Archive for Contracts

The Benefits of Alternative Dispute Resolution

October 22, 2009 Contracts, Litigation No comments

Contracts offer a lot of flexibility when it comes to resolving disputes and disagreements. This is a major benefit to having a contract in the first place—at the outset of an agreement you can limit the costs and burdens of any potential dispute by the simple expedient of forethought. In any union or deal disputes are going to happen. Alternative Dispute Resolution (ADR) allows you to handle these disputes without destroying your business relationships or emptying your wallet. It is therefore to your benefit to make sure ADR is a part of your agreement.

In the U.S. most ADR is regulated by the American Arbitration Association (AAA). This organization sets the guidelines and procedures that parties should follow when attempting to resolve a dispute through ADR. They also offer access to trained mediators and arbitrators who have experience with dispute resolution. There are different kinds of dispute resolution. The three most common are unofficial negotiations, mediation, and arbitration. Occasionally the media will use terms interchangeably. However, it is important to understand that each of these methods is distinct and unique. Below is an explanation of each and how they're used in the dispute resolution process.

Informal Negotiations

Informal negotiations are self-explanatory—the parties agree to negotiate a settlement informally and between themselves. There are no set guidelines or procedures. When the parties agree to first enter informal negotiations to settle a dispute they are basically agreeing to "talk it out." The parties or the parties' representatives will communicate their concerns about a potential dispute or breach and will attempt to reach a compromise. During this process a lot of information and admissions or denials of wrongdoing may come out, so it is important that both parties understand the need for confidentiality (a matter discussed at length here). Every letter or e-mail should contain a statement about confidentiality and both parties should make an effort to respect that confidentiality.

More importantly unofficial negotiations should be made in good faith. For unofficial negotiations to achieve anything the parties need to genuinely want to resolve the dispute professionally and responsibly, if not amicably. If the parties enter unofficial negotiations with the intent of overwhelming or attacking one another very little is going to be accomplished through this method; if anything it will cause more ill-will and harm than good.

Mediation

If informal negotiations have reached a stalemate mediation may be appropriate. Generally when parties enter mediation they want to resolve the dispute in a manner that permits them to continue working together. The dispute usually hasn't become totally adversarial and the stalemate is a result of an inability to find a fair compromise. If you submit to mediation through the AAA you will be assigned a neutral mediator (usually selected by the parties) who will work with you and the other party to find a fair compromise. However, unlike arbitration or litigation the mediator has no authority to bind the parties to any settlement. In mediation the decision to settle still rests with you. The mediator provides a neutral perspective and usually has experience in resolving similar disputes, so they know what may work best for both parties.

There is some process, preparation and procedure in mediation:

    1) the parties must first mutually agree to submit the dispute to mediation with the AAA;
    2) mediation is initiated when any party to the dispute makes a request for mediation with the AAA. Whoever makes the request is required to notify all other parties to the dispute. Furthermore, parties may have legal representation if they so choose;
    3) The mediation selection process can be somewhat involved. The parties can go online and review the available mediator list, which includes mediator profiles. Hopefully, both parties will agree to the same mediator. If they can't agree each party eliminates unacceptable candidates from the list, then each submits a list of the mediators they would accept in order of preference. Based on the lists of acceptable mediators the AAA will attempt to find a match acceptable to both parties, and the mediator will be invited to assist in the dispute;
    4) The mediator performs a conflicts check to make sure he/she can meet the requirement of neutrality. It should be noted that if the mediator is an attorney, he or she also has a duty to disclose that they are not representing either party in the dispute as counsel;
    5) The mediator then meets at a prearranged time with the parties to reach a settlement. If a settlement is reached, the parties sign a settlement agreement. If the parties are unable to resolve the dispute they move on to the next phase of dispute resolution.

As with informal negotiation it is important to mediate in good faith. It is also important to be respectful to the mediator and the other party despite opposing viewpoints. Maintaining civility is the purpose of ADR—you waste the mediator's and the other party's time when you use mediation sessions as an opportunity to blame, berate or argue.

