This is, Definitionally, a Problem

Everything looks watertight until you become too comfortable with things and run your life through it for a bit.

Definitions and glossaries in contracts are robbing you.

Concerned yet?

In my time in the commercial and government contracts world, I’ve seen this problem time and time again. Every attorney knows to rush to indemnification, limitation of liability, representations and warranties, and termination clauses. What few pay attention to—and what usually takes opposing counsel aback when I’m working a deal—is when you start modifying the definitions.

The truth is, doing a good job means treating the entire document with skepticism. The last thing you want is for a definition to give away the farm. You can limit all the liability, intellectual property grants, and warranties you want, but if a definition is over-broad, you’ve undercut yourself before you even started.

So, let’s do some story time to show how this problem crops up.

Suppose you sell an online service. You serve your customers via an online portal where they can pull insights, run analytics, and get information. Your service improves the more users leverage its content—you refine techniques, dump more resources into queries that are working, and dial back the ones that aren’t. You improve the platform, the customer is happy, and then the customer decides they’re moving on because they’ve gotten everything they needed.

Now, the customer is asking for a snapshot of the software and everything they pulled from it. God forbid, they even assert a claim to the improvements you made while they were using the platform.

The audacity, right?

You go back to the contract you signed and realize you agreed the customer has a "royalty-free, perpetual, assignable license" to the Services, and that all intellectual property associated with those Services belongs to the customer.

Here’s where the loss hits: You agreed to provide Services, and Services was defined as "access to and the fruits of the platform." You even tried to secure your platform with a background intellectual property clause, but that clause didn't cover "iterative" or "evolutionary" improvements. This means anything you added or improved was considered "novel," and the customer’s definition of Services was broad enough to stake a claim. Even disregarding that, your license grant now entitles the customer to a snapshot in time that transcends the actual term of the engagement.

The purpose of a contract is to create certainty. Definitions go a long way toward that, yet they’re often just glossed over. Whether they are in a separate glossary or defined in-line, you must pay special attention to how terms are used and treated. If you find yourself making assumptions or "trusting" that the parties will just make things work, you’re banking on a lot of hope that a little bit of editing could have fixed.

If you’re in the market for an attorney, don’t settle for someone who does anything less than turn over every stone in the document. If your attorney isn’t looking at the definitions, you’re at risk.

Contact me today to connect with someone who won’t take a single word for granted.