Reasons to be careful with a feedback warranty clause in an NDA or evaluation agreement.

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licensing attorney tends other side? Your engineers will look Not every employee understands this.
A to remember the first time
they come across a feed-
back clause. In the stan-
dard form, these clauses tend to be
contracts of big companies (BigCo)
at you as yet another attorney who
doesn’t “get” the business. So after
some deliberation, you learn to live
with the feedback clause. If you are
SmallCo, then you will most definitely
Is the “we own whatever you tell us”
feedback clause legally enforceable?
I certainly don’t want to pay the legal
fees to find out.
I call the second new variation of
covering discussions of their new need to live with it, particularly if you the feedback clause the feedback war-
technologies with a smaller company intend to work with BigCo and don’t ranty. SmallCo agrees not to provide
(SmallCo). In short BigCo asks for have the negotiation leverage. feedback that is subject to (a) IP
perpetual, royalty-free rights to use Recently, however, there seem to rights, (b) open source obligations or
without limitation the ideas, sugges- be variations of this clause developing, (c) a third-party license fee, or some
derivation thereof. Again, SmallCo is
told that it is not required to give any
Beware of the Evolving feedback. Looking at the language
literally, is SmallCo expected to have
Feedback Clause every communication with BigCo
vetted to the same extent that prudent
BY FRANK FLETCHER SmallCo would do when releasing
its own products? It would seem so
because if (a), (b) or (c) is violated,
tions or comments (feedback) that which make it something SmallCo re- SmallCo has now breached their
SmallCo provides regarding the BigCo ally shouldn’t live with. Specifically, the agreement with BigCo. By agreeing
technology. “we own whatever you tell us” feedback to a feedback warranty, SmallCo is
Upon calm reflection, and per- clause, and the feedback warranty. taking on many of the same risks as it
haps after consultation with a senior With the “we own whatever you tell does when putting a product into the
attorney, either on your side or the us” feedback clause, you are expected market. While SmallCo is not as vis-
other side, it is explained that such a to transfer BigCo full ownership of ible because its name does not appear
feedback clause is reasonable. BigCo your feedback. Taken literally, this on BigCo’s product, the risks might
needs to make sure that it does not would mean that whatever you suggest be magnified as BigCo may distribute
become contaminated simply by to BigCo is owned by BigCo — you more products than SmallCo. While
discussing its products in development can never use this idea internally un- this potential risk is taken on, Small-
with SmallCo. Doesn’t the feedback less BigCo were kind enough to grant Co does not have the potential ben-
clause simply protect BigCo from back a license to your idea. If you men- efits of sharing in revenue generated
SmallCo initiating a lawsuit claiming tioned that same idea to another party, by the products. Would the feedback
that BigCo stole its ideas? Isn’t this thinking it was a fairly obvious thing warranty be enforceable? I wouldn’t
the same reasoning venture capital- to do and not recognizing that you want to discuss this with a diligent
ists use when saying they don’t sign previously gave ownership of the idea outside counsel who found the clause
nondiclosure agreements? There are as feedback to BigCo, then you might in an agreement after BigCo has been
also less persuasive arguments, such be in a position where BigCo might ac- sued by a patent troll.
as providing feedback is voluntary cuse SmallCo of theft of their IP. After SmallCo needs to read each clause
or optional. Sure, it is optional but all, BigCo now owns your feedback. I as if they are seeing it for the first time;
feedback is largely what BigCo says it have seen this “we own whatever you further analysis might be warranted.
is, so to not provide feedback means tell us” feedback clause recently in a
SmallCo can’t talk to BigCo. If this click-through agreement that one of Have a comment on this article? Visit
is the situation, then why enter into my engineers sent me. Fortunately, ACC’s blog at www.inhouseaccess.com/
the agreement? Also, how are you to this engineer understood that a click- articles/acc-docket.
instruct your people not to talk to the through agreement is an agreement.
FRANK FLETCHER is general counsel for Nero AG, headquartered in Karlsbad, Germany, with subsidiaries in
Hangzhou, China; Yokohama, Japan; and Glendale, CA, where he usually can be found. Fletcher can be contacted
at ffletcher@nero.com.
ACC Docket 16 January/February 2011