Startup Legal Basics

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David Little, Tom Reaume and Andre Garber of Dentons Canada LLP presented information about the legal basics to consider when starting a business at the JOLT Fall 2013/Winter 2014 Cohort Workshop. The presentation includes a discussion of the following topics:
- Incorporation/Business Set-up
- Commercial Agreements
- Raising Financing
- Employees
- Dentons Canada Startup program

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Startup Legal Basics

  1. 1. Startup Legal Basics David Little Tom Reaume Andre Garber 30 September 2013 Dentons Canada LLP
  2. 2. Introduction Topics 30 September 2013 Dentons Canada LLP 2 • Incorporation/Business Set-up • Commercial Agreements • Raising Financing • Employees • Dentons Canada Startup program
  3. 3. Incorporation/Business Set-up So, you’re incorporated – now what? 30 September 2013 Dentons Canada LLP 3 • Main features of Incorporation • Separate legal entity for all purposes including tax, financing, employment, contracts, liabilities, etc. • Corporation is made up of three distinct groups: • Shareholders • Directors • Officers • Ownership • Understanding the cap table • Freeze initial share ownership • Repurchase rights/Founder agreements • Shareholders Agreements
  4. 4. Incorporation/Business Set-up Separate Legal Entity 30 September 2013 Dentons Canada LLP 4 • Corporation is a separate entity • Business assets should be owned by the corporation, not the founders • Pay attention to previous employers including universities who may have rights in IP developed by founders which will be used in the business – very important to address this at the outset so that it does not become a cloud over any future contract, financing, exit, etc. • Corporation must file its own tax return and pay tax on income • Corporation hires employees/engages contractors • Corporation enters into commercial and financing agreements in its own name
  5. 5. Incorporation/Business Set-up Stakeholders/Administrators 30 September 2013 Dentons Canada LLP 5 • Shareholders • The owners of the company • Directors: • Responsible for overall management and direction • Usually a part-time role – directors are not usually employees (except for the CEO who is often a director) • Officers: • Appointed by the directors • Responsible for day-to-day management • Officers are often also employees (CEO, CFO, VPs)
  6. 6. Incorporation/Business Set-up Stakeholders/Administrators 30 September 2013 Dentons Canada LLP 6 • Shareholders • Corporation is owned by the shareholders • Can have more than one class of shares (e.g., common & preferred) • Shareholders elect directors • Shareholders entitled to act in their own self-interest • Shareholder approval (usually 2/3) legally required for changes that affect rights of shares or a distribution of substantially all assets • Shareholder approval typically required for fundamental changes to the business including major changes in the business, new financings and exit – usually addressed in Shareholders Agreement • Shareholders can also be directors and/or officers (particularly at earlier stage)
  7. 7. Incorporation/Business Set-up Stakeholders/Administrators 30 September 2013 Dentons Canada LLP 7 • Directors • Elected by the shareholders • Directors are responsible for managing or supervising the management of the corporation’s business • Directors must act honestly and in good faith in the best interests of the company and exercise the diligence and skill that a reasonably prudent person would exercise in comparable circumstances • There can be “inside” directors (who are also employees) or “outside” directors (often investors or persons with industry expertise) • Directors have many personal liabilities, e.g., for employee remittances, unpaid vacation pay and unpaid wages  as the company grows bigger, outside directors will expect to receive D&O insurance
  8. 8. Incorporation/Business Set-up Stakeholders/Administrators 30 September 2013 Dentons Canada LLP 8 • Officers • Appointed by the directors (i.e., CEO, CFO, etc.) • Responsible for the operation of the day to day business • Officers are generally employees • Officers subject to same standard of care as directors but not the same personal liabilities • Officers can also be shareholders and/or directors (particularly at earlier stage)
