When you have software installed and engage a company with an outside server or retain a consultant for any purpose, to run a collections, accounting, warehousing or customer/patient tracking system in your office, more often than not you are presented with a form document (maybe even a commercially printed document with multi-colored logos, graphics or photos on it that make you feel like it is unchangeable). You quickly look over and then sign this form. You were perhaps even told it was the “standard” agreement that is either signed by everyone or maybe even “required.”
You might have been somewhat concerned about what a consultant or system/service provider who has access to your important information might do with your data or you might have wondered if the software used by the company is really theirs or if maybe it includes software illegally borrowed or copied from someone else but you were satisfied that you have reasonable protection due to the fact that you saw a fairly lengthy paragraph entitled CONFIDENTIALITY and another entitled WARRANTY OF TITLE or WARRANTY OF NON-INFRINGEMENT.
The one clause that you may have also seen was a string of all capital words under a heading, DISCLAIMER, or LIMITATION OF LIABILITY, the last phrase of which reads similar to the following: COMPANY’S (licensor’s or consultants’) LIABILITY UNDER THIS AGREEMENT FOR DAMAGES WILL NOT, IN ANY EVENT, EXCEED THE LICENSE PAID BY CUSTOMER TO COMPANY UNDER THIS AGREEMENT.
This sounds reasonable. At least if your system/service provider or consultant breaches its contract you may get some money back, but is it really reasonable? If you paid $25,000.00 for a system/service provider or to a consultant but that same system/service provider or your consultant, took your customer list, or your warehouse order data or your business expansion plans and shared them with your principal competitor, a mere repayment of the $25,000.00 may be a drop in the bucket! In fact, your system/service provider or consultant may be happy to pay it because he has just used you to position himself with your competitor who may be very willing to engage the services of the provider or consultant to gain access to the information. Before you know it, all of your customers are being solicited by your competitor and you are in jeopardy of losing them. If it is patient information, it may have been released in violation of HIPAA or State confidentiality statutes. An equally bad or even worse scenario may arise if you are using software that has the software of Microsoft or a similar company imbedded in it without Microsoft’s permission. Microsoft in that circumstance may choose to sue your company right along with the company that is providing the software or service to you. Remember, damages under the Copyright Act may be as much as $150,000.00 for each infringement. This damage is huge! However, by signing the “standard” agreement, you agreed to this on the front end to a limited remedy. You agreed to only take back the $25,000.00 even if the damages were $2,500,000.00.
It is my view that no reasonable business person should put his/her business in jeopardy in this manner. Further, the lenders and investors in such a business should make sure the small business they are lending to or investing in does not have agreements with clauses in them that have the potential to place the company in deep jeopardy. A competent business lawyer will recognize this clause and know that such contracts are usually subject to negotiation if tactfully and timely handled. He or she knows that by amending the agreement, sometimes by mere interlineations in handwriting and in properly initialing in the correct places, the license (consulting agreement) can be rewritten to make an exception to the disclaimer as to claims that arise by way of breach of the confidentiality section or that may arise due to infringement of a third party software or other rights. With this small change a significant portion of the extremely expensive problems that the small business might otherwise need to deal with are addressed in the agreement. It is a fair modification and can be done quickly so as not to hold up the deal. Further, it does not impact the area which is the more common area of dispute and for which the system/service provider or consultant legitimately needs protection by way of a disclaimer; namely, the delivery of product or services.
So, don’t be afraid to suggest changes to such form “standard” agreements and further, seek competent legal help going into the deal.
Tags: adhesion contract, information technology, medical, small business, software, unconscionable