San Francisco Business Lawyer Blog

Work Made For Hire Agreements: Who Owns the Copyright? Part 3: Software Development and Technology

Fri, 04 May 2012 14:39:25 -0800

It is all-too-common for software development contracts with independent contractors to
improperly classify deliverables as works made for hire. The work for hire doctrine does not include literary works and is therefore inapplicable to computer software. A company which seeks to retain the copyrights to work product created by a software engineer acting as an independent contractor must include a valid IP assignment clause in the independent contractor agreement or classify the contractor as an employee.

Software Programs and Technical Documentation

The development of software and technical documentation is a standard occurrence for
San Francisco start-ups and Silicon Valley technology companies alike. Companies frequently enlist the services of an independent contractor to perform this work. Naturally, the company seeks exclusive ownership and right of use of the product(s) developed.

However, using the work for hire approach with independent contractors for software development agreements without an assignment clause fails to transfer copyright ownership to the hiring party. Payment for the work does not alter the independent contractor's rights of ownership of the software. See § 101 U.S. Copyright Act.

Work for Hire under the U.S. Copyright Act

As review, when hiring independent contractors, there are three elements which must be in place for deliverables to qualify as work made for hire:

First, all deliverables need to be original works, specifically created for the project.

Second, the contract must be in writing and must declare that the deliverables are work for hire.

Third, the deliverables must fall into one of nine limited categories of works outlined in the Copyright Act (17 U.S.C. § 101), as previously discussed in Work Made For Hire Agreements: Who Owns the Copyright? Part 1: Federal Law.

Because literary works are not included within the nine limited categories of works eligible for work made for hire status under the U.S. Copyright Act, companies must use other methods of obtaining ownership rights in the software created by contractors.

A Solution - Assignment of Copyright Clause

For most companies, the options include 1) classifying the software developer as an employee, because all works created by employees are owned by the hiring party, or 2) including an assignment of copyright clause in the written independent contractor agreement.

For employers who seek to retain the independent contractor status of software developers, obtaining an assignment of copyright in all works created under the agreement is essential. In this manner, the copyright to all works created for the company by the independent contractor are transferred to the company.

It is imperative that the language used in such an assignment clause be absolute and in the present tense. Unclear wording can result in the company receiving nothing more than a promise by the independent contractor to transfer the copyright at some future date. Should the independent contractor fail to assign the copyright, the company may have a valid breach of contract claim, leaving it with an award of monetary damages, but not the copyrights to the software.

To ensure the benefits and security of IP protection it is always advisable to consult with an experienced attorney.

Related Blog Posts

Work Made For Hire Agreements: Who Owns the Copyright? Part 2: California Law

IP Protection for San Francisco California Entrepreneurs Part 1: Trademark & Copyright

Sources

U.S. Copyright Office-Circular 9 Works Made for Hire Under the 1976 Copyright Act

U.S. Copyright Office

17 U.S.C. § 101: Definitions

Work Made For Hire Agreements: Who Owns the Copyright? Part 2: California Law

Sun, 29 Apr 2012 14:48:41 -0800

In my previous entry, Work Made For Hire Agreements: Who Owns the Copyright? Part 1: Federal Law, we reviewed the federal copyright law governing work for hire agreements. This entry will examine the California state law implications of work for hire agreements for both employers and independent contractors.

Work Made For Hire Doctrine Under US Copyright Act

To begin, let's revisit the United States Copyright Act of 1976. Under this Act the copyright immediately becomes the property of the author who created the work, subject to two limited exceptions, as follows: 1) if the work is created by an employee within the scope of his or her employment, then the copyright ownership vests in the employer; and 2) if the work is a "work made for hire", copyright ownership vests in the hiring party.

As discussed in my previous post, the work made for hire doctrine permits businesses hiring freelancers to acquire the rights to the creative work if two conditions are satisfied: (1) the work must be within one of the nine categories of works listed in the Act, and (2) there must be a written agreement signed by both parties stipulating that the work is a work made for hire.

In California, state law changes the independent contractor's status to that of an employee for purposes of workers compensation and unemployment benefits.

Statutory Employee Status

In California, an individual engaged to produce work on a work made for hire basis is regarded as a "statutory employee." When this is the case, the hiring party is responsible for payment of state disability insurance and unemployment insurance. California Labor Code § 3351.5 (c) defines "Employee" in relevant part as:

"Any person while engaged by contract for the creation of a specially ordered or commissioned work of authorship in which the parties expressly agree in a written instrument signed by them that the work shall be considered a work made for hire, as defined in Section 101 of Title 17 of the United States Code, and the ordering or commissioning party obtains ownership of all the rights comprised in the copyright in the work."

Additionally, the hiring party's failure to acquire workers' compensation insurance once a work made for hire agreement is entered is subject to criminal penalties under California law. See California Labor Code § 3700.5 There may be serious consequences for the misapplication of California's "statutory employee" laws which must be considered when entering a work for hire agreement in California.

How Can California Employers Best Navigate Work For Hire Complexities?

One option is to simply handle independent contractors like employees regarding unemployment insurance and workers' compensation.

A second option is to leave the "work for hire" wording out of independent contractor agreements completely. Choosing this route requires adding an assignment provision to the agreement; whereby, the independent contractor agrees to assign all intellectual property created by the contractor to the hiring party.

Finally, an employer may request the independent contractor to form an LLC that is treated as a corporation for federal income tax purposes. If the independent contractor agrees to this, the employer could validly enter a "work for hire" agreement with the LLC without incurring the insurance obligations under California's statutory employee law since LLCs cannot be employees. See California Unemployment Insurance Code § 621(d)

In summary, both California employers and individuals must carefully evaluate the implications of work for hire agreements before entering such arrangements.

Related Blog Posts

California Independent Contractor or Employee Classification Part 1: California Test

California Independent Contractor or Employee Classification Part 2: Federal Test

Sources

California Unemployment Insurance Code § 686

California Labor Code § 3351.5(c)

California Labor Code § 3700.5

17 U.S.C. § 101: Definitions

U.S. Copyright Office-Circular 9 Works Made for Hire Under the 1976 Copyright Act

U.S. Copyright Office

Work Made For Hire Agreements: Who Owns the Copyright? Part 1: Federal Law

Fri, 20 Apr 2012 13:40:13 -0800

At the intersection of copyright, business and employment law lies the "work made for hire". This complex legal issue commonly arises in my San Francisco business law practice in the form of copyright ownership and rights of use to original works of authorship created for a hiring party by an independent contractor. This post examines the federal law governing work for hire agreements. In a follow up post I will address California state laws affecting work for hire agreements.