  9. 9. Incorporation/Business Set-up Ownership 30 September 2013 Dentons Canada LLP 9 • Cap table/Freezing share ownership • Ownership interests represented by shares, of which there can be different classes • Rights of the shareholders regulated by statute and/or Shareholders Agreement • Under statute/law, fundamental decisions (e.g., changes to terms of shares and wind-up) require 2/3 approval of shareholders • Relationship between shareholders usually also governed by a Shareholders Agreement • Cap table will set out each founder’s interest at start-up • You should treat the cap table as frozen in that if the corporation raises capital by issuing shares, there will be tax consequences if you issue shares at less than fair value • Always be aware that share ownership percentages change when new shares are issued. Do not say: “You will own 5% of the company.” This may be true at a moment in time, but will stop being true if the company ever issues more shares! • Use stock options as a tool to balance founder/employee share ownership against third party investors
  10. 10. Incorporation/Business Set-up Ownership 30 September 2013 Dentons Canada LLP 10 • Repurchase Rights/Founder Agreements (“Claw backs”) • A contract that gives the power to buy back shares from founders/employees who are with the corporation at the beginning, but do not continue for any reason (losing interest, “real job”, bad fit) • Important to put these contracts in place at an early stage • Buy back rights can lapse over time OR as milestones are achieved
  11. 11. Incorporation/Business Set-up Ownership 30 September 2013 Dentons Canada LLP 11 • Shareholders Agreements • A contract that regulates the relationship between shareholders and how certain fundamental decisions will be made • Typically addresses: • Election of Directors • Rights of First Refusal • Drag-along • Piggy-back • Protective Provisions • Serves as a fall-back in the case of disputes • Be mindful of percentage thresholds to amend your Shareholders Agreement – if it’s 100% you may not be able to make any changes
  12. 12. Commercial Agreements 00 Month 2013 Dentons Canada LLP Document reference # 12 • End User License Agreements • Technology License-In Agreements • Development Agreements • Other Services Agreements • Evaluation Agreements • Channel Partner Agreements (Resellers/Distributors) • Support and Maintenance Agreements • Teaming Agreements • Trade-Mark/Patent License Agreements Typical Types of Technology Agreements
  13. 13. Commercial Agreements 30 September 2013 Dentons Canada LLP 13 • Commercial agreements contain both business and legal provisions • Business terms include: • Specifications • Price • Payment terms • Delivery dates • Legal terms include: • Representations and warranties • Indemnities • Proprietary rights • Limitations of liability • Assignment Introduction
  14. 14. Commercial Agreements 30 September 2013 Dentons Canada LLP 14 • Many business people prefer to ignore the legal terms and “leave them to the lawyers to sort out”. • However, the so-called legal terms can have a major impact on your business and business people are advised to have at least a basic understanding of these common clauses in commercial agreements. • After price, the following are the most negotiated clauses in commercial agreements for the provision of technology products and services: • Acceptance • Warranties • Indemnities • Limitation of Liability • These clauses are all interrelated Introduction
  15. 15. Commercial Agreements 30 September 2013 Dentons Canada LLP 15 • Often the customer will want a period of time during which to test and accept the product – even after going through an evaluation or proof of concept • During the acceptance period the customer has the ability to reject the product and return it either without paying or for a full refund of any amounts paid • Definition of “Acceptance” and the “Acceptance Procedure” is very important and must be well defined • Vendor should have input into the acceptance criteria Acceptance
  16. 16. Commercial Agreements 30 September 2013 Dentons Canada LLP 16 • Definitions of “Acceptance”: • Vendor favourable: The Software shall be deemed to be accepted upon delivery of the License Key/Software to Customer. • Customer favourable: Customer will be the sole judge of whether Deliverables or Services are accepted, and Customer will not be required to pay fees for unaccepted Deliverables or Services; provided that Customer shall not unreasonably refuse acceptance. • If there is going to be acceptance by the customer then there must be a test procedure and an objective standard against which acceptance is measured • Delayed acceptance impacts: • Revenue recognition • Commencement of warranty period • Payment Acceptance
  17. 17. Commercial Agreements 30 September 2013 Dentons Canada LLP 17 • Limited Warranties • A written agreement permits you to provide only those warranties and conditions that you are prepared to give • Clearly set out the product or service warranty • Disclaim all warranties and conditions that are not expressly provided • Failure to disclaim conditions of merchantability and fitness for a particular purpose could result in a finding that these conditions are applicable • Problems with using U.S. based agreements: • Many US agreements do not disclaim conditions of merchantability and fitness for a particular purpose • US agreements also often disclaim warranties of “non-infringement” • implied warranty of non-infringement under the UCC, there is no similar implied warranty of non- infringement under Canadian law Warranties
