As today’s technology contracts gain complexity, more agreements than ever before feature multiple links and layers of complicated and sometimes contradictory, outdated, or missing terms. At times, terms are subject to change without notice.
If you’re an entrepreneur, coder, professor, or executive who regularly uses SaaS services, AI tools, and/or coding tools, you need to understand what you’re agreeing to and how to protect yourself. While electronic contracts can more comprehensively address the multitude of legal issues involved in technology contracting than paper contracts, the sheer complexity of these contracts creates challenges for end users.
“More than most industries, technology features what I call the ‘link and layer’ contract, the phenomenon of an agreement that is multilayered, pulls in various terms and conditions into one overall agreement,” said Craig Auge, a partner with law firm Vorys. “Whether you’re buying software, platform services, AI tools, coding tools, cloud services or whatever, there are many critical parts of a technology agreement that you need to understand.”
The Ins and Outs of Electronic Contracts
Since 1999, electronic agreements have been recognized in the U.S. as equal in stature to hard copy written agreements in terms of their enforceability. Although terms are somewhat variable across jurisdictions, even within the U.S., electronic agreements are widely accepted throughout the world.
To accept the terms of a technology contract, agreement is required. An “I agree” button is known as clickwrap, in which you are required to click a button or check a box that indicates your agreement and acceptance of the terms and conditions of the contract. Some contracts require higher levels of agreement, where e-signatures or digital signatures are required for higher levels of authentication.
“What we’re seeing more and more, especially from some of the bigger companies, are contracts that have a top-line master service agreement with terms of use that has a privacy policy linked to it,” said David Canton, lawyer and trademark agent for London, Canada-based law firm Harrison Pensa LLP. “These are two standalone things that are tied together for convenience. Then, there is either online or a PDF with a myriad of links that could include intellectual property definitions, license restrictions, and more.”
Terms and linked documents are likely to include descriptions of software, service levels, support guides, data security, system security, application programming interface terms, and other terms, said Auge. “You may think that some of the sections don’t apply, but in contracts, there is almost always a section towards the end of the contract that all linked terms and conditions referenced are part of the agreement,” he added.
In some cases, the documents may be linked to a whole group of other documents or may go to a dead link, said Canton. “In that case, you need to find out which documents are specifically referred to within that second group and obtain the right link,” he said.
There are many terms in technology contracts that could come back and bite you later. For example, you may be limiting your recourse in the event of a dispute to mandatory binding arbitration versus the ability to go to court in a lawsuit. Or you may, in signing a contract for AI services, unwittingly make yourself liable if you use AI information that turns out to be inaccurate. Some AI service agreements only allow you to produce material based on the AI for non-commercial uses. Many contracts reserve the right to modify terms at any time without prior notice, which could bind you to unknown conditions in the future. Finally, consider what might happen if someone who isn’t authorized within your organization binds you to a contract you don’t even know about.
How to Protect Your Organization
Fortunately, there are ways to protect individuals and organizations from problems arising from complex link and layer technology contracts.
Set clear policies and procedures about who in the organization can enter into third-party agreements, experts say. Designate which employees can enter into contracts or agreements, known as signatory authority. Create clear policies and procedures around exactly what kind of contracts they can sign, for how much, and the approval processes required before contracts and agreements are signed. Keep track of who has signatory authority and revise them as the organization grows and changes.
Decide which tools and platforms employees and contracts will be able to use to do their jobs, and communicate that information in writing. Update those policies frequently. Make sure employees know in advance that they can’t use other tools without permission. You don’t want to find yourself in a position where you have critical code that you only later find out has open source restrictions.
Auge recommends printing out all contracts and agreements that have been signed, plus any related policies and terms, and filing them in a centralized place. They can also be saved in a centralized digital repository. Such files can be helpful in the future should an organization receive an acquisition or merger offer, as the acquiring company may want to do due diligence on all signed contracts and agreements.
The ready availability of contracts and agreements is needed so they can be referred to in the event of a dispute. Canton has been involved in situations where a client has received a bill for services provided by a third party that the client did not initiate. If that happens, an organization should ask the third party for the signed agreement that specifies terms of payment for services. Usually, if that document can’t be produced, the organization won’t owe any money, he said.
Hiring a lawyer with expertise in electronic contracting can help decipher key contracts and agreements. Organizations can also seek to negotiate terms with their service providers to change or soften unfavorable terms and conditions.
Amy Buttell is a Silver Spring, MD-based technology, legal, and business journalist, content creator, writer, and ghostwriter.
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