Who Owns the Work?: Independent Contractor or Employer

The 1976 Copyright Act fundamentally altered the application of the work made for hire doctrine to the creative works created by an independent contractor.

The copyright in any "specially ordered or commissioned" work created by an independent contractor on or after January 1, 1978 is presumed to be owned by the independent contractor. This presumption may be overcome only by a written agreement, and then only if the work falls within the nine categories of specially commissioned works that can be works made for hire prescribed by the Copyright Act.

The federal courts have imposed strict requirements on the specific writing required in order to alter the de facto rule that an independent contractor owns all rights to his creative works. In order for the commissioning party to be deemed the sole owner of the work as a work made for hire, there must exist a written agreement, signed by both parties, which specifies that the particular work is to be made as a work made for hire. See 17 U.S.C. § 101; Quintanilla v. Texas Television Inc., 139 F. 3d 494. 497 (5th Cir. 1998); Playboy Enterprises, Inc. v. Dumas, 960 F. Supp. 710 (S.D.N.Y 1997) (endorsement of checks by artist's business manager or accountant did not bind artist to work for hire agreement).

If the work for hire agreement is ineffective, because the work does not fall within one of the nine statutory work for hire categories, an alternative contractual provision assigning the copyright in the work to the hiring party will transfer the copyright. See Teevee Toons, Inc. v. MP3.com, Inc., 134 F.Supp. 2d 546, 549 (S.D.N.Y 2001).

What Type of Work Can Be "Work for Hire"?

The Copyright Act provides that the work must fall within one of the explicit categories of works set forth in the statute, which when prepared as a specially ordered or commissioned work, may constitute a work for hire. Those categories are: works specially ordered or commissioned for use (1) as a contribution to a collective work, (2) as part of a motion picture or other audiovisual work, (3) as a translation, (4) as a compilation, (5) as an instructional text, (6) as a test, (7) as answer material for a test, (8) as an atlas, (9) as a supplementary work.

A "collective work" is a "work, such as a periodical issue, anthology, or encyclopedia, in which a number of contributions, constituting separate and independent works in themselves, are assembled into a collective whole." 17 U.S.C. § 101.

A "supplementary work" is defined as "a work prepared for publication as a secondary adjunct to a work by another author for the purpose of introducing, concluding, illustrating, explaining, revising, commenting upon, or assisting in the use of the other work, such as forewords, afterwords, pictorial illustrations, maps, charts, tables, editorial notes, musical arrangements, answer material for tests, bibliographies, appendixes, and indexes." 17 U.S.C. § 101.

A "compilation" is defined as "a work formed by the collection and assembling of preexisting materials or of data that are selected, coordinated, or arranged in such a way that the resulting work as a whole constitutes an original work of authorship. The term "compilation" includes collective works." 17 U.S.C. § 101.

An "instructional text" is defined as "a literary, pictorial, or graphic work prepared for publication and with the purpose of use in systematic instructional activities." 17 U.S.C. § 101

Exceptions to Nine Categories - Some Creative Works Cannot Be a Work for Hire

It is important to note that photographs, computer programs, sound recordings, choreographic works, and musical compositions are not included in these nine categories under the Copyright Act. In other words, not all creative works are eligible for work for hire status under the federal statute. Therefore, the commissioning party in industries such as software, music recording, photography and dance, among others, must obtain an assignment of copyright from the independent contractor in order to secure copyright ownership rights in the creative work and cannot rely upon a work made for hire agreement to secure ownership rights.

In summary, unless a (1) written agreement, signed by both parties, stating the particular work is to be created as a "work made for hire" and (2) the work falls within one of the nine statutory categories of works which when specially ordered may be a work for hire; the independent contractor is deemed to be both the author of the work and the owner of the copyright. See Playboy Enterprises, Inc. v. Dumas, 53 F.3d 549 (2d Cir. 1995).

Even though the commissioning party may not own the copyright, it will most likely be deemed to have an implied nonexclusive license to use the work in the manner contemplated by the parties at the time they entered the agreement regarding the specially ordered work. See Effects Associates, Inc. v. Cohen, 908 F.2d 555 (9th Cir. 1990).

Next, we will examine whether California state laws affect the practical application of the work for hire doctrine in Work Made For Hire Agreements: Who Owns the Copyright? Part 2: California Law.

For related reading on the employee versus independent contractor determination review the following posts on this blog:

California Independent Contractor or Employee Classification Part 1: California Test

California Independent Contractor or Employee Classification Part 2: Federal Test

Sources

17 U.S.C. § 101: Definitions

U.S. Copyright Office-Circular 9 Works Made for Hire Under the 1976 Copyright Act

U.S. Copyright Office

Robert Lind, J.D., L.L.M, Professor of Law Southwestern University School of Law, Los Angeles, California, Copyright Basics (9th ed. 2006).

Are Color Trademarks Valid?: A Sneak Peek at Louboutin's Appeal for Trademark Protection for Red Soled High Fashion Heels

Mon, 09 Apr 2012 17:50:10 -0800

The appeals court is expected to decide Louboutin v. Yves Saint Laurent in the next few weeks. This case, originated by Louboutin in 2011, and now on appeal, brought two of the world's elite fashion designers and most exclusive brands to court over Louboutin's trademark for its famous China red soled shoes. As a San Francisco trademark lawyer, I think this is an interesting case which greatly affects the rules regarding color trademarks and possibly which shoes you should buy this spring.

The District Court Denied Louboutin's Request for Preliminary Injunction

The U.S. District Court for the Southern District of New York, in its August 10, 2011 decision in Christian Louboutin S.A. v. Yves Saint Laurent America, Inc., calls into question whether a single color may serve as a trademark for fashion. The case arose from an action for trademark infringement brought by luxury shoe designer, Christian Louboutin, against Yves Saint Laurent America. Louboutin is well-known for his collection of luxurious women's shoes, which have bright red glossy soles. He also owns U.S. Trademark Registration No. 3,361,597 for the mark, which is described in the registration certificate as "a lacquered red sole on footwear:"

Louboutin alleged, in relevant part, that Yves Saint Laurent's sale of four shoe designs that are entirely red, with a red sole, were likely to confuse consumers as to the source of the Yves Saint Laurent shoes, in violation of Louboutin's trademark rights. In the 2011 decision, Judge Victor Marrero denied Louboutin's motion for preliminary injunction, finding that Louboutin was unlikely to be able to establish that he had a protectable mark, since color cannot serve as a trademark if it is functional. Judge Marrero's lengthy opinion discussed the similarities between high fashion footwear designers and fine artists and held that Louboutin's trademark has an aesthetic purpose which obstructs fair competition.