  18. 18. Commercial Agreements 30 September 2013 Dentons Canada LLP 18 • Sample Software Warranties: • Licensor warrants that: • the Software will perform [strictly] [substantially] in accordance with the Documentation for a period of thirty (30) days following the date of the receipt of the License Key for the Software by the Customer • the Software will not contain any Malicious Code at the time of delivery to Customer • Definition could include license manager software • Licensor does not warrant, however, that the Customer's use of the Software will be uninterrupted, that the operation of the Software will be error-free, that the Software will meet the Customer's requirements or that all errors will be corrected • Non-infringement warranties: • [to its knowledge,] the Software and Documentation do not infringe any intellectual property rights of any third party. [Note: Depends on whether you are providing an IP infringement indemnity.] • it owns or otherwise has sufficient rights in the Software and Documentation to grant to Customer the rights to use the Software and Documentation granted herein • Resist giving these if providing an IP infringement indemnity Limited Warranties
  19. 19. Commercial Agreements 30 September 2013 Dentons Canada LLP 19 • Example of a warranty disclaimer in a US agreement: • “Except for the limited warranty provided above, Vendor makes no other express or implied warranties, and expressly disclaims any warranties of merchantability and fitness for a particular purpose.” • However, there are also implied conditions of merchantability and fitness for a particular purpose under Section 15 of the Sale of Goods Act • These implied conditions must be disclaimed, therefore the Disclaimer of Warranty clause should read as follows: • “THE LIMITED WARRANTY SET OUT IN SECTION HEREOF IS THE ONLY WARRANTY PROVIDED BY LICENSOR/VENDOR AND THE REMEDIES SET OUT IN SECTION HEREOF ARE THE SOLE AND EXCLUSIVE REMEDIES OF CUSTOMER FOR A BREACH OF WARRANTY. EXCEPT AS EXPRESSLY SET OUT IN SECTION ABOVE, THERE ARE NO OTHER WARRANTIES OR CONDITIONS, EXPRESSED OR IMPLIED AND LICENSOR/VENDOR HEREBY EXPRESSLY DISCLAIMS ALL OTHER WARRANTIES, CONDITIONS AND REPRESENTATIONS, EXPRESS OR IMPLIED, WHETHER BY STATUTE, COMMON LAW, CUSTOM USAGE OR OTHERWISE, INCLUDING WARRANTIES AND CONDITIONS OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE.” Warranties
  20. 20. Commercial Agreements 30 September 2013 Dentons Canada LLP Document reference # 20 • Typically customers are looking for a refund if there is a breach of warranty during the warranty period. The following is a typical vendor biased warranty remedies clause: • “Remedy. In the event of a breach during the applicable warranty period of one or more of the warranties set forth in Section [ ], Licensor shall use reasonable commercial efforts to correct such breach of the warranty. If Licensor is unable to remedy the breach of warranty within a reasonable time, Licensor shall refund the purchase price of the Software.” • In order to further limit the vendor’s liability, ensure that the warranty remedies are the customer’s sole and exclusive remedies. • The warranties set out in Section [ ] are the only warranties provided by Vendor and the remedies set out in Section [ ] are the sole and exclusive remedies of Customer for a breach of warranty. • Without the above clause the customer could also make a claim for damages for a breach of the product’s performance warranty. Warranty Remedies – A Further Limitation of Liability
  21. 21. Commercial Agreements 30 September 2013 Dentons Canada LLP 21 • Many customers will try to get you to provide them with free support by negotiating that the support period (and therefore the support fees) only begins at the end of the warranty period. • The product performance warranty and support are not the same thing. • Warranty Period: The period during which if a defect is found which is a breach of the warranty and the vendor/licensor cannot fix it – customer is entitled to a refund • Support: The support services which assist the customer with the use of the product • If you are charging for support, the support period should start upon acceptance of the product – not the end of the warranty period Warranty and Support
