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Jan Feb 2011 ACC Docket Beware Of The Evolving Feedback Clause Fletcher


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Reasons to be careful with a feedback warranty clause in an NDA or evaluation agreement.

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Jan Feb 2011 ACC Docket Beware Of The Evolving Feedback Clause Fletcher

  1. 1. INSIDE: Canadian Briefings January/February 2011 StayAfloat During the Tidal Wave of FCPA Cases Multijurisdictional Practice Teaching Compliance Transnational Joint Ventures Compliance Management GC Roundtable
  2. 2. HEARSAY *RLQJ *OREDO _ 1HZ WR ,QKRXVH _ ,QV 2XWV _ 6PDOO /DZ _ 7KH RQWUDFWXDO RJLWDWRU _ 2XWVRXUFH 5HVRXUFH licensing attorney tends other side? Your engineers will look Not every employee understands this. A to remember the first time they come across a feed- back clause. In the stan- dard form, these clauses tend to be contracts of big companies (BigCo) at you as yet another attorney who doesn’t “get” the business. So after some deliberation, you learn to live with the feedback clause. If you are SmallCo, then you will most definitely Is the “we own whatever you tell us” feedback clause legally enforceable? I certainly don’t want to pay the legal fees to find out. I call the second new variation of covering discussions of their new need to live with it, particularly if you the feedback clause the feedback war- technologies with a smaller company intend to work with BigCo and don’t ranty. SmallCo agrees not to provide (SmallCo). In short BigCo asks for have the negotiation leverage. feedback that is subject to (a) IP perpetual, royalty-free rights to use Recently, however, there seem to rights, (b) open source obligations or without limitation the ideas, sugges- be variations of this clause developing, (c) a third-party license fee, or some derivation thereof. Again, SmallCo is told that it is not required to give any Beware of the Evolving feedback. Looking at the language literally, is SmallCo expected to have Feedback Clause every communication with BigCo vetted to the same extent that prudent BY FRANK FLETCHER SmallCo would do when releasing its own products? It would seem so because if (a), (b) or (c) is violated, tions or comments (feedback) that which make it something SmallCo re- SmallCo has now breached their SmallCo provides regarding the BigCo ally shouldn’t live with. Specifically, the agreement with BigCo. By agreeing technology. “we own whatever you tell us” feedback to a feedback warranty, SmallCo is Upon calm reflection, and per- clause, and the feedback warranty. taking on many of the same risks as it haps after consultation with a senior With the “we own whatever you tell does when putting a product into the attorney, either on your side or the us” feedback clause, you are expected market. While SmallCo is not as vis- other side, it is explained that such a to transfer BigCo full ownership of ible because its name does not appear feedback clause is reasonable. BigCo your feedback. Taken literally, this on BigCo’s product, the risks might needs to make sure that it does not would mean that whatever you suggest be magnified as BigCo may distribute become contaminated simply by to BigCo is owned by BigCo — you more products than SmallCo. While discussing its products in development can never use this idea internally un- this potential risk is taken on, Small- with SmallCo. Doesn’t the feedback less BigCo were kind enough to grant Co does not have the potential ben- clause simply protect BigCo from back a license to your idea. If you men- efits of sharing in revenue generated SmallCo initiating a lawsuit claiming tioned that same idea to another party, by the products. Would the feedback that BigCo stole its ideas? Isn’t this thinking it was a fairly obvious thing warranty be enforceable? I wouldn’t the same reasoning venture capital- to do and not recognizing that you want to discuss this with a diligent ists use when saying they don’t sign previously gave ownership of the idea outside counsel who found the clause nondiclosure agreements? There are as feedback to BigCo, then you might in an agreement after BigCo has been also less persuasive arguments, such be in a position where BigCo might ac- sued by a patent troll. as providing feedback is voluntary cuse SmallCo of theft of their IP. After SmallCo needs to read each clause or optional. Sure, it is optional but all, BigCo now owns your feedback. I as if they are seeing it for the first time; feedback is largely what BigCo says it have seen this “we own whatever you further analysis might be warranted. is, so to not provide feedback means tell us” feedback clause recently in a SmallCo can’t talk to BigCo. If this click-through agreement that one of Have a comment on this article? Visit is the situation, then why enter into my engineers sent me. Fortunately, ACC’s blog at the agreement? Also, how are you to this engineer understood that a click- articles/acc-docket. instruct your people not to talk to the through agreement is an agreement. FRANK FLETCHER is general counsel for Nero AG, headquartered in Karlsbad, Germany, with subsidiaries in Hangzhou, China; Yokohama, Japan; and Glendale, CA, where he usually can be found. Fletcher can be contacted at ACC Docket 16 January/February 2011