Louboutin Appealed the District Court's Denial of his Request for Injunction

On January 24, 2012 Christian Louboutin, through his attorneys, argued his appeal to the U.S. Court of Appeals for the 2nd Circuit to protect his trademark on red lacquered soles. A decision should be rendered spring 2012. The question before the court presents two vastly different views of the purpose of color in fashion design and has implications for other industries where color used as a source indicator arguably has an aesthetic or functional purpose.

Louboutin's Legal Argument

Louboutin known for the lacquered Chinese red finish on the soles of his designer heels argues that this red feature serves strictly to identify his brand. Louboutin attests the red soles are exclusive brand identity, as in the case of Tiffany's signature robin's egg blue used in connection with jewelry and other items. (Tiffany's filed an amicus brief supporting Louboutin's position on color and trademarks.)

On appeal Louboutin argued that Judge Marrero erred: "By putting a distinctive red color on the previously ignored bottom portion of the shoe, Louboutin established a strong brand identifier. The red outsole has no [other] utility." The appellate brief refuted Judge Marrero's decision that the trademark hinders competition, by arguing that the Judge's conclusion was simply conjecture unsupported by evidence.

Yves Saint Laurent's Counter Argument

Yves Saint Laurent countered on appeal that by Louboutin's own admission the red sole has an aesthetic purpose. Therefore, according to Yves Saint Laurent, Louboutin does not qualify for trademark registration under the U.S. Supreme Court's 1995 opinion in Qualitex v. Jacobson Products, which decrees that a color can be trademarked strictly in the event that it "can act as a symbol that distinguishes a firm's goods and identifies their source, without serving any other significant function." When color serves a singular aesthetic function and is not a source of brand identification, as Yves Saint Laurent contends, the color is not viable for trademark protection.

Secondary Meaning

The United States Supreme Court held in Qualitex that a color may be trademarked if it qualifies as having secondary meaning.

Secondary meaning refers to the circumstance where consumers instantly associate the mark (a red color in this case) with the brand, to the exclusion of all others. However, if a color is a functional feature that affects the use, quality or cost of a product, the mark does not meet the criteria for trademark protection.

Therefore, Louboutin's counsel argues that the public associates the red soled high heeled shoe exclusively with Christian Louboutin and compares Louboutin's red sole to the valid trademarks of Burberry's plaid as well as Gucci's stripes. "Outstripping them all has been the Red Outsole Mark. Its trademark status has been conferred upon it by the consuming public." Indeed, would women spend hundreds or thousands of dollars to snag a pair of crimson soled shoes without secondary meaning?

However, the lower court expressed concern that other designers might lay claims to additional colors, leading to the eventual exhaustion of available colors. This could potentially damage the fashion world's creativity and overall viability. Additionally, other fields where the aesthetic use of color is fundamental to the product, such as
cosmetics, home décor and commercial art, could suffer the same fate.

Law School Faculty Members File Amicus Brief in Support of Yves Saint Laurent

Notably eleven law school faculty members filed an amicus brief supporting Yves Saint Laurent. The brief drafted by Rebecca Tushnet of Georgetown Law Center stated: "This court should recognize that the shadow cast by a mark in a single color on a fashion item creates enormous uncertainty for other designers and should regard claims of single color trademarks in fashion with considerable skepticism..."

The professors distinguished between design patents and color trademarks, arguing that trademarks for colors serving an aesthetic purpose would confer similar monopolistic rights as design patents, creating an entirely anti-competitive situation.

There's a lot at stake for Louboutin as his red soled shoes may be one of the most powerful trademarks in the world. If competitors were allowed to produce their own version of red soled shoes, such items would no longer confirm an association with the wealth and prestige currently unique to Louboutin. Additionally, the court's decision could have a broad impact on the fashion industry's use of color as well as any industry where the color of a product would be considered to contribute "expressive, ornamental and aesthetic" functions.

A decision on the appeal is expected this spring. Until then, you may be wise to hold off on a purchase of red soled shoes.

For related reading on trademark law and trademark protection review the following posts on this blog:

Trademark Law 101 for SF Bay Area Start-ups and Entrepreneurs

IP Protection for San Francisco California Entrepreneurs Part 1: Trademark & Copyright

Sources

Christian Louboutin's Appellate Brief U.S. Court of Appeals for the Second Circuit, Filed October 17, 2011

"Protecting Single Color Trademarks In Fashion After Louboutin" 30 CARDOZO ARTS & ENT. L. J, (forthcoming May 2012)

"From The Red Carpet to Red Soles" New York Law Journal, February 27, 2012

United States Patent and Trademark Office - Trademarks 

United States Patent and Trademark Office - Trademark Basics

California Co-Ownership of Real Estate Part 2: Tenancy In Common or Joint Tenancy?

Sat, 17 Mar 2012 10:28:27 -0800

In my previous entry, California Co-Ownership of Real Estate Part 1: Tenancy In Common or Joint Tenancy?, we analyzed the characteristics of co-ownership of property as tenants-in-common. In this entry we will examine the characteristics of co-ownership as joint tenants.

Joint Tenancy

Joint tenancy is a manner of holding title to real property by two or more parties. In order to create a valid joint tenancy clear language indicating that intent must be used - e.g. "to ABC and XYZ as joint tenants with right of survivorship, and not as tenants in common". Shorter forms such as "to ABC and XYZ as joint tenants" or "to ABC and XYZ jointly" are recognized as valid in most states. Words to that effect may be used by the parties in the transfer of title, in a will, or in a trust deed.

Additionally, the co-owners must share the four unities; the unity of time, title, interest and possession.

Unity of Time

The co-owners must acquire interest in the property at the same time.

Unity of Title

The co-owners must acquire the same title from the same assignor with the same conditions. If one party has a condition on his or her title that does not exist on the others' title, then the same title has not been acquired and no joint tenancy exists.

Unity of Interest

The co-owners each own the same interest in the property irrespective of the amount of money contributed to the real estate purchase. For example, if three persons own property as joint tenants, each owns a 1/3 interest in the property no matter if they each contributed different amounts of money to the purchase.

Unity of Possession

The co-owners all have an equal right of possession to the entire property.

The duration of a joint tenancy is directly tied to the existence of the four unities. This means that in the event that one of the joint tenants transfers his or her interest, this will terminate the joint tenant status of the transferring joint tenant. The outcome of such an action is a severing of the joint tenancy, which means that the new owner would acquire interest in the property as a tenant-in-common with the remaining, "non-severed" joint tenants.

Right of Survivorship

The defining characteristic of joint tenancy is the right of survivorship. The right of survivorship means that upon death a San Francisco joint tenant's property interest passes directly to the surviving joint tenant or tenants by operation of law. The right of survivorship is integral to a joint tenancy and distinguishes it from a tenancy in common. Joint tenancy is an attractive option for many, including spouses, because the right of survivorship trumps outstanding claims by surviving heirs and beneficiaries. Additionally, the transfer of a joint tenancy interest occurs outside of probate, the legal process by which a deceased person's will is approved.

