That is how Raymond T. Nimmer explains a trio of decisions by that court that have been handed down in the last several months.  Collectively, the decisions strike down arbitration clauses, class action waivers, and choice of law/forum selection clauses in various agreements. 

In Nagrampa v. Mailcoups, Inc., the Ninth Circuit, focussing on the concept of procedural unconscionability, found a mandatory arbitration and forum selection clause included in a franchise agreement unconscionable.  The reason cited by the court was that the clause lacked mutuality where the franchisor could use the judicial process in some circumstances, but the franchisee could not.  Of course, according to that reasoning, presumably each and every contract clause would have to have mirror image mutuality.  Nimmer points out that this has never been a requirement of contract law.  The court also cited as a basis for its reasoning, the conclusion that the forum selection clause had "no justification other than as a means of maximizing an advantage over [Franchisees]."  Nimmer's take on that is basically…right-so the problem with that would be?

The next case in the trio is Douglas v. U.S. District Court, where the Ninth Circuit held that an amendment of an online agreement lacked assent.  The court went on to conclude that even if there had been assent, the terms for waiver of class action rights and mandatory arbitration were unconscionable.  In doing so, the Court noted the stance it had taken in Nagrampa that the mere fact that a customer has meaningful choices as to other service providers does not defeat a claim of procedural unconscionability.  In other words, the customer is free to shop around for other service providers who may have different contractual terms.  According to the Ninth Circuit, the customer need not do so, and it can simply ignore the terms with the service provider it chooses.

The last case is Davis v. O'Melveny & Myers.  In the Davis case, the Ninth Circuit held that an arbitration clause in an agreement with an employee was unconscionable.  Nimmer explains that the Davis court found the agreement "procedurally unconscionable because the law firm did not offer the employee the option of rejecting the clause and continuing as an employee with an unmodified contract."

I guess it might be helpful to back up a bit, and talk about when an agreement, or part of an agreement, can be disregarded as unconscionable.  Historically, courts have required both substantive and procedural unconscionability to exist before striking down an agreement. In general, substantive unconscionability exists when an agreement itself is so one-sided that it shocks the senses, while procedural unconscionability focuses on the bargaining process (or lack thereof) used to reach the final agreement. The current view is that these two elements must both be present in order for a court to exercise its discretion to refuse to enforce a contract or clause under the doctrine of unconscionability. 

In effect, the Ninth Circuit appears to be expanding the concept of procedural unconscionability to essentially eliminate the ability of companies to include mandatory arbitration, class action waivers, or forum selection clauses in any standard, non-negotiated contracts.  Under the views of the Ninth Circuit, companies do not have the option of presenting a take it or leave it contract to their customers (even though the customers could choose other service providers).  The Ninth Circuit, instead, is simply zapping those provisions out of standard contracts, which Nimmer argues is the kind of thing typically reserved to the legislature (and courts on the planet Xenon). 

Photo courtesy of David Darkmatter under Creative Commons

The US District Court in Utah has ruled that "Novell is the owner of the UNIX and UnixWare copyrights" that are the subject of the dispute between Novell and SCO.  The opinion will undoubtedly impact SCO's suit against IBM.  The opinion is here.  The Court concluded:

"Therefore, Novell is entitled to a declaration of rights under its Fourth Claim for Relief that it was and is entitled, at its sole discretion, to direct SCO to waive its claims against IBM and Sequent, and SCO is obligated to recognize Novell's waiver of SCO's claims against IBM and Sequent. Accordingly, Novell's motion for partial summary judgment on its Fourth Claim for Relief for declaratory judgment is granted, and SCO's cross-motion for summary judgment on Novell's Fourth Claim for Relief is denied."

SCO responded in a statement that it "is obviously disappointed with the ruling", but that it is only a flesh wound, and that even though its arms and legs had been chopped off,  it could still butt IBM and Novell with its head.

Just finished my Journal of the Licensing Executive Society, which includes the results of their most recent member survey on licensing issues.  There were some interesting statistics that suggest some best practices to adopt in negotiating deals.  For example, when asked "thinking about licensing agreements entered into in the last twelve months, with the benefit of hindsight, which, if any of the following contract characteristics would you now restructure?"  The top three answers were as follows:

·        Field of use restrictions (43%)

·        Technical Milestones (40%)

·        Business Milestones (44%)

At the low end of the spectrum were clauses on most favored nation provisions and terms of use.  As a follow-up a question, the survey inquired "what are three most common reasons why you would restructure some of last years deals if you could?"  The top answers to that question were as follows:

·        The other side is not putting their promised effort into the product/technology. (53%)

·        Revised business strategy. (40%)

·        New Information has emerged about the market opportunity. (39%)

I think it is interesting to note that 28% responded that they would restructure some of last year's deals if they could, because they now realize that they made mistakes in negotiating.  Isn't that amazing?  Over one fourth of the respondents would restructure some of last year's deals, and mostly because the other side is not putting their promised effort into the product/technology. Even more amazing is the fact that among respondents that identified themselves in the university/government space, a whopping 71.8% complain that the reason for wanting to restructure would be the failure of the other side to put forth the promised effort.  

So what does all this mean?  The survey results would tend to suggest that when structuring and drafting license and development agreements, more focus should be placed on the technical and business milestones, and, to the extent possible, contractual provisions should be structured to provide some assurance that each party will, in fact, put forth the promised level of effort into the subject technology. Carefully crafted, detailed, technical and business milestones will clarify the party's expectations, duties, obligations, and assumptions on the front end of the deal, and considerably decrease the likelihood of any surprises in terms of the level of effort or achievement as the transaction proceeds. 

When a deal finally closes, do you preserve all of your mark-ups and drafts for the file, or do you ceremoniously destroy everything but the final version?  I know lawyers that fall into each of those camps.  Ken Adam's makes the case for saving everything with some good examples, and includes a sample client-file retention policy.

Will you survive the Daylight Savings Bug?  No doubt you've read about it.  Just like Y2K, it is important to prepare your survival kit.  To be safe, your kit should include the following: water and non-perishable food items - enough for you and your family to survive for at least 30 days; waterproof matches; an emergency blanket; and the following DST Compliance Warranty:

Daylight Savings Compliant" means that the Licensed Software will perform in accordance with the Specifications prior to, during, and after each daylight savings time adjustment following the Effective Date of this Agreement, without material error relating to

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Nimmer has a good posting today which makes the seemingly obvious point that one ought to expect contractual prohibitions on reverse engineering to be enforceable.  Not all cases agree, and there is a lobby that would elevate the right to reverse engineer to inalienable status.  Check out his article here.  By the way, he was recently named Dean of the U. of Houston Law Center- way to go Ray!