Binding Arbitration

Binding arbitration is the last resort before litigation, and is most often used as an alternative to litigation. Binding arbitration may be used at the point where the dispute has become adversarial and can no longer be resolved amicably, although that is by no means always the case. In arbitration the parties submit the dispute to one or more (usually up to three) impartial arbiters who resolve the dispute by rendering a final binding judgment (referred to as the Award) that binds both parties. While this sounds a bit like litigation it differs in many ways. The proceedings are more informal and the discovery and admissible evidence rules are substantially more lax. Motion practice is usually ignored. Most importantly, the parties can customize their own rules and procedures for the arbitration. This includes the method of choosing the arbiter, so it's important to think this through when drafting your agreements. Fortunately, although an award granted through binding arbitration is enforceable in court, arbitration is by no means as painful or tedious as the litigation process.

Arbitration does follow some rules. For instance, one party cannot force the other party to arbitrate without a prior agreement. The disputed contract must contain an arbitration clause that refers to the specific AAA rules, and it must state that the parties agree that the award will be enforceable in any competent jurisdiction. Furthermore, you have to follow the appropriate guidelines for your dispute—not all AAA guidelines are the same, and the AAA has different guidelines for different kinds of disputes. If the dispute is commercial, you need to follow the commercial guidelines.

While by and large informal, arbitration procedure is more formal than mediation. The parties must attend both a preliminary hearing and a final hearing. Arbiters may require that necessary documents and evidence be submitted to the arbiter and to one another. It is usually recommended that the parties seek representation, and once again arbiters are bound by conditions of neutrality and no conflicts of interest may exist. If the arbiters are attorneys or judges they must disclose that they are legal professionals but do not represent any party in the dispute.

Alternative Dispute Resolution is a useful practice and one that many businesses swear by. It also demonstrates that litigation is almost always avoidable if the parties are willing enough—and you should always be willing enough.

Marketing and Public Relations

July 6, 2009 Contracts No comments

    There is little doubt that advertising, reviews, and recognition in the marketplace are vital to the success of any title. Typically marketing is the responsibility of the publisher. However, more and more games are being produced independently and are in need of at least some of the exposure the major titles enjoy. In many cases it’s possible to get recognition on a grassroots level. Word of mouth is a powerful tool and there is a growing development community that reviews and recommends game products. In most cases this is more than enough to get exposure for independent projects by individuals and small collaborative groups.

    However, taking your game to the next level may require you to seek professional help. To that end, if you can’t afford to employ a marketing guy outright, you may consider hiring a public relations or marketing firm. This entry will provide a (very) general idea of what these firms do, but more importantly it will discuss what goes into the agreement/contract you will have to sign when you engage one of these firms. It will also cover some of the things that should be in the contract to protect your own interests. Often these terms are only conspicuous in their absence, so unless you know what to look for you may find yourself with an out-of-control bill and little oversight over what this firm is doing for you.

    What do Marketing and PR firms do?

    A good marketing firm will evaluate your product and come up with the most effective strategy to expose your product to the broadest market in the best light. Doing this involves creating a project proposal that explains the demographic(s) targeted, what tools and materials the firm feels will best reach that audience, and the media outlets that the firm has access to that can reach that audience. A PR firm usually focuses on “free” exposure, such as media publications, press releases, and other opportunities to improve you or your product’s reputation in the marketplace. In some ways public relations could be viewed as a subset of marketing—marketing is more generally related to creating the brand and influencing how that brand is received by the public. PR involves improving the image and reputation of that brand.

    What’s in the Agreement?

    The agreements will differ depending on what you’re buying. Generally the Agreement (typically a “Consulting Agreement” but sometimes an engagement letter or “Marketing Agreement”) comes in two parts: the contract and the project proposal, which outlines some of what I stated above and usually a great deal more.