A joint tenancy continues so long as more than one tenant owns interest in the property. Upon the death of one joint tenant, the other joint tenants' interests in the property increase equally. This process occurs until only one tenant remains, and then the remaining tenant becomes the sole owner of the property.

It is worth noting however, that joint tenancy with a right of survivorship may not defeat claims by creditors against the decedent's interest. In fact, such liabilities may pass to the surviving joint tenant(s), attached to the decedent's interest in the property.

In sum, a joint tenancy creates a right of survivorship in the remaining tenant which greatly limits the rights of transfer of a property interest upon an owner's death. This is in great contrast to the unlimited right of transfer in a tenancy in common. Co-owners should carefully consider the implications of each form of ownership before taking title.

California Co-Ownership of Real Estate Part 1: Tenancy In Common or Joint Tenancy?

Fri, 09 Mar 2012 14:35:26 -0800

Purchasing real estate is one of the largest financial decisions we make. The process becomes even more complicated when buying real estate with another party. Whether buying real estate with a business partner, spouse or friend the importance of title to the property cannot be overlooked.

Concurrent ownership means two or more parties own property together, with neither party having exclusive possession or right of use of any particular part of the property.

California recognizes two main categories of concurrent ownership:

1. Tenancy in Common
2. Joint Tenancy with the Right of Survivorship

There are distinct characteristics to consider in each type of concurrent ownership. The differences of each form of co-ownership influence events such as: selling the property, estate planning, protecting the property from creditors as well as contributions toward property maintenance.

An informed decision on the type of concurrent ownership requires consideration of use and transfer of the property.

Tenancy in Common

Tenancy in common is the predominate form of concurrent ownership used by unmarried individuals. In the San Francisco Bay Area, where the purchase price of real property is some of most expensive in the country, tenancy in common creates home ownership and investment opportunities where none would otherwise exist.

In a tenancy in common, two or more individuals own property in undivided interests. An "Undivided Interest" means that all of the-co-owners have the legal right to use and enjoy all of the property equally. Although the amount of interest in the property held by each owner may be different, (ex: two individuals may each own an equal undivided interest or one party may own a 10% undivided interest and another party may own the remaining 90% interest) each owner is equally entitled to possess and use all of the property.

However, the parties may modify this undivided right of use by written agreement to conform to their intended use of the property. For example, one party may have exclusive rights of use to a certain floor in a building, or, the parties may assign exclusive rights of use of the property based on time, as in a time-share.

Notably, tenants in common do not have the "automatic right of survivorship" that joint tenancy provides; whereby, when one joint tenant dies, that joint-tenant's interest automatically passes to the remaining owner.

Advantages of Tenancy in Common

The benefits of a tenancy in common include:

• Each owner has a freely alienable undivided interest in the property.
• Each owner has the right to give away, sell, or mortgage their interest in the property. However, all tenants in common must agree on decisions such as sale and mortgage affecting the whole property.
• Upon death, each owner's interest in the property passes by will, trust, or intestate succession to the owner's heirs, beneficiaries, or devisees.
• The co-owners have no right of survivorship in another owner's undivided property interest.

Disadvantages of Tenancy in Common

While tenancy in common is advantageous in many circumstances, in other situations, there are potential drawbacks to evaluate:

• Each owner must pay for property taxes, liens, assessments and repairs.
• If one owner pays taxes or makes necessary repairs, they are entitled to a sum of money from the other owners in proportion to the remaining owner's undivided interest.
• If a dispute arises involving transfer or usage of the property or if one owner desires sole ownership and/or possession of an increased share of the property, any owner can file suit for partition of the property.
• If the court grants a partition, the property is divided between the owners, resulting in each becoming a sole owner of a portion of the divided property.
• If the court decides that physically dividing the property may be injurious to any of the involved parties, an order may be issued to sell the entire property and divide the proceeds between the owners in amount of their proportionate interests.

The tenancy in common arrangement is very much like a business partnership. When co-owning property with others, it is best to work out the details of property management and ownership in a written Tenancy In Common Agreement. Such agreements address the respective rights and duties of each party concerning mortgage payments, property taxes, insurance, maintenance, lease, development and sale of the property. A well prepared agreement can help avoid real estate contract disputes.

Next, we will examine the characteristics of joint tenancy co-ownership of property.

What Can We Learn From Famous Billionare Lawyer Joe Jamail?: No Rude, Uncivil or Vulgar Conduct in a California Deposition!

Fri, 02 Mar 2012 14:22:25 -0800

Joe Jamail

The above video is reportedly of Joe Jamail taking a deposition in Texas in Paramount Communications Inc. v. QVC Network Inc., a case before the Delaware Court of Chancery. By any standard, the attorney conduct in this deposition is outrageous.

As a California business litigation attorney, I've seen my share of aggressive conduct. While this video demonstrates extreme conduct in Texas, the California state and federal courts have clear guidelines for professional conduct during the course of litigation and throughout trial. Many instances of unprofessional conduct are in fact sanctionable by a court. Attorneys can be subject to monetary fines, penalties adverse to the client's case, as well as ethical inquiries.

The Delaware Supreme Court stated in Paramount Communications Inc. v. QVC Network Inc. concerning the attorney conduct during the case, a portion seen in the video above:

"The issue of discovery abuse, including lack of civility and professional misconduct during depositions, is a matter of considerable concern to Delaware courts and courts around the nation. One particular instance of misconduct during a deposition in this case demonstrates such an astonishing lack of professionalism and civility that it is worthy of special note here as a lesson for the future -- a lesson of conduct not to be tolerated or repeated."

See Paramount Communications Inc. v. QVC Network Inc., 637 A.2d 34, 54 (Del. 1994)

Wikipedia entry for Joe Jamail:

"Joseph Dahr Jamail, Jr. (born October 19, 1925) is a Lebanese American attorney and billionaire. The wealthiest practicing attorney in America, he is frequently referred to as the King of Torts. As of 2011, his net worth was estimated by Forbes to be $1.5 billion, making him the 833rd richest person in the world."

