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Industry sign banking nevada agreement now

this is pretty much like contract bingo for what you shouldn't put in a contract and how many words can i use that really are unnecessary and add no value to the document welcome to the contract teardown show from law insider where legal experts tear down contracts from some of the most well-known companies and high-profile executives around the world in this episode law professor director of emory law's tiger program and former patent counsel nicole morris tears down a venture capital collaboration agreement this one's unusual because nicole actually uses this document as an object lesson for her students on what not to do she talks about the confusing language contradictory terms and troublesome data provisions that plague contracts in the tech startup industry so let's tear it down hey everybody welcome back to the contract teardown show i'm mike whale and the purpose in this show is to hang out with really smart friends like my buddy nicole morris over here to tear about contracts and talk about things we like and that we hate and want to make fun of in a public forum because we can so uh today we are talking about a collaboration agreement nicole how are you doing today i am well and i'm actually excited about christmas in the pandemic um despite it being christmas in a pandemic so you're a monster i don't think we're ever gonna finish decorating our tree that thing has been up it took like four days to get it lit now there's not stuff on it i it it's never gonna get done i do love though every time i ask somebody in this pandemic how are you doing they're like okay um so today guys we are going to talk about a collaboration agreement and this is an interesting one because nicole uses it in her law school experience it is this document uh there are a couple of parties we've vagued out the names and we'll talk to you about why but you've got an agreement between an i.t startup and a venture capital company this thing is fairly short it's got a lot of really cool latin words in it and we'll talk about it so nicole uh tell me why are we talking about this document why is it significant why should lawyers care about uh this particular contract we're tearing apart yeah this is a great sort of typical startup agreement as mike indicated it is short uh it's like 12 pages which in lawyerland that's really short and it has all of the things you want to see in a collaboration startup agreement but when you read through the language you realize it's a lot of words but it's not saying anything and it's not helpful so i thought it would be great to do a tear down on yeah i'm going to share this thing again because it's hilarious but before i do nicole tell me about you i mentioned that you're in the teaching space tell me more about your background yes so i am a professor at emory law and i'm also a director of this entrepreneurship innovation program that we have in partnership with georgia tech so we work with innovators in the atlanta area and we help them frame out whatever it's usually technology innovators we help them frame out where their technology sits in sort of the innovation of ecosystems so to speak so what's their value what are the intellectual property rights they should consider how can they go to market and the law students work as consultants and then there's also some class and academic time that we do to teach everyone in the program how to do this work yeah and i think you mentioned to me that this one actually came from the teaching experience and here's why i'm sharing this thing again because i just think it's so awesome uh the first uh recital venture where we're again generalizing to the venture startup and the the venture capital company in the startup company venture is contemporaneously here with investing 3 million in startup in exchange for a 25 ownership interest in startup pursuant to and on the terms and conditions set forth in that certain series a units purchase agreement of even date here with the purchase agreement and the other documents referenced therein i love this so much because it's like if the dilbert guy was gonna write a contract this is what it would look like this is pretty much like contract bingo for what you shouldn't put in a contract and how many words can i use that really are unnecessary and add no value to the document and we are going to jump therein [Laughter] we are going to jump there in and go down to a couple of parts that i think are interesting can you tell me i i gather and tell me if this is right uh that there are two companies here and one is like an it services company and the other one is a is a money company did i get that right so that the company that's doing the selling they're are are they doing software or are they a services company yeah so the startup created an app so this looks more like an it service that they're providing and they are collaborating with their bank so to speak right so the vc firm um is investing in the operation but this agreement is the collaboration agreement that they have agreed to with the vc firm which also i should point out highly unusual usually the vc firm is literally like your atm we just want to get money from you we want you to leave us alone while we go bill do you can come check in because we understand you want you care about your investment but you're not my collaborator i'm going to collaborate with a third party that's what makes this also an interesting agreement to look at but we're gonna take a look at um two of the clauses that i think are problematic yeah and on that you know on that like them getting intermingled into the business we're gonna jump down to six and seven and it's because it has to do with you know the inventions with the product of the work of this company that you know normally they're not this entangled so let's jump down to six it talks about future innovations and this is a heck of a paragraph but it it just starts that the the parties hereby agree that ventures shall have a right a first refusal to exclusively for what was it a 20 stake am i remembering right uh 25 25 exclusively collaborate directly or through its applicable affiliates with startup to develop any future applications and it goes on what about this paragraph is standing out to you well they have the writer first refusal which by itself is okay but it's the right to collaborate so normally when you see a writer first refusal it's for an offer right for a purchase or sell or something like look we want to get in on that deal first but it's this writer first refusal to collaborate