Sweating the details
Thursday Oct 16, 2008
Recently, one of my colleagues and I were discussing one of our favorite topics - the million dollar comma. It's a perfect example of why we need to pay attention to the details - especially as in-house counsel where the word of the day is "pace."
What is "Pace"?
Pace means that innovation and business are happening at warp speed, and the legal department needs to find ways to work faster, smarter, and more efficiently to keep up with the company. As in-house counsel, we don't have the luxury of taking as much time as we'd like to complete a project, conduct legal research, or review a contract for the 15th time to make sure everything is perfect. For us, the "80% rule" prevails - focus on the high-risk areas and do the best job you can in the time you have, and then move on to the next project. Outside counsel has a built-in incentive to spend as much time as possible on any given project (billable hours). However, in-house counsel is motivated to move as quickly and efficiently as possible through projects to meet the needs of the business.
That's Some Expensive Punctuation
Back to the million dollar comma. You can read about the punctuation fiasco here and the follow-up here.
In a nutshell, Rogers Communications Inc. (a Canadian cable television provider) thought it had a 5-year agreement with Bell Aliant Inc. (a Canadian telephone company) relating to utility poles, and that pricing would be locked in for the initial 5-year term of the agreement. Much to Rogers' surprise, Aliant notified Rogers that it was terminating the agreement early, and raising the rates. Aliant argued that the agreement entitled it to terminate with one year's notice; Rogers disagreed.
The dispute was over this one sentence in the 14-page contract: “This agreement shall be effective from the date it is made and shall continue in force for a period of five (5) years from the date it is made, and thereafter for successive five (5) year terms, unless and until terminated by one year prior notice in writing by either party.” More specifically, the dispute was over the effect of the second comma in this sentence, and whether it entitled a party to terminate the agreement at any time with one year's notice.
The Canadian Radio-television and Telecommunications Commission (CRTC) interpreted this sentence, and the second comma, to mean that the agreement could be terminated at any time with one year's notice - either during the initial 5-year term or during any subsequent 5-year renewal term. The result to Rogers was that they would end up having to pay at least $1 million more for use of the utility poles than they would have under the agreement. One punctuation mark in a 14 page agreement negated the primary result that Rogers had hoped to achieve under the agreement.
The moral of the story? Hopefully you paid attention in high school English class. 
Even more importantly, sweat the details on the things that matter. The termination provision and locking in the pricing were easily the two most critical issues in the agreement for Rogers, and it was worth spending extra time and effort to make sure those provisions were right and would accomplish the result that the company wanted. On the other hand, an extra comma in the notice or force majeure provisions might never have made a difference.
Balancing Details with Pace
As in-house counsel you can't apply an electron microscope level of scrutiny to every provision of every agreement you work on and maintain the pace necessary to keep up with a company's business needs. So what do you do? Look at the context of the deal, determine what's critical to the company, and then apply eagle eye scrutiny to those issues. Don't approach every deal the same, because no two are alike. In one deal maybe you want to lock in pricing (like Rogers), while in another deal you might want to be able to get out of the agreement at the drop of a hat (like Aliant). Make sure you understand the business priorities of the deal, and make sure the agreement reflects those priorities. Don't practice law in a vacuum - context is crucial.
Generally Speaking
In a technology license agreement, some provisions that generally harbor enough legal and business risk to warrant eagle eye scrutiny include: license grants and restrictions, IP ownership, limitations of liability, indemnification, and warranties and disclaimers.
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