Wikipedia's entry for Joe Jamail continues:

"Jamail is known for his passionate, aggressive, sometimes abrasive advocacy on behalf of his clients -- a tendency that has been noted in the National Law Journal, by the Supreme Court of Delaware[as well as other sources. On its own motion, having reviewed deposition transcripts in the Paramount case, the Delaware Supreme Court referred to Mr. Jamail's conduct as "rude, uncivil and vulgar," "abusing the privilege of representing a witness in a Delaware proceeding," 637 A.2d. 34, at 53, as displaying "an astonishing lack of professionalism and civility," and as "outrageous" and as "unacceptable," for statements to deposing counsel such as "you could gag a maggot off a meat wagon." 637 A2d. 34, at 54. The Court included its admonition of Mr. Jamail in an Addendum to its opinion "as a lesson for the future - a lesson of conduct not to be tolerated or repeated." 637 A2d. 34, at 52."

Federal Rules of Civil Procedure

The Federal Rules of Civil Procedure require attorneys to conduct depositions with professionalism and civility.

Rule 30 Depositions By Oral Examination

(c)(1) Examination and Cross-Examination

The examination and cross examination of a deponent proceed as they would at trial under the Federal Rules of Evidence.

(c)(2) Objections

An objection must be stated concisely in a non-argumentative and non-suggestive manner. A person may instruct a deponent not to answer only when necessary to preserve a privilege, to enforce a limitation ordered by the court, or to present a motion under Rule 30(d)(3).

(d)(2) Sanction

The court may impose an appropriate sanction-including the reasonable expenses and attorney's fees incurred by any party-on a person who impedes, delays or frustrates the fair examination of the deponent.

Central District of California Civility and Professional Guidelines

The Central District of California has gone so far as to impose civility and professional guidelines to prevent abusive and obstinate behavior by and between lawyers to promote fairness and justice as opposed to the win at all-cost attitude that pervades the legal profession. Excerpts from the Central District of California guidelines are below:

Depositions
• We will not engage in any conduct during a deposition that would be inappropriate in the presence of a judge.

• During depositions we will ask only those questions we reasonably believe are necessary for the prosecution or defense of an action. We will not inquire into a deponent's personal affairs or question a deponent's integrity where such inquiry is irrelevant to the subject matter of the deposition. We will refrain from repetitive or argumentative questions or those asked solely for purposes of harassment.

• When defending a deposition, we will limit objections to those that are well founded and necessary to protect our client's interests. We recognize that most objections are preserved and need be interposed only when the form of a question is defective or privileged information is sought.

• When a question is pending, we will not, through objections or otherwise, coach the deponent or suggest answers.

• We will not direct a deponent to refuse to answer questions unless they seek privileged information or are manifestly irrelevant or calculated to harass.

California Code of Civil Procedure

The California code addresses appropriate conduct by attorneys in deposition as stated in relevant part below:

§ 2023.010 Conduct Subject to Sanctions

Misuses of the discovery process include, but are not limited to, the following:

(c) Employing a discovery method in a manner or to an extent that causes unwarranted annoyance, embarrassment, or oppression, or undue burden and expense.

(d) & (f) evasive or non-responsive

(e) unmeritorious objection to discovery

(i) failing to confer..in a reasonable and good faith attempt to resolve informally any dispute concerning discovery.

California Ethics and Civility Rules in Court

-Avoid repetitive or argumentative questions

-Should avoid...improper coaching of a deponent or suggesting answers

See Tucker v. Pacific Bell Mobile Services, (2010), 186 Cal.App.4th 1548 (Monetary sanctions for attorney coaching witness at deposition),

See Leko v. Cornerstone Bldg, Inspec. Serv., (2001) 86 Cal.App.4th 1109 (Using discovery in a manner that causes unwarranted annoyance or undue expense)

Sources

Wikipedia Entry for Joe Jamail

Federal Rule of Civil Procedure-Rule 30. Depositions By Oral Examination

Civility and Professionalism Guidelines - Central District of California

California Code of Civil Procedure Section 2023.010-2023.040

Form Contracts from the Internet? Think Again! (A Primer for San Francisco Businesses & Entrepreneurs)

Mon, 20 Feb 2012 15:56:11 -0800

Google "free contracts online" and you will find a profusion of websites touting inexpensive legal documents without the need to consult an attorney. While this may seem like an appealing alternative, the use of such online forms can be risky business indeed. I regularly advise established businesses and entrepreneurs on a wide array of business services, including contract formation.

Using a document that is not comprehensive, clear and specific to your specific circumstances can result in expensive and lengthy litigation if the insufficient form leads to a deal gone south or a lawsuit. Commercial contracts should include tailored, customized provisions in the vast majority of instances. These critical clauses may be missing when downloading a generic contract from the Internet.

Key Clauses for Commercial Contracts

Severability: If a court decides that any of the provisions in a legal contract are unenforceable, the court can "sever" that provision from the contract, and enforce the remainder of the contract.

Choice of Law and Forum: It is imperative to designate which state law will control in the event of a dispute arising from the contract. Certain areas of the law, employment law for instance, often have substantial state law implications. The generic nature of online legal forms may not address state law issues or requirements. This missing element can render the parties unprotected against serious financial and legal consequences.

Damages: Parties may agree in advance to a specified sum of money which will be the "liquidated damages" in the instance of a valid breach of contract claim. Inclusion of a liquidated damages clause removes the non-breaching party's requirement to prove actual damages. This clause can dramatically streamline dispute resolution.

Time is of the Essence: Delayed performance of the terms of the agreement would be a material breach.

Attorneys' Fees: This clause specifies that the non-prevailing party will pay the attorneys' fees of both sides in any legal dispute.

Indemnification: One party agrees to release another party from future liability.

In addition to problems that can occur when online legal forms lack sufficient provisional clauses, there are other potential issues to look at.

Lack of Specificity

The intention of downloadable, publicly available legal forms is to cover a broad range of common scenarios. The inherent problem here is obvious. Every business and situation has unique aspects. It is highly unlikely that a standardized, replicated form will adequately address the particular circumstances involved in a specific agreement.

Out of Date

It is the nature of the law to be in a continual state of flux and change. It is your attorney's job to stay abreast of such changes and advise you accordingly. More often than not, it is impossible to know the creation date of an online legal document. Determining whether the document addresses recent legal developments is difficult to do without the help of an attorney. This lack of information leaves you essentially "in the dark" as to the relevance of the content of many online legal forms.

Clarity of Writing

An overwhelming number of published court cases stem from unclear written agreements. The precision of words in a contract dramatically affects the meaning and enforceability of the agreement. It is essential to have competent counsel when drafting important legal agreements. Gambling with anonymous online contracts can be a short-sighted, costly and regrettable act.

To learn more about business contracts check out What Makes A Contract Valid in California Anyway? Part 2: Consideration and Other Formation Requirements.

Trademark Law 101 for SF Bay Area Start-ups and Entrepreneurs

Sun, 12 Feb 2012 11:32:51 -0800

Trademarks differentiate products and services from competitors and enable consumers to reliably associate the quality of your goods and services with your brand.