and the problem is it's on future innovations and they define collaboration very poorly so if i have a conversation with you at starbucks think of it as pre pandemic where we can actually go inside but if i is that a collaboration do i have to have two or three conversations with you in order for it to trigger this clause like the events that would trigger to me are problematic and as a startup you don't want to be handcuffed so strongly that you can't even collaborate i understand you don't want us to enter into another agreement but can i talk to other parties like that's your whole point as a startup you're trying to grow your business so it feels very much like an exclusive relationship even they're saying it's a writer first refusal right so it sounds more open meaning we just want to know so then we can say no you can go on your way but it's really more entangled than uh than it looks on the on the outside hey everybody i'm mike whalen i hope you're enjoying this episode of the contract tear down show real quick i want to ask you to do me slash you really a quick favor look down below you'll see a discount code to join the law insider premium subscription when you do that you get access to more content like this you'll see webinars daily tips on contract drafting not to mention access to the world's largest database of sample contracts and clauses it will help you write better contracts faster if you want to do it right now there's a code below so get there also if you're part of a larger team if you're in-house or in a law firm just email us we're at sales law insider.com we'll make sure you get a deal as well come join us in the community the code is below let's get back to the show and there's notice provisions in here you know they've got to let them know within a certain amount of time and then you know they've got 30 days all written notice and then if they don't get a response they can go ahead and collaborate with such other party as it determines with respect to such future application that it really is a relationship that seems you know pretty this this feels like a joint venture not an investment it very much looks like it sounds like a joint venture opportunity and not an investment and it's the collaboration that um the vc firm is trying to protect right so the language of the agreement is written very much to protect the vc firm and their interest from being you know well i guess essentially diluted but the startup running around with a bunch of other companies and forming other relationships one of the other troubling parts about this clause um is okay so they have the writer first refusal regarding any future innovations but what does that mean so any future innovation that significantly enhanced or improved functionality well how do we how do we measure that so if is it you know like my software updates on my iphone is is that a significant enhancement or improvement of functionality or is it just to fix some bugs right which is what apple always says they're fixing some security bugs would that be a significant improvement in functionality so the terms are loosely defined where i think this startup essentially anything anytime they talk to anybody they're going to have to get their vc firm to approve it that's how i would interpret it if they you know if i were in-house counsel and you know i'm on vacation and they come back and they say nicole guess what we signed this agreement we were trying to move fast and save you some heartache and and i just go hit my head against the wall well and this this uh addresses get into seven a theme that has come up a lot with modern contracts which is data rights that there's there's data that's being generated in the operations of each of these companies so looking at a uh it talks about it says that startup will provide venture uh in a format that venture wants access to aggregated anonymized market and transaction level analytics uh generated by the startup platform again data is worth a lot and it seems like venture cup this venture company is really getting their hands into it what do you think about this section a so section a um sadly i think tends to be common so this data rights section i think is it starts off as um what you would expect to see in a data rights exchange between two parties but what's troubling is why does the vc firm need anonymized market and transaction level analytics so you know again i'm questioning you're collaborating with your vc and the vc is asking for a ton of stuff from you um what are they doing with this additional information and should you value their investment differently because they're getting additional value from you that you're not really monetizing correctly and then the one thing that i thought that triggered you would need some further sort of vetting and diligence does this data clause um satisfy sort of some of our national jurisdictions so california comes to mind can you do this under california law right i don't know um but it just triggered a bunch of other obligations on the part of the startup yeah or nevada or theoretically if they have international operations the gdpr and relatedly in b it talks about not not just anonymized data about the performance of the specific thing that they're creating that they're entering into this agreement on it also says such specific data relating to customers of venture and its affiliates including the business performance of venture and its affiliates and it adds this nice little sentence at the end for the sake of clarity because clarity is clearly one of the strong suits of this document that was my sarcasm emoji i don't know if you saw that startup may provide similar data that relates solely to the customers of any other user of the startup platform for a similar internal use by such other user that was a heck of a sentence for clarity what do you think about b oh my god b is a train wreck so that last part just it feels like a trojan horse it's like while you're in there looking at that data if you could just kind of get me some data from like my people and then you know if you see anyone else's data you think that i might want for the sake of clarity just send that on as well i was like oh okay and this is one of the things that um you know that consumers hate about contracts right you have to read every line people every line so it starts out sounding reasonable and then you get to you know the darth vader request at the end and you're like and here's why this contract is bad yeah that for the sake of clarity sounds like the phrase with all due respect because when you say that you know you're about to say something