  22. 22. Commercial Agreements 30 September 2013 Dentons Canada LLP 22 • The purpose of indemnity clauses is to either prevent a loss from occurring (defense) or to provide reimbursement for a loss that the indemnified party has suffered (indemnity) • Think of an indemnity like an insurance policy • An indemnity is a contractual right which does not necessarily arise from a breach of contract • Over used in commercial agreements due to US influence • Often used for counter-party breaches of contract in order to recover legal fees and expenses Indemnities
  23. 23. Commercial Agreements 30 September 2013 Dentons Canada LLP 23 • This is the most common indemnity in technology agreements • As a vendor or developer of technology products, you will be asked to provide an intellectual property indemnity in customer agreements • Elements of an IP infringement indemnity clause: • Obligation to defend and indemnify • The obligation to defend will arise immediately upon notice of a third party claim covered by the indemnity and regardless of the outcome of the third party claim • The obligation to indemnify only arises in the event of a successful claim by a third party • Infringement of third party’s IP rights • Patent rights only • US and Canadian patents • Any third party intellectual property right IP Infringement Indemnity
  24. 24. Commercial Agreements 30 September 2013 Dentons Canada LLP 24 • Elements of an IP infringement indemnity clause (continued): • Exclusions • Unauthorized modification or combination • Compliance with customer’s designs, specifications, or written instructions • Failure to use a non-infringing version • Obligations of indemnified party • Notice, co-operation, information and assistance • Limitations • Try to limit exposure with a financial cap • Usually difficult to get • Sole remedy • Make the indemnity the sole remedy for an infringement claim • Avoids the possibility of a breach of warranty claim for any warranty of non-infringement • Try to avoid giving a warranty of non-infringement if you are providing an indemnity IP Infringement Indemnity
  25. 25. Commercial Agreements 30 September 2013 Dentons Canada LLP 25 • The purpose of these clauses is to balance the risk with the economic and other benefits arising under the contract • Major business issues are embedded in these clauses – allocation of risk between the parties • In the absence of such clauses courts will award damages against the breaching party for all losses (i.e. difference between the position that the innocent party would have been without the breach and the position that the innocent party is in after the breach) that are foreseeable • These clauses are enforceable if: • Clearly drafted • Unambiguous • Clearly brought to the attention of the party (bold and all caps in most agreements) • No inequality of bargaining power Limitation of Liability
  26. 26. Commercial Agreements 30 September 2013 Dentons Canada LLP 26 • Typical approaches: • Limit liability to direct damages only (exclude all claims for indirect and consequential damages) • Cap direct damages at the “value” of the contract • “during the preceding 12 months” • “amounts paid/payable” • Flat dollar amount • Lesser/greater of hard cap and amounts paid/payable • In agreements provided to you by your customer there may not even be a limitation of liability clause Limitation of Liability
  27. 27. Commercial Agreements 30 September 2013 Dentons Canada LLP 27 • Typical approaches: • Exclusions/carve-outs: • Amounts due for goods delivered/services rendered • Breach of confidentiality obligations • Intellectual property rights infringement indemnity • Wilful misconduct • Personal injury and property damage • Liquidated damages (for example, service level credits) • Damages flowing from the above types of claims will be uncapped • Provide for exclusive remedies (for breach of warranty, intellectual property infringement) Limitation of Liability
  28. 28. Commercial Agreements 30 September 2013 Dentons Canada LLP 28 • Assignment • Try to make all of your important agreements assignable in the event of a merger, acquisition, change of control or re-organization without the counter-party’s consent • May have to agree to obtain consent in the event of a change of control to a competitor • This will make it much easier to complete these types of major transactions • Confidentiality • Initial NDA may expire during the term of the commercial relationship • Audit • Consider whether you need one in order to verify your customer’s compliance • Many large companies will resist granting an audit right to their suppliers • Alternative – annual compliance certificate • Dispute resolution • Management • Mediation • Arbitration Other important clauses
