May 04, 2006
Copyright and Deal Documents
Posted by Gordon Smith

Last week, at the Harvard Conference on Case Studies, John Coates offered a fascinating and harsh critique of the lawyering in the Oracle-PeopleSoft takeover battle (described expertly in a case study by David Millstone and Guhan Subramanian). One of John's big-picture points was that deals lawyering generally suffers from the fact that quality is difficult to evaluate, even after the fact, and firms are not rewarded for innovation.

With respect to this last point, we all know (don't we?) that contracts can be copied freely in subsequent transactions, without fear of liability under copyright. The usual justification for such appropriations is "fair use," and an alert reader -- former student Chris Phillips -- noticed that the W$J Law Blog is blogging about the fair use of litigation documents and quoting from this article by Davida Isaacs, a professor at the Salmon P. Chase College of Law. From the abstract:

[C]ourts should permit attorneys’ unauthorized adaptation of copyrighted litigation documents as “fair use” for two reasons. First, penalizing attorneys would not advance copyright’s goal of providing incentives to create additional works, because subsequent unauthorized use does not diminish their market value. Second, because of the presence of market failures, the copyright owners do not license their documents, as one might otherwise expect: unfortunately, both a substantial number of hold-outs as well as transaction costs thwart frequent licensing; moreover, the marketplace is ill-equipped to permit the authors to capture the cumulative increase in value caused by the benefit to the public welfare from the dissemination of the documents.

Are you convinced?

P.S The article actually begins with a vignette about copyrighting contracts, not litigation documents.

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Comments (14)

1. Posted by Christine on May 4, 2006 @ 20:27 | Permalink

In many types of corporate legal documents, some wording is used because it has stood the test of time. We know that these magic words will mean X because courts have said so. Can one lawyer copyright those magic words? For example, bond indentures have a lot of market-tested (or court-tested) provisions that are almost identical to other indentures.

On the other hand, someone once told me they used Edgar as a form file. That struck me as bad form.


2. Posted by Robert Schwartz on May 4, 2006 @ 23:17 | Permalink

1. Copyright protects "original works of authorship." There is very rarely anyting original in any transactional document. I have actually written an original document. We did a presentation on revised article 8 of the UCC at an ABA spring meeting a few years back. I was the first person to write a "control agrement." It was a new concept at that time so there is actually some original language in that form. Maybe 2 or 3 sentences, tops.

2. what is really important in transactional documents is clarity of expression and transparency of organization. Not originality, which is as likely to confuse and cause problems as it is to help. The real lawyering is identifying the pertinent issues and figuring out how to resolve them before they wind up in litigation.


3. Posted by Robert Schwartz on May 4, 2006 @ 23:45 | Permalink

I once used a set of documents prepared by Skadden Arps as a poison pill. Some time later, I discovered a minor but not immaterial glitch, IIRC, there were what must have been a couple of dropped lines in a paragraph. In order to fix it, we had to put a charter amendment on the agenda at an annual meeting (the client was an Ohio corp, a Delaware would not have had to have done that).

I later found out that the same glitch popped up in a lot of pills Skadden had done.

This was before Edgar, but the lesson is clear, you must read and think through everything.


4. Posted by Gordon Smith on May 5, 2006 @ 7:56 | Permalink

Christine: "someone once told me they used Edgar as a form file. That struck me as bad form."

Why? I practiced when EDGAR was just getting launch, but we often requested documents from Skadden's "corporate library" in New York. The purpose was to get ideas for how other people put together their contracts. As Robert observes, these documents were not original to their creators, so we never thought twice about borrowing language.

Robert: "There is very rarely anyting original in any transactional document."

Is that because people can't benefit from being original? My guess is that you would have more attempts to be original if the lawyers could protect the documents from expropriation. Now, whether that would be a good thing is another matter.

Robert: "the same glitch popped up in a lot of pills Skadden had done."

Not my fault! ;-)


5. Posted by Joe Miller on May 5, 2006 @ 8:02 | Permalink

Haven't read the Isaacs paper. I think the conclusion (no copyright liability) is correct, and for something like the first reason stated in the abstract. Leave the "fair use" label aside for the moment; we can tack that on at the end if we think there's a good reason to excuse what would otherwise technically be an act of copyright infringement.