terrible and disrespectful and if a lawyer starts in a document for the sake of clarity you know whatever's coming after is a jumbled mess uh speaking of going to see it talks about the during this term get getting more data uh specific data relating to customers of venture and its affiliates um that they'll they'll use these data services uh provide insights and data related services to their customers startups shall provide the data service exclusively to venture and it's its affiliates and not to any other party for a period of 24 months following the launch of the data service within each target market and applicable follow on market follow follow-on market right it just keeps going what do you think of c yeah i mean again you're getting handcuffed for a two-year window after the launch um applic presumably excuse me of the app but that's not clear right it's the launch of the data service um within each target market and then the follow-on market so it's for future markets that you're also obligated to provide exclusively these data insights it's very troubling because the this section based on these three clauses we've yet to go to the fourth um are are obligating the startup to some significant um requirements and it's not clear if all those requirements are lawful requirements right and even if the venture company is under the same obligations if you look at d it says that the startup hereby agrees so it's it's certifying startup agrees that during the term it to startup will comply with all applicable laws in all relevant jurisdictions startups privacy policies industry standard protocols the requirements of any codes in the jurisdiction again it's talking about protecting data but that obligation seems to be really heavily on the startup and the sections before seem to undermine what it's certifying here in d what do you think about d absolutely d was just sort of like a cya it's like oh don't forget to tell him to follow the laws that we told him to break and we can see above no we will follow the laws of the jurisdiction yeah d i mean if i'm the startup i you know i i'm praising dee i guess because i could say oh i can't do any of this other stuff right because he says i've got to follow the laws of the applicable jurisdiction but you know you know how this works right so yeah this this whole section is somewhat contradicting on itself and troublesome on many levels well i wanted to talk to you because um you know you're in this situation at the law school where you're sort of you're sort of in a clinic right you're dealing with these local companies and the kinds of contracts that they're running into this one came from an actual company that that had signed this agreement so i wanted to talk to you just in terms of general principles about this issue that we've talked about on this show before the distinction between business clients want to see roi and any time spent by a lawyer looking through a contract so you don't want to spend umpteen hours making a beautiful contract but in res onse you get these not very thoughtful copy paste contracts here with your 24 therein that has all kinds of jumbledy stuff in there so tell me about how you're teaching the students at the law school how to think through documents like this do they do they tear them apart or do they have to roll how do they explain to the client it's worth me tearing this thing apart yeah that's a great question so i you know it's to answer from the latter point yes it's worth you tearing this thing apart because these obligations could your company your organization going forward but i also advise them to sort of think of it as creating a mass a master template or a master document which to draw from so some of the good clauses or clauses if we cleaned it up or changed some of the wording would be a phenomenal clause to use going forward that goes in your master right so the next time um if you are looking at it from a roi and and value add perspective you're not writing an agreement from scratch anymore like i don't think any lawyer does that today but you are looking at what is it that my client really needs and i'm only including those clauses in the contract and i'm including clauses to protect my clients interests of course um but that's it and you shouldn't have a clause where it's like clearly we don't know if this is applicable under any jurisdiction and then we say but you have to follow the laws of that jurisdiction those conflicting clauses should not exist you should have clauses that actually enhance and support one another um and provide clarity as an overall agreement and not contradict each other yeah i'm not you know i don't want to pitch law insiders functionality specifically though the bosses might want me to but uh you know if you go online insider and you look for a contract of a spec you know an employment agreement an executive employment agreement for this type of industry it'll give you some representative documents but then you can go clause by clause and side by side choose from among possible you know clauses that could include you can see highlighted the differences between them and i think for us you know in our shtick our pitch is that we know you're going to do some copying and pasting right nobody's starting from scratch nor probably should you in a world of precedent you know that would be a little bit crazy but thoughtfully create like you said your master documents thoughtfully create a library of documents as you go through your practice by thinking about these different sections don't just don't just copy paste right you've got you got more obligation uh than that so i'm glad you're teaching the students that so um listen i want people to be able to follow up with you i of course i'm a fan i follow you all over the place it's a little internet stocky but you're so smart how do people get in touch with you on the interwebs if they want to hang out with you sure so i'm on linkedin nicole n morris um i'm on twitter my favorite new platform nicole and morris and the number three and those are probably the best places to get at me or just go to the emory law website and you can shoot me an email awesome and if you guys want to get access to this document to sort of look through it and find all the latin words that you didn't know before that you didn't learn in law school just go to linesider.com resources we'll have show notes there and also if you want to be a contributor on the contract teardown show just email us we're at community law insider.com and then we can hang out here to four thereafter uh thank you nicole we'll see you guys next time thank you you