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Most emerging companies breaking into a market with new products or services will need to allow their potential customers to trial their products before the products’ official launch. This is especially true of technology companies whose products are complex, expensive and in competition with technology offered by more established players. To protect your client’s interests in such a trial adequately, be sure that your client enters into a trial agreement that details the trial’s nature, purpose, setup, plan and conclusion, as well as the parties’ rights and roles. GETTING OFF THE GROUND If your client believes that an existing nondisclosure agreement (NDA) will cover trials, your first task may be to convince the client that a trial agreement is worth the trouble and expense. Although the existing NDA will protect the information your client discloses, it probably will leave the client unprotected on a lot of other important issues. For example, unless the product itself constitutes information, the product will not be protected from the customers’ misuse (e.g., reverse engineering, attempts to derive software source code and destructive testing). Also, if the NDA doesn’t address information generated by the customer during the trial, the supplier may not have the right to use that information freely — something that could jeopardize the supplier’s right to use improvements to the product generated by the trial. KEY TERMS Nature of the trial.The agreement should describe the following trial characteristics: (1) whether the trial is intended simply to convince the customer that the product is worth buying or also to generate feedback that your client will use to refine the product; and (2) whether the trial will take place in a lab or controlled environment, or “live” or in the field. If it is a field trial, be sure to limit the agreement’s warranty and liability for problems that affect real world data or communications. Purpose.The trial agreement should explain the purpose of the trial: e.g., “for the purpose of evaluating a potential optical amplifier supply relationship between Supplier and Customer.” The description of the purpose will act as the touchstone for the licensing section, limiting what the customer can do with the trial products. Trial location and setup.The trial agreement should designate the facility where the trial will take place or, if the trial product is portable, the territory where the product can be used. If the trial product is installed, the agreement also should specify who is responsible for installation. Trial plan.Unless the trial is effectively an unrestricted donation of the product to the customer, the agreement should provide for a trial plan. Optimally, the trial plan should be finished and attached to the agreement before execution. If this is not possible, the agreement should specify which party is responsible for drafting the plan, whether both parties have to approve it, the elements of the plan (e.g., each party’s additional responsibilities, the plan’s milestones and/or schedule, specific tests that either of the parties will run), and the date by which the plan will be completed. Roles.The agreement should lay out which party is responsible for each task, such as preparing the trial facility, training the customer’s employees to use the products, and performing specific tests. The agreement also should specify: (1) whether the supplier will participate in the trial with the customer and, if so, what the supplier’s day-to-day role will be; (2) whether the customer is required to give the supplier certain kinds of feedback on how well the products worked; and (3) whether the supplier will be allowed to interview the individuals involved in the trial. Permitted use of trial products.The trial agreement should clearly limit the customer’s use of the trial products and any accompanying documentation. It often is useful to describe the customer’s rights in terms of a license by stating something such as, “Company will have a personal, nontransferable, nonexclusive, revocable license to use the Trial Products solely for the purpose of the Trial at the Trial Facility.” In addition, the agreement should address whether the customer may: � move installed trial products or take them from a lab setting to a field setting; � alter, disassemble or attempt to reverse engineer the trial product; � test the product for physical robustness by attempting to damage or destroy it; � move any software involved from one computer or server to another; � make backup copies of any software involved; � run more than one operational copy of any software involved; � attempt to derive source code through reverse compilation or other means; � share the product with more of its employees than those necessary to carry out the trial; � share the product with contractors, consultants and other third parties; � make copies of product documentation; and � put on a shared drive or Intranet any documentation that is in electronic form. Trial results.Every trial will generate information about the trial product’s performance; this information may or may not be memorialized in writing. The trial agreement should specify (1) whether this information is intended to be kept confidential and (2) how each party is entitled to use this information. A good trial agreement also will cover any improvements generated by the trial, even if improvements are not expected. However, if improvements are one of the desired outcomes of the trial, it is absolutely vital for the trial agreement to address them. From the supplier’s point of view, a desirable provision would be one that gives the supplier sole ownership of all information and technology developed during the trial and clearly states that the supplier has the sole right to use those developments, without restriction and without having to account to the customer. As a fallback position, the supplier may agree that any information or technology created by the customer alone belongs to the customer, with a broad license to the supplier. There are many other possible variations on ownership and licensing, but the guiding principle should be ensuring that your client has the freedom to improve its product without being unduly tied or indebted to the customer. If there is a chance of the trial generating jointly invented intellectual property, the agreement should specify whether the two parties will own such property jointly, or whether the customer will assign its interest to the supplier. A customer that balks at giving away its rights to every conceivable invention often will agree to a more limited assignment of its rights to inventions related to the trial products. Announcing the trial.Some customers and suppliers will be enthusiastic about issuing a press release announcing the trial; others will want this information kept under wraps. As counsel to a company that is probably relatively small, you should consider whether the supplier will be legally obligated to disclose the fact that the trial is taking place and insure that the trial agreement leaves your client the latitude to disclose that fact if it wishes to do so. Purchase of trial products.If your client wants to pave the way from trial to sale, you can specify the price of the products and the ordering process in the trial agreement. However, you and your client should be alert to the fact that this probably will start the clock on the statutory “on sale” bar in the United States, which bars patent applications filed more than one year after the date the subject invention first was offered for sale. It also may prevent your client from filing patent applications in other countries. Termination rights.Unless the trial is a joint development exercise, it is usually most practical to allow either party to terminate for any reason or for no reason. If the supplier does not have the right to terminate freely, the agreement will need to address issues such as changes of control and assignment. Warranty and limit of liability.The agreement clearly should state that the trial product is provided “as is,” with no warranty. In addition, if the supplier is supporting the trial at no cost to the customer, the supplier should attempt to limit its liability to bodily injury or death caused by a defect in the trial product. If the product is being used in the field, as opposed to a lab environment, you also will want to specify that backing up irreplaceable data and vital services is the customer’s responsibility. Conclusion of trial.If the trial is anywhere but the supplier’s own facility, the parties must decide how they will unwind the physical setup when the trial has finished. If the trial involves installed products, will the supplier remove the products or will the customer pull them out and return them? Can the customer keep the products and submit a purchase order? The race to market can mean life or death to your emerging company clients. If you are able focus on the key issues and put a trial agreement in place quickly and efficiently, you will have helped them take the first step toward winning it. Mary E. Grant serves as corporate counsel at Lucent Technologiesin New York. E-mail: [email protected].

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