  29. 29. Commercial Agreements 30 September 2013 Dentons Canada LLP 29 • Invest in a good employee/contractor IP and Confidentiality Agreement and use it with all employees and contractors involved in the development of your intellectual property • Create a customer agreement • Helps you to focus on and articulate your business model • If you don’t have one you will always be starting with the customer’s form of agreement (which will be biased in the customer’s favour) • Even if you do have to start with your customer’s agreement, you will at least have a checklist of those clauses in your agreement that you will want to try and get into the customer’s agreement Free Advice
  30. 30. Commercial Agreements 30 September 2013 Dentons Canada LLP 30 • Check your templates and precedent agreements for U.S. provisions: • Disclaim warranties and conditions of merchantability and fitness for a particular purpose • Not necessary to disclaim warranty of non-infringement • Check governing law provision and contract out of the United Nations Convention on Contracts for the International Sale of Goods • Revise all “work for hire” clauses to conform to Canadian law • Waive moral rights in development, employee and contractor agreements • Review dispute resolution provisions More Free Advice
  31. 31. Raising Financing 30 September 2013 Dentons Canada LLP 31 • Founders and Employees • Usually early stage when cost of investment is low • Usually common shares • Be mindful of dilution – if you need to raise more capital through equity, early ownership interests will be reduced • Do not promise that ownership interests will be protected (i.e., statements that for X$, you will own x% of the business are dangerous) • Some representation from Founders is typical on the Board Friends and Family • Also usually early stage and common shares although where there are deep pockets, these investors may be able to participate on future rounds • Same considerations as with financing from founders and employees • Usually no Board representation Sources
  32. 32. Raising Financing 30 September 2013 Dentons Canada LLP 32 • Angels • Usually high net worth individuals or groups of same • Sweet spot is just after early stage financing but some angels come in right at startup • Angels usually purchase common or preferred shares • May or may not want Board representation • Angels usually have some capability to participate in future rounds but few participate in all rounds • Know your angel(s) - most angels will want some protection against future dilution and/or approval rights over fundamental changes – be wary of this • Some angels may want to be bought out after a period of time (usually 5-7 years) if no exit with a minimum return Sources
  33. 33. Raising Financing 30 September 2013 Dentons Canada LLP 33 • Venture Capital/Private Equity Funds • VC investors typically invest at the mid to later stage or when there is at least proof of concept • Investment decision also includes assessment of management team • VC investors are in the business of generating a return for their own investors • VC investors often invest in groups to spread risk • Usually invest in convertible Preferred Shares to ensure they get their money out first – typically with a minimum annual rate of return (typically 6 – 8%) or can convert into common shares if that would result in a greater return • Typically, VC investors have representation on the Board but not control of the Board • There are usually a list of actions that cannot be taken without the approval of the VC Investors • VC Investors will want the ability to force the sale of the business on their own or with the support of holders of a specified percentage of the common shares Sources
  34. 34. Raising Financing 30 September 2013 Dentons Canada LLP 34 • Venture Lenders • Can be technology focused banks or Venture Capital funds • Debt carries an annual interest rate (typically 6% - 15%) • Repayment is usually secured by comprehensive security over the assets of the business • At earlier stages, personal guarantees from Founders may be required • Debt always ranks ahead of equity in terms of repayment • Lenders will usually insist on covenants that restrict any behaviour that could put repayment at risk • Typically no representation on the Board • Big Canadian banks are not a source of debt financing Sources
  35. 35. Raising Financing 30 September 2013 Dentons Canada LLP 35 • Crowdfunding • Different types • Rewards: Company provides incentives to customers in the form of products or services in exchange for funding. • Example: Indiegogo, Kickstarter • Donations: Charities reach out to the crowd (through portals, social media, or their own websites) to receive donations. • Example: Wikipedia’s yearly donation campaigns • Peer-to-peer lending: Individuals lend funds to other individuals or companies. • Example: kiva.org • Equity: Investors receive shares in exchange for an investment in the company. Currently not available in Canada for non-accredited investors. • Example: MaRS VX Sources