The main reason to deny liability, to me, is that the copyright incentive is completely unnecessary to ensure an adequate amount of creative expression in the context of legal representtion. The lawyer has the highest professional and pecuniary incentive to provide the best, strongest representation she can. That includes writing the best documents she can; and "best" may mean, as Christine indicates, copying the well-tested phrases that are already known (raising a subsidiary, copyright-based doctrinal reason to deny protection, known as the merger doctrine). To the extent innovation is desired, I think the ample supply we see is further induced by the reputational benefit to the individual lawyer (or law firm) that gains a reputation for doing the best cutting-edge, complex work (be it litigation or transaction work); in that sense, attribution is the key, not copyright. The bonus of copyright isn't needed to guarantee the creative expression, and so shouldn't exist. Because the copyright incentive is completely unnecessary, and we will get the benefit of the new creative expression without it, all the time and money put into dealing with the copyright issue in a given instance is waste. We generalize the "avoid waste" move by labelling this sort of copying fair use.


6. Posted by RM on May 5, 2006 @ 8:05 | Permalink

Is there any place to get Coates' comments? I'm curious as to what, exactly, he said, and about whom.


7. Posted by Gordon Smith on May 5, 2006 @ 8:34 | Permalink

Joe, "the copyright incentive is completely unnecessary to ensure an adequate amount of creative expression in the context of legal representtion."

That's what we have always assumed. John Coates argued that it wasn't so, at least for transactional work. We have examples on both sides. Wachtell probably would not be Wachtell were it not for the pill. And Skadden innovated in hostile takeovers on the side of the acquiror. On the other hand, lots of pills were/are defective. (Read Guhan's paper for that lesson.)

In my experience, both in practice and in studying vc contracts, the quality of transactional work is quite uneven, and not just at the small firms. But it's hard for clients or prospective clients to evaluate the quality because of the technical nature of the work.

It seems like the arguments might be different for litigation documents. The law firm's name is prominently displayed on them, and the court actually decides that one side gets the better of the argument.


8. Posted by Gordon Smith on May 5, 2006 @ 8:35 | Permalink

All of the papers and comments at the conference will be published in the Harvard Negotiation Law Review. I assume that John will make a contribution to that issue.


9. Posted by Joe Miller on May 5, 2006 @ 9:05 | Permalink

Gordon,
I don't doubt that the quality of transactional work is quite uneven. When I clerked at the Federal Circuit for two years, I saw a surprising number of briefs from high-priced firms, in big stakes patent cases, that were sloppy, halfhearted, and unconvincing. So, it's hard for clients everywhere to evaluate quality, and the quality of legal work is uneven. I just don't see how giving the lawyer an additional goodie - "you can enjoin others from copying this, or get license fees" - is going to make the work better enough as legal work product to justify all the hassle of bringing copyright machinery to bear.


10. Posted by Jeff Lipshaw on May 5, 2006 @ 10:13 | Permalink

The comments around originality are interesting. There really are somewhat opposing poles in deal document preparation. One stems from the prospect of adjudicated dispute resolution, which of course is the least important, if you measure it by the probability that any individual provision will be litigated (although the stakes could be very high). The other is the creation of the "deal legislation" so to speak. That is, from time to time, you go back to the agreement, willing to live with the language if it is clear, and depending on the stakes how far you are willing to go in argument and litigation if it is not (shameless plug: see The Bewitchment of Intelligence: Language and Ex Post Illusions of Intention, 78 Temp. L. Rev. 99 (2005)).

I think the previously expressed notion that clarity of expression and transparency of organization trumps the issue of "tried and true" is correct. The great value of previous drafts is in the second parameter: an acquisition agreement will generally have an internal logic with mutually dependent sections, say on closing updates, or pricing, or representations and warranties as they relate to the indemnity section. You often mess with those at your peril, and may create an internally inconsistent document (ask the man who knows!). On unique deal points, however, indeed, I think the tendency to go back to the tried and true, rather than to craft language that reflects the extent of the agreement or the acknowledged and desired ambiguity, may be a symptom of over-conservative lawyering. That is - drafting to get the deal done (i.e., making the parties feel like there is an agreement, even if the agreement is beyond the power of language to express) may be more important than drafting to satisfy an adjudicator with familiar language.

Without knowing much at all about copyright law, the idea that a jointly negotiated arm's length publicly available agreement (or not publicly available) is protected by copyright seems silly to me. Since I'm going to be at Tulane, the analogy seems to be apt: imposing copyright seems like taking contract formalism up a notch (bam!). Not only do we give undue attention (but we're lawyers so we have an excuse) to the words of the document (which hopes to capture the legal relationship but is only a subset of the whole transactional relationship) but we think so much of the words, we impute a protectible property interest. (Another shameless plug: for some mulling in high theory on the limits of formalism - it may not be any good but it is short! - see http://ssrn.com/abstract=899210)

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