Thursday, June 14, 2007

Licensing Tip of the Day

Don't use "best efforts" to bind a corporation in a contract. For example "Universal Widget will use best efforts to make an on-time delivery to SuperCo of the widgets in question".

The problem is that "best efforts" can become a slippery slope if the products don't ship on time. For example, did Universal shut down its other customers to try to make delivery of this product? Did it try to hire another 100 people to complete production? Could it have spent $20 million to expand its capacity? Would have buying a plane to transport the products made delivery faster? Any of these things could be the "best" they could do. The list is endless. So whatever it means will end up being interpreted by a court, and that could be anything short of bankrupting the company.

So in these cases you would at minimum put in some modification like "commercially reasonable best efforts", which will at least put some limits on what the court can interpret. You should use your best efforts to avoid the phrase altogether.

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