    The Contract

    In almost all cases the contract will be for “consulting services” related to public relations and/or marketing. This should tell you two things—one, the firm you’re hiring is an independent contractor, and two, you will be on the hook for all or almost all expenses relating to the production of marketing material. Most firms charge a monthly “basic fee” for the consulting services alone. This usually doesn’t include any out-of-pocket, vendor, or third party contractor fees or expenses. Some things to look out for (by no means all-inclusive):

  • The right to approve expenditures, including anticipated costs, fees, and expenses, including but not limited to out-of-pocket and third party vendor/contractor fees. Approval should be sought in writing and should only be given in writing. The sum approved and precisely for what should be carefully documented and kept for your files.
  • The right to approve or change the project proposal.
  • Costs resulting from delays caused by the marketing/PR firm are the sole responsibility of the firm—if the project exceeds the projected timeframe for completion because of negligence or inappropriate conduct by the firm, the firm should be on the hook for all late fees and expenses resulting from the delay—this includes overtime for third party vendors, etc. Don’t worry. It is very likely that the firm will ask for the same for you, in the event that delays are your fault.
  • Retention of all IP rights: generally this will already be in the agreement, but if it isn’t, make sure to have it included. You want to make sure you not only retain all of your original trademarks and copyrights, but you want to make it clear that you are the owner of any trademarks and copyrights resulting from the project. You want to also make sure that the firm will warrant that no third party contractors will have a claim or stake in the resulting IP. As it is usually the firm that procures those contractors, it’s not unreasonable to ask for a copy of their form IC agreement.
  • Limited trademark license: The firm needs the right to use your trademark if they are going to produce anything for you. A trademark license that may be sublicensed to third parties but that is limited to use in connection with/for the benefit of the project should protect you from any unlawful uses or reproductions. The firm may ask for the right to use the mark in connection with its own marketing materials (e.g., the “clients” page of its website).
  • NDA/Confidentiality. This should include any information you provide to the firm and any market data, surveys, or results the firm obtains by its own efforts in connection with the project and your product.

    The Project Proposal

    At a minimum, the project proposal should include an itemized projection of anticipated costs and when/how frequently those costs will be incurred. More importantly, you should know why you’re incurring those costs. This is why you will want the right to change the project proposal and the right to approve expenses—in some cases they may include something that you can already provide for free or at a lesser cost.

    Choosing the right firm comes down to reputation and actual prior results. Do your homework and make sure the firm or individual you’re considering has experience in your industry and with your type of product. As “picking the right marketing firm” is outside the purview of this blog I’ll defer to the myriad of advice pages on that question.

Privacy Policies and Consumer Protection

April 15, 2009 Contracts No comments

    With more and more games being provided online and through websites as opposed to the old brick and mortar model, consumer privacy protection is an ever evolving issue. When you develop a game or product that derives data from the user it is important to take that user's privacy into consideration. To that end, you may ask yourself whether you need a privacy policy and what you need to do to comply with consumer protection laws or industry standards. In this entry I'll cover some of the legal issues that are relevant to user privacy and your obligations as a developer or website designer.

     Consumer Protection and Privacy

    In the U.S. consumer privacy is protected and enforced by the Federal Trade Commission (FTC). To protect consumer privacy the FTC relies on specific legislation such as COPPA and the Gramm-Leach-Blilely Act as well as legislation governing false advertising and deceptive trade practices under Section 5 of the FTC Act. Most businesses are not legally obligated to protect user privacy unless they promise to do so (via a Privacy Policy). There are exceptions: Financial institutions, websites and businesses that collect medical data subject to HIPAA regulations, and websites, games or businesses that collect personal information from individuals under the age of 13 must comply with federal regulations by providing notice and complying with specific requirements under the law. In those cases notice in the form of a privacy policy is required. For the purpose of game development, perhaps the most relevant regulation falls under COPPA, which concerns data collection from children under the age of 13.

