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In-house law departments could learn a thing or two from Oracle Corp.’s maverick approach to licensing agreements. Oracle may not have been the first technology company to freely share its license agreement with others in the industry, but it was certainly the most successful. I spent a few years in the database firm’s legal department before serving as general counsel to Vantive Corp. and Linuxcare.com, and can report that its four-page, preprinted software license and services agreement became something of an industry standard. Oracle’s lawyers even went so far as to have face-to-face discussions with their counterparts at arch-rival Informix to share the terms of their commercial transactions. All lawyers — but especially those that advise emerging technology companies — should take note of Oracle’s experience. Standards, common in the world of technology, are surprisingly rare among lawyers who represent technology companies. Judicious use of good standards can speed negotiation, reduce transaction costs and limit the ill will often generated by lawyers fighting over the expression of terms their clients care little about. Many nondisclosure agreements, software licenses, consulting contracts and even some venture financing documents have become largely boilerplate. Unfortunately, there are institutional, ethical and philosophical forces that sometimes keep us from adopting standards, even when it would greatly benefit our clients. In-house lawyers are the most acutely affected by the absence of standards. They have an interest in increasing the efficiency of commercial transactions that lawyers who bill by the hour do not. They also tend to have a greater understanding of the direct impact a slow contracting process can have on a company and its financial results. At the same time, it sometimes surprises me how resistant in-house attorneys at different companies are to sharing their form documents and, in effect, creating their own private standards in the absence of ones sponsored by the ABA or other groups. One of the major challenges facing in-house lawyers is the incompleteness and imperfection of their information, coupled with the diversity of issues that arise all the time. In a typical week you may be expected, quickly and cheaply, to advise whether a no-hire clause is typical in a merger nondisclosure agreement; whether it’s OK to give unlimited indemnification for personal injury in a commercial transaction; how much to pay an investment banker for a poison pill; or how much investigation is sufficient when an employee complains of sexual harassment. The right answers to these questions have a high value but a low number of billable hours associated with them. Perfect for an efficiency-minded in-house lawyer. Because of the diversity of issues I face in advising technology firms and the speedy responses I need to give, not a week goes by that I do not solicit legal information or advice from a friend, a lawyer whom I once worked for or with, or one who once worked for me. As law firms have become busier and costlier, there are many in-house attorneys who have come to depend on similar networks as substitutes for more traditional sources of legal information. What I have found is that a willingness to share information is growing, but not universal, and despite Oracle’s experience, desire to distribute form documents lags behind other information-sharing. Part of the reluctance may stem from legitimate ethical concerns, which I’ll discuss later, but part of it results from misplaced notions about the work product of lawyers and the value of standards. Two years ago, when I co-taught an intellectual property class at San Francisco, Calif.’s Golden Gate University School of Law, I gathered a variety of different licensing agreements to hand out to students. I wanted a good example of a sports league licensing agreement, in part because anything related to sports or entertainment is a way to perk up student interest. With that in mind, I called an old college friend who had just taken a legal job with one of the major sports leagues. She promised to send me its standard merchandising license for jerseys, caps, socks and the like. The next day she called me back and apologized, saying she wasn’t permitted to send me the form. She had asked her manager’s permission, and the manager told her that the league had recently had an outside firm spend more than 100 hours producing a state-of-the-art merchandising license and that the league considered it to be a competitive advantage and trade secret. Leaving aside the wisdom of devoting the billing equivalent of more than four straight days and nights to working on a licensing agreement, I found this to be an unusual position. Most corporate lawyers are unused to thinking of any sort of form agreement as particularly confidential, let alone a trade secret. Securities lawyers understand that, the more important and material an agreement is to a client, the greater the certainty that it will need eventually to be filed as an exhibit to some public company’s 1934 Act filings. In this respect, as in so many other ways, the Security and Exchange Commission’s EDGAR system has revolutionized the practice of corporate law. Thanks to EDGAR, many