Checklist 4: Online Content Deals Checklist :: Laurence Kaye

CHECKLIST 4 ONLINE CONTENT DEALS CHECKLIST Introduction and Health Warning This is a list of the main provisions that need to be thought about in a contract under which one party provides content to another party to be made available online. It also includes a number of points that may be relevant to need to any type of online deal. Like any such checklist, it is not exhaustive and would need to be adapted or expanded to meet the needs of each individual deal. It is intended for general guidance and information only and does not constitute legal advice. We recommend that legal advice is sought on any particular deal. PART 1: General Questions 1. Why is the company doing the deal? 2. Put another way, how does the deal fit in to the company‟s strategy? 3. What does the company see as the key objectives to be achieved through doing the deal? 4. What is the value of this deal to the company?1 5. What would the company‟s exposure be if the deal didn‟t happen or, if it did, but subsequently proved not to be a commercial success? 6. Has the company identified any key difficulties or barriers to be overcome in doing the deal? These could be: 6.1.

contractual (e.g. third party consents are needed)

6.2.

could the deal trigger any adverse consequences for any of the parties eg. „change of control‟ provisions?

6.3.

regulatory (e.g. the deal might be prohibited under applicable competition law)

6.4.

statutory (e.g. the deal may fall outside the scope of any applicable licence or, alternatively, some form of licence may be needed to do and/or to implement the deal e.g. a licence under the Consumer Credit Act)

6.5.

external factors (e.g. the current state of the stock market, demand and supply issues in the relevant market etc.).

7. Has the company done any „due diligence‟ on the other party(ies)? If not, what due diligence would the company like us to undertake? 8. From the company‟s knowledge of the other parties to the deal (including their professional advisors), what does it know about the strengths or weaknesses of its negotiating position? 9. Has the company taken tax advice on any direct or indirect tax issues that arise from the deal? If not, it should speak to its tax advisers. 1

This may or may not be be in monetary terms.

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10. What sort of role does the company want its lawyers to play in the deal? PART 2: GENERIC CONTRACT CHECKLIST 1. Parties2 2. What is the company providing to the other party(ies)?3 3. What is the other party providing to the company? 4. Period of the Agreement4 4.1. Commencement date 4.2. Period of the agreement: 4.2.1.

indefinite contract term subject to agreed notice period

4.2.2.

fixed term; or

4.2.3.

initial period plus provisions for extension or renewal5.

5. Provision of Content6 5.1. Detailed description/specification of the Content

2

Check which of the company‟s corporate entities is the contracting parties. It‟s useful to check the trading name of the company if it‟s different from the corporate name. It‟s also useful to get the company‟s registered office and company registration number. Ask the company whether the contract should include the trading address in the contract if it‟s different from the registered office. The same information should be obtained about the other contracting party. To avoid overcomplicating this checklist, we will assume hereon that there are only two parties to the contract. Obviously, if there are three or more, all of the information referred to in this checklist will need to be obtained in respect of each party. 3

The purpose of this question is to obtain from the company a general description of what products and/or services are company is agreeing to supply to the other party(ies). More specific information is specified later on in this checklist. The point of Q.2 is to get an overview of these products/services. If the situation is the reverse (i.e. it is the other party that is supplying products/services to the company, and the company is not supplying any at all), then ignore this question and proceed to Q.3. 4

The company may prefer a short licence period because the future is hard to predict and it may not want to tie itself to a particular party e.g. where another party comes along and offers a very attractive deal but on an exclusive basis. 5

There are several permutations and the Agreement must specify this. For instance, it may be that the Agreement will end at the end of the initial period unless renewed by written agreement beforehand; or it may continue after the end of the initial period unless and until either party gives not less than [//] days notice in writing to the other party, expiring on or at any time after the end of the initial period; alternatively, it may be on a rolling or „evergreen‟ basis i.e. it rolls on for consecutive periods of [one] year unless either party gives the specified amount of notice at any time before the end of the initial period or any anniversary of that day. 6

Q.5 is designed to ask for detailed information in the case of the provision of Content by either party. It is designed to apply irrespective of whether the company, and/or the other party, is the Content Provider.