  36. 36. Raising Financing 30 September 2013 Dentons Canada LLP 36 • Unless you meet applicable exemptions from securities law in Canada, your fund raising will have to comply with prospectus requirements • Most common exemptions for early stage are “private issuer” and “accredited investor” although there are others • Private Issuer • not public or an investment fund and must have restrictions on share transfer • shares must be owned by not more than 50 shareholders (excluding employees and former employees) • shares can only be sold to/owned by accredited investors or connected persons – i.e., directors, officers, employees, shareholders, family members, close associates and persons who are not the “public”, or accredited investors • Accredited Investor • fairly long list set by national securities regulators • for startup purposes – includes individual who has more than $200K net income or $300K family net income over the last two years or an individual who alone or with a spouse has more than $1M in financial assets or at least $5M in net assets Securities Law
  37. 37. Employees 30 September 2013 Dentons Canada LLP 37 The Basics • Employees must at least be paid minimum wage (whether they are founders or interns). Be wary of classifying junior employees as interns – the test under the ESA for establishing unpaid internship, is onerous. If founders cannot afford to pay themselves minimum wage, they should be classified as contractors until the company is generating revenue • Start with a good agreement template – your friendly Dentons employment lawyer can provide – everyone should sign an employment agreement or an independent contractor agreement • Probation periods can be your friends • Employment agreements which are signed after the employee’s start date will not be enforceable unless the employee has received some sort of consideration for signing (e.g., a signing bonus) • Use the occasion of signing up employees/independent contractors to address confidentiality and assignment of intellectual property rights
  38. 38. Employees 30 September 2013 Dentons Canada LLP 38 • All terminated employees in Ontario are entitled to statutory notice and some employees also have an entitlement to statutory severance under the Employment Standards Act, 2000 (the “ESA”) when the company gets bigger • It is possible to restrict termination entitlements to ESA minimums, but only if the employee has signed an employment agreement which is properly drafted and entered into. If no employment agreement, then common law applies which is very subjective and always more than ESA minimums • Directors and officers are personally liable for unpaid employee wages (which term includes accrued vacation and overtime). However directors and officers are not personally liable for notice of termination or severance • Be wary of treating individuals as contractors if they really look like employees, as CRA can assess penalties and companies can find themselves responsible for common law wrongful dismissal packages which they were not expecting. Contractors have a significant degree of control over what they do and how they do it; employees do not The Basics
  39. 39. Dentons Canada Startup Program 30 September 2013 Dentons Canada LLP 39 • Startup Document Suite designed for: • Organizing your company • Protecting your company’s IP and trade secrets • Properly incenting / compensating early-stage employees • Attracting quality advisors • Making your company investor / campaign ready • TechStartupCenter.com: • Resource for tech founders and investors • Founder’s guide to starting a company on solid footing Tools and resources to fuel startups
  40. 40. Dentons Canada Startup Program 30 September 2013 Dentons Canada LLP 40 • Dedicated team of tech lawyers assisting startups • Experience with cross-border financings • 24/7 service for startups • Deep network of VCs and angels • Working closely with our US counterparts • Access to specialized IP services in US • US business validation and go-to-market strategies Collaborative approach
  41. 41. Today’s Team 30 September 2013 41 David Little Partner Business Tel.: (613) 783-9639 email: david.little@dentons.com Tom Reaume Consultant Business Tel.: (613) 783-9610 email: tom.reaume@dentons.com Andre Garber Director, Dentons Canada Startup Program Tel.: (416) 863-4750 email: andre.garber@dentons.com Dentons Canada LLP Dentons Canada LLP Suite 1420 – 99 Bank Street Ottawa, ON K1P 1H4 THANK YOU
  42. 42. Startup Basics 30 September 2013 Dentons Canada LLP 42 Appendices
