back on the track, and trace it all the way back to the drawing board. Wouldn’t it make sense to have someone involved in the design who can tell you how to keep a train from derailing, based on years of experience studying how they do?

If your answer is “yes,” you want a litigator on your team.

Litigators as Taxi Drivers

Finally, each project that comes across an in-house counsel’s desk is a passenger in a taxi. There’s a goal, a destination, and parameters. It’s your job to help them get there.

Taxi drivers have an innate sense of the cities in which they function. They know the main thoroughfares and side streets and keep on top of how construction or major events may alter their routes. They also want the same thing the passenger wants: to get to their destination quickly and safely. Where they provide unique value is in risk tolerance and a willingness to push themselves to see just how efficient they can become.

For simplicity, let’s make the passenger sales: they want their deals done for the best price as quickly as possible and want as many of them as they can get. If they like your work, they’ll be back in your cab time and again.

It’s true that litigators’ jobs tend to focus on eliminating risk, and it can be hard to shake that mindset when they transition in-house, where risk is a natural part of life. However, litigators also work with their clients to develop, and fearlessly execute, risk-laden strategies when their cases can benefit from it.

Litigators thrive in those moments. They neither embrace them recklessly nor seek them out in every situation, keeping their passenger safe from unseen dangers. But once they learn your organization, litigators have the capacity to see the narrow shortcuts where they can hit 75 – and leverage their understanding of your risk tolerance to propel your teams to their goals faster.

Litigators Make Excellent Contract Negotiators

Litigators have unique insights and value to add to any contract development process. They are trained to multitask and triage, foresee pitfalls, and instinctively driven to know when a risk is needed and valued by their teams. They are a potent, and oft-overlooked, addition to any in-house department.

To paraphrase the inimitable John Candy from the movie Planes, Trains, and Automobiles:

I like them. They like them. Their clients like them. Their teams like them. Because they’re the real article. What you see is what you get.

If you haven’t thought about how a litigator may round out your in-house legal team, now is the time to start.

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