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5.2. Who is the supplier? 5.3. Who is hosting the Content?7 5.4. What are the Content Supplier‟s obligations in terms of: 5.4.1.

frequency of supply/making it available?

5.4.2.

updating the Content?

5.4.3.

offering additional Content to that initially specified in the Contract?8

5.4.4.

any other key obligations regarding the provision of Content.

5.5. Service Level obligations9 5.6. Co-branding10 5.7. Hypertext links11 5.8. What warranties are to be given by the Content Supplier about the Content ?12:5.8.1.

ownership/right to license;

5.8.2.

accuracy;

7

There are several permutations and it is important to clarify this. For example, it may be that the Content Provider will host the Content and allow the other party (and users of the other party‟s website) to access the Content on the Content Provider‟s site via a hypertext link or by allowing the other party to allow users of its website to view the Content on the Content Provider‟s site via a „frame‟. Alternatively, the Content Provider may allow the other party to host the Content on its Site. The issue of the branding, or co-branding, of the Pages on which the Content appears, is dealt with later in the Checklist. 8

Portals will often seek an obligation from their content suppliers to provide modifications/technology upgrades regarding Content which are developed by the Content Provider during the terms of the Agreement. The Agreement may need to distinguish between „add-ons‟ (i.e. additional content which the other party has the option to take it it wants at an additional cost etc.) and new versions of Content that replace earlier versions. In the latter case, this raises the issue as to whether the Content Provider has to continue to provider the earlier version(s), in addition to the new version, and, if so, for how long. 9

If the Content Provider is hosting the Content and/or the other party‟s website, consider the nature and extent of service level obligations e.g. as to the server being available on a 24x7 basis, bandwidth etc. 10

What have the parties agreed about co-branding of the page(e) on which the Content appears? For example, will in be in the form of the parties‟ logos or the word trade marks or both? Have they agreed size and prominence of each? Can the arrangements about co-branding be changed and, if so, how? 11

What have the parties agreed about hypertext links between the page(s) on which the Content appears (which may be different pages on the other party‟s website, or as between the page(s) on the other party‟s site and the Content Provider‟s site? For example, must those hypertext links go to the Home Page, „deeper‟ into the Website or either? 12

In relation to each warranty, one needs to consider whether it is to be given on an unqualified basis, “to the best of the Warrantor‟s knowledge, information and belief” or “so far as the Warrantor is aware” (the later being weakest of the two preceding forms of warranty).

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5.8.3.

comprehensiveness;

5.8.4.

compliance with any specification about the Content set out in the Agreement (including any Schedule(s));

5.8.5.

does not infringe any third party‟s intellectual property rights;

5.8.6.

is not illegal.13

6. Use of Content14: 6.1. Distribution channel(s)15 6.2. Forms of use16 7. Advertising17 7.1. Which party is responsible for selling advertising on the Pages on which the Content appears? 18 7.2. Advertising commission19: This will be broken down into individual warranties e.g. that the Content is not obscene, libellous, does not constitute an invasion of anyone‟s privacy or otherwise violate the rights of any person. Depending on the nature of the Content, other warranties may be requested by the other party e.g. “that the Content does not contravene or breach any law or regulation or directive including, without limitation, investment, financial services or data protection legislation or regulation (Yahoo! UK). 13

14

The Content Provider will want to specify the ways in which the Content can be used by the other party, including the way in which it may permit visitors to its site to use the Content. 15

Is this confined to the WWW or could it extend to other channels, now or hereafter invented? These additional channels could include – print on paper, radio, digital television, radio, other wireless delivery. Remember, the Content Provider will want to narrow the distribution channels and, conversely, the other party will want to make them as wide as possible, giving it maximum flexibility. 16

It is preferable to express the permitted forms of use in clear, non-technical language and then to restrict all other forms of use. Also, if the use is intended for hosting/viewing on a Website, and for personal use by end-users, the Agreement should state this. It is customary to include a general prohibition against commercial redistribution (unless, of cthese, the Agreement is for that purpose e.g. where the other party is a Content redistributor). It may be appropriate to make it clear that the using the Content to create products or services derived from the Content (whether or not mixed with other content) is prohibited. Remember the general lesson: „Licence in widely, licence out narrowly‟. 17

“Advertising” is used here to include all forms of commercial communications including, banner advertisements, logos, sponsorship deals etc. Make sure to ask these questions in respect of all forms of commercial communications that may appear on the relevant pages. 18 19

On whose advertising terms are ad sales to be made?