All businesses and companies use names, logos, taglines, domain names, colors and more to identify and distinguish their goods and services. As a San Francisco trademark attorney, I believe that sound trademark protection and enforcement is essential to protect these valuable business assets.

Trademark Strength

Not all trademarks are created equally. Some are stronger than others, meaning they are entitled to greater legal protection. Distinctive marks are entitled to legal protection; however, may be distinguished on a scale of strong to weak as follows: Arbitrary, fanciful, suggestive and descriptive.

Generic marks are not eligible for trademark protection because they have become synonymous with a general class of product or service. Examples of marks which lost trademark significance through "genericization" include Escalator, Aspirin and Heroin.

Trademark owners are required to protect their marks from becoming generic by alerting the public to their trademark significance. Examples of widely recognized consumer products which have been subject to "genericization", but have maintained their trademark rights include "Photoshop" and "Xerox".

Fanciful and Arbitrary Trademarks

Fanciful and arbitrary marks are the strongest of trademarks. Fanciful trademarks are novel, original words, which have no connection to the product or service they represent. An example of a fanciful trademark is "Google".

Arbitrary trademarks are comprised of recognizable words, but they are not inherently connected to the related product or service. "Apple" is an example of an arbitrary trademark.

Business owners must carefully consider the pros and cons of selecting a business or product name. While fanciful or arbitrary trademarks are the strongest of trademarks, entitled to the strongest legal protection, it can be difficult for a new company using a fanciful or arbitrary mark to generate consumer association with their product or service due to a fanciful or arbitrary trademark's abstraction along with a new brand's relative anonymity in the commercial market.

Suggestive Trademark

A suggestive trademark implies the product or service it represents by the name alone. A suggestive mark differs from a merely descriptive trademark, because a suggestive mark requires a consumer to use some imagination to determine the nature of the product or service the mark represents. An example of a suggestive trademark is the name and associated logo of the men's publication "Playboy". The line between a descriptive and a suggestive trademark is not always clear-cut.

Descriptive Trademark

A descriptive trademark is one in which the word or mark literally describes the service or product. The product or service is immediately apparent in the mind of a consumer upon hearing or seeing the mark. No imagination is required whatsoever to make the determination as to what product or service the mark represents.

An example of a descriptive trademark is the optometry store and optical service facility, Vision Center. This type of mark receives little trademark protection. In fact, descriptive trademarks are only registrable on the Principal Register at the U.S. Trademark Office once the marks have achieved widespread consumer recognition, referred to as "secondary meaning". Secondary meaning is shown only by extensive advertising and evidence of consumer association between the mark and the product or service it represents.

Trademark Registration

Trademark rights in the United States are garnered by use of the mark. This differs from trademark law in other parts of the world, such as the EU, which has a system where trademark rights are secured only by registration of the mark, not use. In the U.S., registration of a trademark with the USPTO is not mandatory to secure trademark rights, but does provide important legal advantages.

The many benefits of federal trademark registration include: presumptive legal ownership of the mark, the right to use the ® symbol adjacent to the mark notifying the public of an existing federal registration, federal jurisdiction for trademark infringement claims and the right to recover lost profits, damages and costs as well as treble damages and attorneys' fees.

State trademark registration confers certain advantages as well. In California, as in other states, the Secretary of State's office maintains records of registered trademarks and will not allow others to register the same name. The mark, once registered with the state, appears on search reports and provides a deterrent to others considering the same or similar names.

Sources

United States Patent and Trademark Office -Trademarks

United States Trademark Office-Trademarks Basics

United States Trademark Office-Trademark Process

California Business and Professions Code sections 14200

California Secretary of State-Trademarks and Service Marks

IP Protection for San Francisco California Entrepreneurs Part 2: Patent & Trade Secret

Mon, 06 Feb 2012 05:15:30 -0800

In my experience as a San Francisco Bay Area start up company attorney I frequently talk with software developers, technology companies and other inventors and creators who seek to protect trade secrets by use of non-disclosure agreements and compliance with the rules of confidentiality. Trade secrets, confidential information and other proprietary assets must be secured to guard a company's unique competitive advantage.

In my last post entitled IP Protection for San Francisco California Entrepreneurs Part 1: Trademark & Copyright, I discussed the essential characteristics of trademarks and copyrights. In this post, I will describe the defining characteristics of patents and trade secrets.

Patent

A patent protects ideas and discoveries and grants a complete right to the profits of an invention by the U.S. Patent Office for a specified time. The criteria for a patent includes, novelty (previously unknown), "non-obvious" (something that an expert in the same field could not identify) and usefulness.

While awaiting federal registration of the patent, the company may mark the designs or product "patent pending". Once the patent has been issued, the product can be marked with "patent" along with the number assigned by the U.S. Patent Office. A patent holder can sell or transfer the patent to another, as long as the transaction is in writing, signed and notarized.

Trade Secret

A trade secret is a formula, practice, process, design, instrument, pattern, or compilation of information which is not generally known or reasonably ascertainable, by which a business can obtain an economic advantage over competitors or customers. The recipe for Coca Cola is the most famous trade secret.

For most businesses in California, trade secrets are invaluable assets. Trade secrets afford successful businesses the edge over competitors. This information can be in the form of ideas, devices, business procedures, formulations or recipes. With such intrinsic value at stake, businesses must keep proprietary information confidential and away from unethical competitors.

Companies attempt to protect their trade secrets with the signing of non-disclosure agreements. A non-disclosure agreement is a contract, where the parties agree to keep certain information confidential, shielded from public view.

If that secrecy is breached, the survival of the business itself may be in jeopardy. Conversely, just the allegation of trade secret violations or security breaches can place a business's reputation or a professional's career at risk.

Sources:

United States Patent and Trademark Office

Uniform Trade Secrets Act/CA Civil Code Section 3426-3426.11

IP Protection for San Francisco California Entrepreneurs Part 1: Trademark & Copyright

Sat, 28 Jan 2012 16:11:05 -0800

While not every company is entitled to patent or copyright protection, almost every business has a word, mark or symbol used to identify its product or service. This word, mark or symbol is a trademark or service mark eligible for state or federal trademark registration. All businesses have valuable IP to protect.

In my San Francisco IP and business law practice I frequently talk with manufacturers, distributors, restaurants, retailers and other service businesses who want to protect trademarks, service marks and logo designs. Software developers, technology companies and other inventors and creators may have software code to copyright, trade secrets and patents to protect. Creative works of all types (photography, books, music, film, architecture and other original works of authorship) should be copyright protected.

Intellectual property includes trademarks, copyrights, patents and trade secrets. In this post, I will describe the defining characteristics of trademarks and copyrights. In my next post I will explore patents and trade secrets.