    The U.S. is more lax about consumer privacy and data collection than the EU. Under the EU Data Privacy Directive of 1995 EU signatories were required to implement laws and regulations in compliance with the directive. The Directive contains strict guidelines for consumer data collection. It also requires the registration of consumer databases with government agencies. If you live in the EU it is very likely that as a business you are required to handle user data in accordance with the Directive. You can find the full text here.
The EU Directive can apply to American companies that operate in the EU or exchange user information with EU companies—to that end, use of a privacy policy is required to be protected under the Directive's Safe Harbor for US companies.

    Do I Need a Privacy Policy?

    A privacy policy is a form of notice. It lets users know how their information will be used, exchanged, and stored and protected. While legally you may not be required to have a privacy policy, many businesses choose to use a privacy policy for ethical or business reasons. Certification programs like eTrust are widely recognized and many consumers won't share their personal or financial information without some kind of assurance that their privacy will be protected. This is especially true if you collect credit card or other financial information. From a business standpoint, a privacy policy may be conspicuous in its absence. While consumers may not read every line and verse of a privacy policy, they still expect to see one.

    What Does my Privacy Policy Need to Include?

    The most dangerous thing you can do when creating a privacy policy? Make a promise you don't intend or aren't able to keep. While you may not be required to protect user privacy by law, you are absolutely required to comply with your own privacy policy. Failing to do so will expose you to liability under the FTC's deceptive practices regulation. This is incidentally how most companies get into trouble—they promise to protect user data but then engage in data management that doesn't fulfill the promise made in the policy. For this same reason, it's important to keep your policy up to date.

    Bearing that in mind, below is what a functional privacy policy will include:

    1. Introduction—this includes the company name, the business you're engaged in, and special instructions (e.g. parental verification)

    2. Description of what information is being collected—having a user fill out a form and stating the information collected from that form should be obvious. However, this also includes the personal information that is passively collected such as information logged by your server or collected by a third party program that is integrated in your site or game.

    3. Method of Collection—Explain how you're getting the information from the user, whether it be automated, passive, or via form.

    4. Description of the use of the information—how do you plan on using the information? Who has access to the information? Do you need to share this information with third parties, and if so, who? Are you going to sell this information to marketing or advertising firms? Honesty is the only policy here. If you need or want to share user information with third parties for any reason, you need to say so.

    5. Storage/Protection—this is another area where honesty is the only policy. If you decide to describe the technology by which you plan to store and protect user privacy, make sure you a) accurately describe that technology and b) update your policy whenever you change that method.

    6. Contact information—Give several options and make sure users are able to contact you to discuss their privacy. This includes e-mail, a phone number, etc.

    7. Compliance with regulations—you may be required to comply with federal or international regulations. If that's the case, you have to include everything those regulations require.

    Regulations and Regulation Compliance

    The Children Online Privacy Protection Act

    COPPA pertains to websites and businesses directed to children that collect data from children under the age of 13. If your audience includes minors 13 or younger and you're collecting their e-mail, address, or other personal info, here's what you need to know:

    1. You must have a privacy policy. The policy must state a) what information is being collected, b) how that information will be used, and c) who will have access to that information (disclosure policy).

    2. You need a way to obtain verifiable parental consent. You have some options here:

        a) Provide a form that the parent can fill out and send;

        b) Require the parent to use a credit card in connection with a transaction;

        c) Provide a phone number where parents can call in their consent;

        d) Get consent via e-mail from the parent, provided the e-mail contains a digital signature.

    3. You need to provide a method by which parents can make requests concerning the child's personal information—this includes destroying that information or refraining from selling or sharing that information.

    You should carefully review the COPPA FAQ. Not only can it provide specific guidelines for compliance, but you may also be eligible for certain exceptions.

    State Laws That Require Privacy Policies    

    California law requires that any website or operator who collects private information from California residents must provide a privacy policy if the user data is being sold or shared with third parties. The policy must also provide a method for opting out or full disclosure—i.e., something the consumer can send in to request that the information not be shared or, in the alternative, receive a list of the third parties who have purchased or received that consumer's personal info.

    The FTC provides a comprehensive guide for managing user data. This information will help you organize your own policies and best practices for consumer and employee data management.

    

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