If applicable, spell out the arrangements whereby either party is to receive a commission based on advertising . This may be on a net margin rather than gross sales basis. Advertising commission may be based on fixed ad charge, page impressions, click-throughs, bounty (i.e. where a subscription or purchase results from the click through) or other ways. This will constantly evolve.

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7.2.1.

based on advertising sales generated by pages on which Content appears; and/or

7.2.2.

based on advertising sales on any other pages on the Content Provider‟s, and/or the other party‟s Website?

7.2.3.

commission rate;

7.2.4.

inclusive of third party commissions;

7.2.5.

when payable;

7.2.6.

other terms

8. Other services20 9. E-Commerce Revenues21 10. Fees22 10.1. Annual (or other) amount; 10.2. frequency of payment; 10.3. who issues the invoice; 10.4. back-up information to support invoices; 10.5. payment dates: 10.6. fee increases (RPI or other measures); 10.7. VAT; 10.8. withholding taxes. 11. Exclusivity 11.1. Non-exclusive; 11.2. Exclusive; 11.3. Partial exclusivity23;

Most of the preceding questions relate to an agreement which involves the provision and use of Content. Many deals may be more service-related i.e. the Content Provider may be more accurately described as a “Service Provider”. For example, the Service Provider may be running an online travel agency and providing an online travel booking service to visitors to the other party‟s site. If so, check what additional information is needed for inclusion in the Agreement. This will centre around the specification of the service to be offered by the SP. 20

21

Here specify any provisions about commissions or other revenue sharing arrangements in respect of e-commerce revenues earned by either parties arising out of the Agreement. 22

Apart from revenue sharing arrangements re: advertising, and sharing of e-commerce revenues, specify here any fees payable by either party for anything else e.g. a fee for the provision of Content.

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11.4. other restrictions 12. Confidentiality 12.1. One-way or reciprocal; 12.2. Exclusions. 13. Announcements24 14. Intellectual Property rights25 15. Use of Trade Marks26 16. Warranties27 17. Indemnities28 18. Exclusions of liability29 23

For example, one party may want to restrict the other from contracting with specified entities (usually, competitors of the party seeking the restriction). In the case of exclusivity, check UK/EU/other applicable jurisdiction‟s competition rules. 24

The parties‟ may want a general embargo about the deal until they release a joint press announcement. The company may also want to add a provision preventing or proscribing the use of its name by the other party (e.g. in its customer lists etc). This should be checked. 25

The Agreement needs to clearly specify the rights retained by each party and, to the extent that any new IP is created, which party is to own it or whether it is to be jointly owned. If one party has, as part of the Agreement, commissioned the other to create any copyright works on the basis that the commissioner is to own such material, then the commissioner will want the creator to assign copyright. If the Agreement is going to be subject to US law, then the Agreement will need to include a „work for hire‟ clause, together with provisions for IP assignment. 26

If the Agreement involves co-branding, then there will be a provision for „cross-licensing‟ of the parties‟ trade marks. In addition to allowing use of the TMs on websites, either or both parties are probably going to want the right to use the other party‟s trade mark for marketing and promotional purposes. Depending on the type of the Agreement, the trade mark licensing provisions may be fairly short or they may be more extensive, including standards of quality etc. 27

We have already referred above to warranties about Content. Other relevant warranties may relate to standard of service (e.g. “to use reasonable skill and care in the provision of the Service”), virus-free etc.The warranty clause may also include a disclaimer whereby, after giving certain specific warranties, the warrantor then disclaims (in the same claim) for all other liabilities, express or implied etc. 28