  43. 43. Commercial Agreements 30 September 2013 Dentons Canada LLP 43 • Indemnification by Vendor. Subject to this Agreement, Licensor shall defend, indemnify and hold Customer harmless against any loss, damage or costs (including reasonable legal fees) incurred in connection with claims, demands, suits, or proceedings made or brought against Customer by a third party alleging that the use of the Software as contemplated hereunder infringes the intellectual property rights of a third party (each an “Infringement Claim”); provided, that Customer (a) promptly gives written notice of the Infringement Claim to Licensor; (b) gives Licensor sole control of the defense and settlement of the Infringement Claim (provided that Licensor may not settle or defend any Infringement Claim unless it unconditionally releases Customer of all liability); and (c) provides to Licensor, at Licensor’s cost, all reasonable assistance and information. • Exclusions. The indemnity in Section [ ] does not extend to (1) any Infringement Claim based upon infringement or alleged infringement of any patent, trade-mark, copyright or other intellectual property right by the combination of the Software furnished by Licensor with other products, software or services not provided or approved by Licensor, other than Software designed by Licensor with certain commercial hardware or other commercially available software, if such infringement would have been avoided but for such combination; (2) any Infringement Claim related to or in connection with any modification of the Software by anyone other than Licensor if such infringement would have been avoided but for such combination; (3) any Infringement Claim in respect to any version of the Software other than the most current version; or (4) any use, distribution, sublicensing or exercise of any other right outside the scope of the licenses granted in this Agreement. IP Infringement Indemnity – Sample Clause
  44. 44. Commercial Agreements 30 September 2013 Dentons Canada LLP 44 • Other Remedies. If (a) Licensor becomes aware of an actual or potential Infringement Claim, or (b) Customer provides PerspecSys with notice of an actual or potential Infringement Claim, Licensor may (or in the case of an injunction against Customer, shall), at Licensor’s sole option and determination: (i) procure for Customer the right to continue to use the Software; or (ii) replace or modify the Software with equivalent or better software so that Customer’s use is no longer infringing; or (iii) if (i) and (ii) are not commercially reasonable, as determined by Licensor in its sole discretion, terminate the license(s) for such Software and refund to Customer that portion of any prepaid subscription license fees that is applicable to the period following the termination of the License pursuant to this Section [ ], less any outstanding moneys owed on such affected portion of the Software. • Limitation. Notwithstanding any other provision of this Agreement, the liability of Licensor to Customer under this Section [ ] shall not exceed $500,000. Licensor agrees to obtain Customer’s consent for any settlement in excess of $500,000. In no event shall Licensor be responsible for any cost, expense or compromise incurred or made by Customer without Licensor’s prior written consent. • Sole Remedies. THIS SECTION [ ] CONTAINS LICENSOR’S ENTIRE LIABILITY, AND CUSTOMER’S SOLE AND EXCLUSIVE REMEDIES, FOR INFRINGEMENT CLAIMS. IP Infringement Indemnity – Sample Clause
  45. 45. Commercial Agreements 30 September 2013 Dentons Canada LLP 45 • Exclusion of Indirect and Consequential Damages. SUBJECT TO SECTION [ ] BELOW, IN NO EVENT SHALL EITHER PARTY HAVE ANY LIABILITY TO THE OTHER PARTY FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS, LOSS OF PROFITS, BUSINESS INTERRUPTION, LOSS OF DATA, LOST SAVINGS OR OTHER SIMILAR PECUNIARY LOSS). • Limitation of Liability. SUBJECT TO SECTION [ ] BELOW, IN NO EVENT SHALL EITHER PARTY'S AGGREGATE LIABILITY ARISING OUT OF OR RELATED TO THIS AGREEMENT OR RELATING TO THE SUBJECT MATTER HEREOF FOR ALL CLAIMS, COSTS, LOSSES AND DAMAGES EXCEED THE AMOUNTS ACTUALLY PAID BY AND DUE FROM CUSTOMER HEREUNDER IN THE TWELVE MONTHS PRECEDING THE INCIDENT GIVING RISE TO LIABILITY. • Certain Damages Not Excluded or Limited. NOTWITHSTANDING THE FOREGOING, NO LIMITATION OF EITHER PARTY’S LIABILITY SET FORTH IN THIS AGREEMENT SHALL APPLY TO (I) DAMAGES ARISING FROM A PARTY’S BREACH OF ITS CONFIDENTIALITY OBLIGATIONS, (II) INDEMNIFICATION CLAIMS (PROVIDED, HOWEVER, THAT THE LIMITATION CONTAINED IN SECTION [ ] SHALL APPLY TO INDEMNIFICATION CLAIMS MADE UNDER SECTION [ ] HEREOF), (III) DAMAGES ARISING FROM INFRINGEMENT OF A PARTY’S INTELLECTUAL PROPERTY RIGHTS; (IV) ANY CLAIMS FOR NON-PAYMENT, (V) FRAUD OR WILLFUL MISCONDUCT, OR (VI) BODILY INJURY OR DEATH. Limitation of Liability - Sample Clauses
  46. 46. The preceding presentation contains examples of the kinds of issues corporations could face. If you are faced with one of these issues, please retain professional assistance as each situation is unique. 46

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