Types of Intellectual Property

Trademark

A trademark or service mark is any word, mark or symbol used in commerce to identify the source of a service or product. It is imperative that you protect your trademark and/or service mark, as your customers and clients associate your brand with the quality for which you are known. Valid state and federal trademarks protect investments in time and energy building your brand and advertising and marketing dollars. Whether it is a company name, logo, distinguishing brand color(s), or the name of a signature product, it is essential to safeguard your IP by identifying and protecting your trademarks.

In the United States, one can obtain trademark rights by using the trademark and achieve certain legal advantages by registering it with the United States Patent and Trademark Office (USPTO). If an individual or company acquires trademark rights through use, this is called a common law trademark. Common law trademarks are only valid within the geographical area the symbol is used. When an identification symbol or word is registered with the United States Patent and Trademark Office, the symbol becomes a legally recognized federal trademark. State trademark registration is an option for those using their mark solely within one state, not in interstate commerce. State registration provides fewer advantages than federal trademark registration; however, the appearance of the mark in state databases and on subsequent third party trademark search reports can deter potential competitors from adopting your mark or a potentially confusingly similar mark.

Copyright

A copyright is an original work of authorship fixed in tangible form. Although federal registration confers certain legal rights, a copyright is protectable the moment it is created, whether the work is federally registered or not.

Copyright protection is a form of federal legal protection to those who create or compose original works, including literary, dramatic, musical, and artistic works, such as computer software, architectural drawings, photographs and musical recordings. The U.S. Copyright Act grants the owner of a copyright, independent of the original work being published, the exclusive rights to:

• Reproduce the work
• All derivative forms of the work
• All forms of distribution of the work
• Any public performance or displays of the work

Additionally, only the owner of the copyright may give permission to others to use their work.

Next, we will examine the characteristics of the two remaining types of IP; patents and trade secrets.

Sources:

United States Patent and Trademark Office

United States Patent and Trademark Office-Trademarks Home

California Secretary of State-Trademarks and Service Marks

Model State Trademark Law/CA. Business and Professions Code Section 14200-14202

United States Copyright Office

United States Copyright Office - Copyright in General (FAQ)

How Can I Get Out of This California Contract? Part 2: Fraud, Frustration of Purpose and Statute of Frauds

Wed, 18 Jan 2012 08:00:00 -0800

Our firm is experienced in advising corporations, LLCs, partnerships and entrepreneurs on a wide array of business services, including contract formation.

As discussed in my previous entry How Can I Get Out of This California Contract? Part 1: Mistake of Fact, Capacity, Undue Influence/Duress and Unconscionability you may need to prove that no contract existed to defend against a breach of contract lawsuit; or, perhaps, you are not happy with the terms of an agreement and would like to get out of the contract.

Last time we looked at mistake of fact, capacity of the parties, undue influence/duress, and unconscionability to prevent the enforcement of a contract or to prove the nonexistence of a business agreement.

Let's now examine additional defenses to contract formation below which may render a contract void or voidable.

Legal Defenses to Contract Formation

In two prior posts we reviewed the requirements for valid contract formation. (What Makes a Contract Valid in California Anyway? Part 1: Offer, Acceptance and Mutual Assent and What Makes A Contract Valid in California Anyway? Part 2: Consideration and Other Formation Requirements).

Once it is established that valid contract formation has occurred, the next step is to determine whether there are defenses to contract enforcement.

Fraud

Where one party proves that it was induced to enter an agreement by fraudulent conduct, a court will void the contract. Fraud is difficult to prove as it requires evidence of an intentional misrepresentation or an omission of a material fact essential to the bargain. If fraud is proved, the contract is voidable by the party upon whom the fraud was inflicted.

Frustration of Purpose

Frustration of Purpose is a defense to contract enforcement and requires an unforeseen event which undermines a party's principal reason for entering the agreement.

Written Contracts (Statute of Frauds)

Certain contracts may be unenforceable if they are not in writing. The Statute of Frauds is an aggregate term referring to the range of statutory laws that render certain types of contracts unenforceable unless they are evidenced by writing.

California's Statute of Frauds, found at Cal.Civ. Code §1624, states that some contracts "are invalid, unless the same, or some note or memorandum thereof, is in writing and subscribed by the party to be charged." The statute allows that the contract itself need not be in writing, although, there does need to be some written evidence of it, signed by the party to be charged.

Examples of contracts which must be written are those concerning the sale of real estate, contracts involving the sale of goods valued over $500, contracts whose purpose cannot be carried out within one year, contracts to pay another's debts, leases for more than one year and marriage contracts.

There may be other ways to show that a contract is unenforceable; however, these are some of the most common.

Sources

Cal. Civil Code §1624

How Can I Get Out of This California Contract? Part 1: Mistake of Fact, Capacity, Undue Influence/Duress and Unconscionability

Wed, 11 Jan 2012 14:15:00 -0800

You want out of a contract. It could be for any number of reasons. You made a poor business decision, made mistakes in understanding the terms of contract, or perhaps you simply entered a disadvantageous business agreement. Perhaps, you felt unduly pressured to sign on the dotted line, or maybe, a corporate executive made a decision without proper approval by the board of directors.

In another scenario, you have been sued for breach of contract and need to prove that no enforceable contract exists to successfully defend the lawsuit.

There are a number of grounds which may be used to prevent the enforcement of a contract or to prove the nonexistence of a business agreement.

Now, let's examine some defenses to contract enforcement below.

Legal Defenses to Contract Enforcement

If you would like to show that a contract is unenforceable, and a contract does, in fact, exist, the next step is to evaluate what defenses may call the lawfulness of the contract into question. Certain defenses render a contract unenforceable (void) while other defenses provide the parties the choice to enforce the contract or not (voidable).

Mistake of Fact

Various mistakes may invalidate a contract.

Unilateral Mistake of Fact

A unilateral mistake of fact occurs when only one party to a contract is mistaken as to the terms, scope or intrinsic subject matter of the contract. This determination is measured by an objective standard from the perspective of a reasonable person. Unilateral mistakes may be grounds for voiding a contract and are the most common form of contractual mistake.

In the case of Donovan v. RRL Corp., 27 P.3d 702 (Cal. 2001), the Supreme Court of California accepted the Restatement (Second) of Contracts' rule that a unilateral mistake of fact is a basis for rescission of a contract. This case involved an error in a printed newspaper advertisement for an automobile. The error was solely the fault of the newspaper, subsequently releasing both the buyer and the car dealer from any contract obligation arising from the auto sales contract.

A contract may also be found to be void if a mistake in the identity of the contracting party has occurred. When a party has simply made a poor business decision; however, there is no relief from contract enforcement.