Each party is likely to require indemnities from the other. In the case of content supply, there is likely to be an indemnity by the supplier against third party claims for IPR infringements. In return, the content supplier may seek an indemnity against any claims made against it arising from the Customer‟s use of the Content. Each Agreement needs to be tailored to the particular circumstances. Remember that any exclusions or limitations of liability do not normally apply to these indemnities. The Agreement should also provide that they survive termination of the Agreement. If we are acting for the party that is giving the indemnities, there should also be a clause whereby the indemnitee must give notice of any claims against it likely to give rise to a claim, giving that party the right to have conduct of any proceedings (including the right to settle) subject to a full indemnity as to costs in favthe of the indemnitee. Sometimes, an indemnity for losses arising from breach of contract may be sought. If we are acting for the party from whom such indemnity is requested, it should be resisted.

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19. Limitation of liability30 20. Restrictions 21. Competition law 22. Termination: 22.1. for breach (with opportunity to remedy the breach, if capable of remedy) 22.2. for insolvency events 23. Effect of termination 24. Force majeure31 25. Notices32 26. Governing Law33 27. Jurisdiction 28. General provisions34 29. Schedules 29

Exclusions and limitations need to be considered together. Logically, one starts with a clause which specifies the liabilities which the parties want to exclude. Remember that under UK law, liability claims arising from death or personal injury resulting from negligence cannot be excluded and remember the impact of other statutory provisions on other exclusions. It is customary to seek to exclude liability for consequential losses (e.g. loss of profits, business opportunity) arising from breach of the Agreement or negligence. In the case of Agreements under US law, it is normal for exclusion and limitation clauses to appear in text that is in bold and/or capitalized. 30

This clause seeks to limit the liability of the parties arising from the breach of the express provisions of the Agreement, those implied by law which have not been excluded and those arising in negligence. The supplier will try and limit it to the value of the Agreement or, if it involves any annual service for which annual fees are payable, then to fees received in the year in which the claim arises. In view of the fact that limitation of liability clauses will normally have to satisfy the „reasonableness‟ test in UCTA, in setting the limit it is important to bear in mind any insurance cover available. So if the indemnitor has relevant insurance cover, then that should be taken into account in fixing the liability limit. 31

The supplier will normally seek a force majeure clause that will widely define „force majeure‟ circumstances so that, if any such circumstance arises, that party cannot be held liable. The other party should try and narrow the scope of the definition for the same reason. The FM clause will normally operate so as to suspend the parties‟ obligations for so long as the FM event continues, with provision that if it endures for more than a stated period, either party can terminate. 32

It is useful to have long-form and short-form versions of these clauses. Consider whether and for what purposes notice can be given by e-mail and when any such notice is deemed to have been served. 33

We will normally seek English law. Sometimes, the company may concede the governing law of the other party, if different. If so, we should point out that the Agreement should be reviewed for validity and enforceability. (See separate Memo with specimen instructions to overseas lawyers). 34

There are a number of „boiler plate‟ clauses that may be included. These cover: „Entire Agreement‟, „Assignment/Subcontracting‟, Effect of non-enforceability‟

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30. Execution of Agreement PART 2: OTHER QUESTIONS 1. Due diligence on the other party 2. What is the value of this deal to the company? 3. What is the company‟s risk/exposure under the Agreement if it goes wrong? 4. Impact of this deal on any other existing and/or impending deals 5. Do we need to consider impact of change of control? 6. Should deal be for the benefit of any other companies as well (e.g. other group companies)? 7. How important is this deal to our company? 8. Check for any other regulatory implications:

Laurence Kaye Laurence Kaye Solicitors © Laurence Kaye 2008 T: 01923 352 117 E: [email protected] www.laurencekaye.com http://laurencekaye.typepad.com/ This checklist is not intended to be exhaustive and it does not constitute or substitute legal advice, which should be sought on a case by case basis. Please feel free to copy or make available this checklist without modification in print or electronic form for noncommercial purposes. If you do so, please include this disclaimer and copyright wording with attribution. If you want to re-publish or make the whole or part of this checklist available in a commercial service or publication, please contact the author at [email protected].