My apologies for not blogging more frequently over the last month. I knew late November and early December would be busy as I tried to get ready for three weeks out of the country. Then the problems began. We had three different clients who each had business deals go sideways. (One had two go bad within a week of each other). Thus, much of my time was spent trying to get the deals back on track before I left. Unfortunately, two of the deals involved agreements that the client had not run past us before signing. Another showed us the agreement, only after the terms had been agreed upon – thus allowing only minor editing. Many of the provisions that we would have included in the agreements were not there to address very foreseeable issues.

The only reasons I can find for not telling your attorneys about business deals prior to reaching agreement as to terms is an attempt to save on costs or a fear that the attorneys may raise issues that would make the deal look less attractive. In each of these cases, it cost many times to get the deals back on track than it would have to simply do them correctly in the first place. Thus, my suggestions for using your counsel more wisely include:

Let your counsel know what deals are in process. Even if final terms are up in the air, counsel can identify certain trouble spots before hand. For example, what are the termination provisions? While everyone would like all agreements to have happy endings, many do not. I am always amazed at the number of agreements which have no express mechanism to terminate even when the other party fails to perform. This is particularly bad if the other party has exclusive rights in some territory, or can inhibit the client from doing deals with others while the agreement is in force.

Let counsel review agreements prior to reaching an agreement as to terms. While terms often sound reasonable when discussed between potential partners, they can look very differently when on paper. This is particularly so when all of the representations made in the negotiations do not make it into the contract. That exclusive license sounds great when the prospective licensee represents that they will sell 1000 units a month.

Tell counsel when agreements are complete. One of the issues we had related to a client selling a group of IP assets that had been acquired. We were unaware of the agreement when he client called us to get copies of the documentation a few days before they were obligated to provide the documents to their new owners. The client did not send us a copy of the contract, nor did they tell us the actual documents that were required. Then, after providing copies of the documents, it was learned that the agreement required originals of all the documents, some of which the client had misplaced. While we were able to get the other side to agree to certified copies, it still took a couple of weeks to get the agreement and to obtain all of the certified copies of the required documents from the U.S. Patent and Trademark Office. This delayed payment from the new owners and ended up costing several times what it would have cost if we had known about the agreement before it was signed.

Finally, to keep attorneys’ fees down while getting a good agreement, it is important to give all of the relevant facts without unnecessary detail. Fixing one of the deals was difficult because the client persisted in giving long explanations of factual background that had little or nothing to do with the deal at issue. Then, as we started into negotiations, we learned that there were several pertinent facts of which we had not been informed. How often the opposing party beats his dog or fails to pay child support is usually not relevant to a license of intellectual property. On the other hand, that a side deal had been reached between the parties that arguably changed the underlying agreement is pretty relevant.

The best way to do this is to simply answer the questions asked by counsel and provide anything additional which you believe to be directly relevant to the contract at issue. While clients sometimes do not want to give details which could make them look bad, it is better to have counsel know up front. I recently sat in a summary judgment hearing on a case involving an amount of money owed. During the oral argument the defendant’s attorney finally discovered the letter from his client acknowledging the amount owed (after it was pointed out by the Judge). The attorney was simply speechless as the Judge asked him why judgment should not be entered against his client. (This was actually combination of lack of candor on the part of the defendant and very poor legal work on the part his attorney. The letter had been produced during discovery and had been attached to the summary judgment pleadings. Had the attorney simply reviewed the evidence, he could have saved his client the embarrassment of the summary judgment hearing and the attorneys fees of the plaintiff that will follow.)

While all attorneys enjoy getting paid, most would rather make their living helping clients avoid problems than doing damage control after things have gone bad. As with many other things, an ounce of prevention is often worth a pound of cure.