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Mark Grossman

Planning for the End of Your Contracts

21 February 2002

There's an old saying among trial lawyers: "Write your closing argument first, and then use it as a guide to present your case to the jury." In short, if you know where you're going before you start, you'll eventually end up where you want to be. I think that lawyers who draft high-tech contracts should tattoo that saying across their foreheads.

Too often in their zeal to get the "big deal" signed, many lawyers draft high-tech agreements by thinking only about the beginning of the deal.

They forget about what their clients will need at the end of the deal and, predictably, completely drop the ball when it comes to drafting provisions that will tell the parties what they can (or can't) do when the contract is over. The problem with this is that the end of a high-tech deal is as important to tech companies-if not more important-than the beginning.

Here's a common example. Go get the last technology-based contract that your attorney drafted for your company. (If you don't have one, or you've never needed one before, just follow along with me anyway. I'm sure you'll enjoy the ride.) Remember when that contract was signed? Everyone was so happy about closing the deal. Money was about to change hands, business was looking up; maybe you even had a celebration to mark the beginning of the deal.

But if your tech contract is like the dozens of tech contracts that I see every month, then it suffers from what I call No-End-in-Sightitis. This terrible condition is caused by careless attorneys who only think about the beginning of the deal, and completely forget where they want their clients to be at the end of the deal.

Some of the symptoms of No-End-In-Sightitis are obvious. If, for example, your agreement doesn't describe how or when it's supposed to end, that's an obvious symptom of No-End-In-Sightitis. It was probably caused by an attorney who paid too much attention to the beginning of the agreement and gave little or no thought to the end.

But it's the non-obvious symptoms that you really have to look out for. These are the most problematic, and usually don't appear until you desperately need to rely on the agreement. Unfortunately, at that point, you're probably up the proverbial creek and there's no paddle in sight.

If you want to know whether your agreement suffers from some of the less-obvious symptoms, apply this simple test: Assume that the other party to your contract will go out of business tomorrow morning. Remember, for the sake of this test, pretend that after tomorrow morning, it's as if the other side dropped off the face of the Earth.


(For those non-believers who think this can never happen, take a stroll to your favorite Web search engine and look for articles about the infamous ASP, "Red Gorilla." Once you believe, come on back and keep reading).

Now ask yourself: Can your company keep functioning without the other party? How much time will it take for your business to find a replacement? How much will it cost? Who owns the intellectual property rights? Who will provide support for the software or hardware? Can you modify or reverse engineer the software as necessary to keep it running, or does the "license" section of your agreement stop you from doing that?

If your response to one or more of these questions is "I'm not sure," then your agreement is probably terminally infected. (I say "terminally" because the odds are low that the other party will let you go back and modify an already-signed agreement for the purpose of adding exit strategies.) Unfortunately, the harsh truth is that once your agreement is infected, all you can do is sit back and hope that the other party stays in business.

My point is that tech agreements are suffering because the attorneys that draft them have too much focus on the here and now, and not the end.

While it may be too late to save your current tech contracts, your future contracts don't have to share the same fate. My advice is to think of the end, first. Before you put pen to paper, take a moment to recite the trial lawyers' mantra, and figure out where you want your company to be at the end of the deal-then work backwards from there.

Planning for the End of Your Contracts is republished from
Mark Grossman
Mark Grossman