Legal Reference Terms – Survey Results

Last fall we posted a survey designed to test some assumptions about whether legal transactions could be more efficient – the classic better, faster, cheaper proposition- and perhaps even more rational.  The questions were designed, if that word can used without insulting the science of the survey industry, to test both some assumptions about the causes of transactional friction and potential solutions.  The responses suggest two conclusions:

  1. Some type of standard terms would improve technology transactions (55%, increasing to 83% with those responding “maybe”); and
  2. Statistical data on the probability of certain risk scenarios would make the negotiation of technology transactions better (76%).

You can see the complete results at SurveyMonkey – Survey Results, but here are a few more details:

  • Nearly 80% said they would use such terms under certain conditions;
  • The top four most heavily negotiated terms were: i) indemnification; ii) license rights; iii) change of control; and iv) payment terms; and
  • 72% of the respondents don’t currently use any statistical data to assess risk probabilities while negotiating transactions.

The first premise is that some of the difficulty (time/cost/value) in conducting legal transactions, at least technology deals, is caused in part by the absence of any common legal framework. Thus, too much is negotiated with little return in real value to the client. In this case, a potential solution may look like atomic contract elements, not a prepackaged license or form, but rather constituent parts such as predefined legal terms, provisions, and risk allocation choices, that could serve as building blocks for a complete transaction. See for example,  Incoterms like “FOB” used to allocate shipping transport risk. Of course, there will always be some “negotiation”, but certainly every term doesn’t need to be uniquely defined and negotiated each time. It’s simply not scalable nor a good use of resources.

The other premise is that the use of empirical data on risk probabilities would improve the outcome of negotiations or at least reduce the deal cycle. The underlying supposition is that if both parties truly understood the likelihood of certain outcomes, they would approach negotiation efforts more efficiently and better focus. Think actuarial tables for transactions.

Although the sample size of this survey was predictably small – no prizes and no sweepstakes because the legal issues are so complex – there were we still nearly 50 respondents consisting of largely of legal professionals involved in technology transactions. There is also an element of bias because the respondents are for the most part attorneys whom I may know professionally.

From here it seems like the next step is to bifurcate the two projects, identify organizations and individuals who might be interested in pursuing this further, and map out the next steps.  It is still not clear whether such initiatives are feasible or if there is enough incentive to make either happen. For sure, if even a few influential companies adopt such a legal reference framework, it would really make a big difference. A number of practitioners and academics have also expressed interest in one or both aspects of the survey topics. Some have already created frameworks for financial transactions, and related efforts seem to be increasingly sprouting up.

We’ve already received some great feedback, including ideas from Gillian Hadfield of USC School of Law, and folks at the Berkman Law lab such as Oliver Goodenough. I’ll summarize some of those recommendations in subsequent posts. For now, if you have further ideas, interest, or perhaps you’ve already done this and have experience that you would like to share, please feel free to post a reply or contact me directly.