of the forms your friends might have been reluctant to send you are now readily available on the Web. In 1992, shortly before EDGAR became mandatory, I worked on an acquisition as an associate at Brobeck, Phleger & Harrison. When Sullivan & Cromwell, the firm representing the seller, asked for a soft copy of the final merger agreement, the Brobeck partners agonized for quite a while over whether to give it up. It’s worth pausing to picture the silliness of this dilemma. Obviously, Sullivan would get a hard copy, so, at its most basic level, the debate was whether Brobeck would shorten the life of some benighted word processor at Sullivan who would have to retype the entire agreement. In an uncharacteristic display of compassion for the staff, Brobeck ultimately relented. Brobeck’s dithering seems especially funny to those who began practicing in the last five years, because times have changed so dramatically. The public availability of contracts, in both hard and soft copy, has exploded: Intuit markets form contracts on a disc; Findlaw.com highlights publicly filed agreements and formats them for downloading; many companies post their form contracts on their Web sites for the convenience of potential customers. Certainly, maintaining that your agreements are confidential intellectual property is nothing new, but the trend line in recent years has been in the other direction. Most technology lawyers have come to the painful realization that their agreements aren’t unique, sacred texts that must be hidden away from the unwashed masses but are largely the same as everyone else’s. Still, every agreement I’ve received from Sun Microsystems Inc. this year carries a “confidential and proprietary” notice. (Oops. Maybe that fact is confidential and proprietary, too.) No doubt the subtle innovations and special terms in these Sun agreements were lost on an unsophisticated lawyer like me, but, honestly, the agreements read pretty much the same way technology licenses have for years. (There could have been something singular and revolutionary in that sports merchandising agreement that I never got to see, too, but I doubt it.) I think many lawyers unconsciously walk a fine line between helping out our friends and acquaintances and either revealing trade secrets or breaking our obligation of confidentiality toward our clients. To test our practices, sometimes it helps to examine the original text of the rules we live under. The California Rules of Professional Conduct aren’t too illuminating on this point. (I’m thinking of 3-310 on conflicts, which is the closest thing to a confidentiality requirement). California Business and Professions Code 6068 is more on point but lacks detail: “It is the duty of an attorney to do all of the following: … (e) To maintain inviolate the confidence, and at every peril to himself or herself to preserve the secrets, of his or her client. And, wherever possible and at every peril, to garble his or her syntax.” (Just kidding about the last part.) In most instances, sharing form agreements won’t violate anyone’s confidence. In almost all cases, the confidential parts of a license agreement are the most basic business terms: the royalty amounts, any exclusivity provisions, the duration of the arrangement, etc. These are often the only terms that matter to the client, and the client is the focus of 6068. The words that express a license grant, or the set of definitions or warranties or indemnities, can almost always be revealed without disclosing anything confidential about the business relationship of the parties. While lawyers may think that they’ve drafted clever and novel language to express these terms, they almost never have. In contrast to my friend’s sports league, Oracle has been under no illusion that its license agreement could be a trade secret or competitive advantage. Instead, Oracle’s lawyers view it as an obstacle to revenue that should be overcome as quickly as possible. When it first began promoting its license as a standard, Oracle’s theory was that, if everyone in the software industry used its license or a variant, customers would get used to the license, would negotiate it less and would buy software with less transactional friction. The practice continues, even as Oracle has moved away from its historical licensing practices to a standard online license agreement available on its Web site. Over time, given the ubiquity of the Oracle database product, the new license will probably become something of a standard as well. Long before it was fashionable, Oracle understood the value of standards, overcame confidentiality worries, and learned to share. When I began practicing law there was a brief period when corporate legal work was scarce. Speed and efficiency in solving client problems were not attributes prized by lawyers at firms or in-house, perhaps out of an instinct of self-preservation. Now, with corporate lawyers having suffered few privations in the last decade, it’s time for us to share documents, embrace standards and permit our practices to catch up with the speed of our clients. David Schellhase, formerly general counsel of Linuxcare.com, is writing a book about counseling emerging technology companies. He can be reached at [email protected]

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