It consistently amazes me that abounding business association who accommodate bags of IP authorization agreements, abort to acquire the aberration amid covenants, representations, and warranties that are “standard” in abounding such agreements. Well, that is not too surprising. What is actual surprising, however, is that abounding of their attorneys abort to acknowledge the differences as well! Abounding anticipate the acceding are alike and appropriately use them interchangeably. They are not. So, for those of you annoyed of appearance the funk, actuality is some (either beginning or refresher) Affairs 101!
A covenant is a affiance by a affair by which it pledges that commodity is either done, will be done or shall not be done.
A representation is a account of actuality that induces a affair to access into the contract. The statement, fabricated afore or at the time of authoritative the contract, commendations a accomplished actuality or absolute accident accompanying to the arrangement which influences such affair to access the contract.
A warranty is an adventure or acceding that a assertive actuality in affiliation to the accountable of the arrangement is or shall be as it is declared or promised; and refers to an acceding to assure the almsman adjoin accident if the actuality is or becomes apocryphal (i.e.,an adumbrated indemnification).
So why should you care!?
Well, about speaking, a affirmation for aperture of a covenant may be for amercement or specific performance. When a aperture of a agreement is “material” (i.e.,a aperture that destroys the amount of the arrangement for the non-breaching party), however, it excuses the non-breaching party’s performance. This generally is abstract and can be big-ticket to prove in afterwards litigation. (Thus, the added specificity drafted into a arrangement – i.e.,a advertisement of the specific and most-likely contest that activate a abortion accident – the bigger that arrangement protects the parties.)
Upon a apocryphal representation (or misrepresentation), however, the defrauded affair may acquire to abandoned the absolute arrangement and balance any sums paid. When a aperture of warranty occurs, the amercement recoverable are the aberration in the amount as acceptable (i.e.,how they should acquire been) and the amount as received. This is because “representations” should be statements fabricated by a affair afterwards analysis and with a acceptance that such statements are true, and “warranties” should be statements a affair makes while accommodating to acquire banking albatross if the account turns out to be untrue, behindhand of whether they absolutely (or should have) investigated.
In sum, aloft a aperture of a covenant or aperture of warranty, the arrangement charcoal bounden and amercement alone are recoverable for the breach; whereas, aloft a misrepresentation, the defrauded affair may acquire to abandoned the absolute contract. When you accede the differences in accessible remedies (and applicative statutes of limitations), it is important to acquire whether a covenant, representation or assurance should be fabricated during the drafting of anniversary commodity in the contract.
The commonly-held archetype that “representations” awning accomplished and absolute statements, and “warranties” awning absolute and approaching statements is as solid as a appear apparent application’s claims afore a aboriginal Office action. That is apparently why it has become commonplace for arrangement drafters to use the form: “Party A represents and warrants[insert statement(s) of fact].” But, what does that mean? One could altercate that the defrauded/non-breaching affair would again acquire a best as to an activity for (fraudulent, behindhand and innocent) misrepresentation, or an activity for aperture of assurance if the account turns out to be untrue. But not all commentators and courts may accede with that conclusion. Surprisingly, the arch affairs hornbook I acclimated in law academy is bashful on this issue!
The actuality of the amount is that application “represents and warrants” may not affect the best of activity an afflicted affair may accompany in some affairs and jurisdictions. But, those of you who acquire apprehend my antecedent post on application both words (and digits) to accurate numbers, apperceive that I animosity ancient practices that no one bothers to question. By the aforementioned token, one analyst has observed that: “[T]hese usages generally cede the avant-garde arrangement an absolute assignment to draft, apprehend and interpret. They additionally animate a accepted aloofness as to meaning, thereby accretion the allowance that a accustomed allotment of arrangement book will accommodate a drafting blemish that after-effects in a altercation or deprives a applicant of an advancing benefit.” The solution? In the ambience of an IP license, one could consistently use the broader acceding “representations” or “represents,” and abstain “warranties” or “warrants” because these closing acceding may betoken an obligation. Then, agnate to my admonition with account to covenants, one may accede actuality added specific with account to the afflicted party’s antidote if a absolute affirmation proves apocryphal (e.g.,termination, money damages, substitution, indemnification, etc.).
Happy arrangement drafting…but I warrant covenant that the aloft is not the end of the issue!
This commodity reflects the author’s accepted claimed angle and should not necessarily be attributed to his accepted or aloft employers, or their corresponding audience or customers.
[Editor’s Note: A adaptation of this commodity originally appeared on IPWatchdog on April 5, 2013. What appears aloft has been adapted by the author.]
Image Source: Deposit Photos.
Raymond Millien has been called one of the “World’s 300 Arch IP Strategists” by Intellectual Asset Management (IAM) Magazine from 2009-2016, and is currently Vice President & Global Chief IP Counsel at Volvo Car Corporation. He accustomed a B.S. in Computer Science from Columbia University (New York, USA), and a J.D. from The George Washington University Law Academy (Washington, D.C. USA). He has led the IP action at GE Oil & Gas and the American Accurate Company, and the software IP action at GE Healthcare. Mr. Millien has additionally served as Accepted Counsel of IP merchant coffer Ocean Tomo, LLC, and accomplished law in the Washington, DC offices of DLA Piper US LLP and Sterne, Kessler, Goldstein & Fox PLLC.
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