Mutual Mistake of Fact

A mistake by both parties about the same essential element of the agreement (mutual mistake) renders the contract voidable. Although a meeting of the minds may be present, where a material fact within the contract itself is misunderstood by both parties, the contract is voidable.

Capacity of the Parties

To be an enforceable contract, the parties must be capable. Minors, the mentally ill, and intoxicated persons are generally not held to contracts they may have entered. There are certain instances, however, when a minor does have the option to enforce a contract.

Undue Influence / Duress

Undue influence or duress is the use of physical force or mental pressure to coerce another to "agree" to the contract. Proof of duress renders the contract voidable by the party put under duress.

Unconscionability

In the event of an unfair contract where the parties have unequal bargaining power, a court will often refuse to enforce a contract. This is a common defense in consumer cases, in which a person purchases a product or service under terms grossly unfair to the customer and the court may refuse to enforce the contract.

In my next post, How Can I Get Out of This California Contract? Part 2: Fraud, Frustration of Purpose and Statute of Frauds, I will discuss fraud in the inducement of contract formation, frustration of purpose and the statute of frauds as defenses to contract enforcement.

Sources

Donovan v. RRL Corp., 27 P.3d 702 (Cal. 2001)

What Makes A Contract Valid in California Anyway? Part 2: Consideration and Other Formation Requirements

Wed, 04 Jan 2012 06:54:04 -0800

In my last post entitled What Makes A Contract Valid in California Anyway? Part 1 I discussed the basic requirements for contract formation including offer, acceptance and mutual assent. In this post, I will continue discussing the essential components of a valid contract in California, including, 1) consideration, 2) competency, 3) consent, 4) legality and 5) whether a contract must be in writing to be enforceable under the California statute of frauds.

Consideration

Consideration is the bargained-for exchange. It is the benefit of the bargain received by one person and the detriment imposed on another. Consideration usually takes the form of money, property or services; however, it also can be performance of an act or a promise not to do something that the person has a right to do. Consideration must be legally sufficient, but courts will not analyze the adequacy of the consideration; meaning that courts will not measure the amount of consideration or the fairness of the agreement when analyzing whether sufficient consideration exists.

Other Formation Requirements

In addition to offer, acceptance and consideration, the fundamental elements of a contract, the parties to the contract must be competent, the parties must be capable of voluntary consent, and the object of the contract must be legal.

Competence means each party has the legal capacity to make a contract. Generally, people are considered to be competent if they are over 18 years of age and of sound mind.

Consent means that each party to the contract voluntarily agrees to the terms of the contract.

The law does not allow for enforcement of contracts based on illegal activity. Therefore, a valid contract must be based on legal activity.

The Statute of Frauds Requires Certain Contracts to be in Writing

Some agreements must be in writing to be enforceable. California's Statute of Frauds provides that some contracts "are invalid, unless they, or some note or memorandum thereof, is in writing and subscribed by the party to be charged." See Cal. Civ. Code §1624.

Under California's statute of frauds, some of the more common contracts required to be in writing, subject to limited exceptions, include: 1) agreements for the sale of real estate, 2) leases of one year or more, 3) an agreement authorizing an agent to sell real estate or 4) an agreement authorizing an agent to lease real estate for a period longer than one year, and 5) an agreement to answer for the debt of another. You can reference the statute of frauds for a complete list of all contracts required to be in writing.

Under the statute of frauds certain contracts are unenforceable if not in writing; yet, some contracts are not required to be in writing and may be enforced based on an oral agreement. For many reasons, however, it is generally advisable to memorialize final agreements in writing, including to prevent faulty memories from causing disagreements about the terms of contract between the parties.

Sources

California Civil Code §1624

What Makes a Contract Valid in California Anyway? Part 1: Offer, Acceptance and Mutual Assent

Tue, 20 Dec 2011 12:01:19 -0800

Contract formation is an essential part of establishing virtually any business relationship and documenting most business transactions. Business owners, executives and professionals enter contracts on a regular basis. While frequently a straightforward and uneventful process, in a contract dispute, the issue of whether a contract is legally enforceable is paramount. Contract formation is a technical process and more complex than it may seem.

This post will discuss the legal criteria for a valid and enforceable contract, including mutual assent, offer and acceptance. In my next post I will address consideration, other legal requirements essential to contract formation, and whether a contract must be in writing to be enforceable under the statute of frauds.

Legal Requirements for a Valid Contract in California

The California Civil Code defines a contract as follows:

§1549. A contract is an agreement to do or not to do a certain
thing.

§1550. It is essential to the existence of a contract that there
should be:

1. Parties capable of contracting;
2. Their consent;
3. A lawful object; and,
4. A sufficient cause or consideration.

California Civil Code §1549-1550.

While it is important to know the statutory definition and legal requirements for a contract in California, let's take a look at the legal principles underlying contract formation to gain a better understanding of how an agreement becomes legally binding and enforceable.

Mutual Assent

Fundamental to contract formation is the legal requirement of mutual assent. Mutual assent requires that the parties entering a contract, are, in fact, consenting to the same terms. At common law this principle is referred to as "a meeting of the minds".

Courts examine whether mutual assent exists between the parties by a review of the objective facts and evidence under the reasonable person standard. The reasonable person standard requires that the facts and circumstances be interpreted by the judge or jury objectively as a reasonable person in a similar situation would reasonably believe. This is necessary, as subjective intent cannot be measured; one cannot read another person's mind. See Meyer v. Benko, (1976) 55 Cal. App. 3d 937, 942-43.

Offer and Acceptance

Offer and acceptance analysis is a traditional approach in contract law used to determine whether or not a valid agreement exists.

Offer

An offer is a statement of the terms on which the offeror is willing to be bound. It is the present intent to be bound by a contract with definite and certain terms communicated to the offeree. The offer remains open until it is accepted, rejected, revoked or has expired. A counter-offer terminates the original offer.

Acceptance

Acceptance is the manifestation of a clear and absolute assent to the terms of the original offer communicated to the person who made the offer.

Like the offer, acceptance is measured by the objective reasonable person standard, not the subjective intent of the party receiving the offer.

In summary, mutual assent, offer and acceptance are all vitally important concepts to contract formation. Without a valid offer and an unqualified acceptance where the parties have mutually assented to the same terms, there is no enforceable contract.

Next, in a post entitled What Makes A Contract Valid in California Anyway? Part 2: Consideration and Other Formation Requirements we will examine other essential principles of contract formation, including consideration, legal capacity to contract and whether a contract must be in writing to be enforceable under the California statute of frauds.

Sources

California Civil Code §1549-1550

Meyer v. Benko, (1976) 55 Cal. App. 3d 937, 942-43

California Civil Code §1585