US$237 Settlement by Boeing Directors Further to Boeing 737 MAX Safety Issues

The media reported this weekend that directors of the Boeing corporation just settled a lawsuit by shareholders, in connection with the massive problems of the Boeing 737 MAX, a debacle that included planes literally falling from the sky.

As we were reminding everyone recently, sitting on a board of directors isn’t all cocktails and schmoozing, it’s also real important work that can entail very real liability. In the case at hand, the liability at issue resulted in a settlement of US$237M which, to say the least, isn’t pocket change.  This is a good example of the reality that, yes, being a director entails exposure to eventual lawsuits, including by shareholders who may be impacted by bad decisions by the corporation’s board.

Here, the shareholders sued, based on the alleged directors’ failure, in their fiduciary responsibility, to adequately monitor safety issues of with the new model (then) being developed by Boeing. According to the shareholders’ claim before the courts, the lack of discussions and monitoring of safety issues by the board amounted to negligence. For example, the shareholders demonstrated that the Boeing board has created no specific committee to monitor safety issues which, in turn, allowed the corporation’s adoption of “unsafe business practices”.

This case also serves as a good reminder that, generally speaking, any potential director would do well to make sure he/she will be covered by adequate E&O insurance, before accepting to sit on the board of any corporation. Of course, it goes without saying that the coverage of those policies should be adapted to each case, being understood, for example, that acting on the board of a local business that runs restaurants does not entail the same level of risk and exposure as sitting on the board of a multinational aerospace company.

Yup, the reality is that being a director may have you sued down the line. Expect it, plan for it, including by taking your role seriously and making sure that the minutes and resolutions do reflect discussions and the work done by the board, over time. You never know when that evidence may come-in handy, to avoid liability. Failing that, decent E&O insurance coverage may be your best ally, make sure it is in place.

Good 7-Minute Read for Anyone Negotiating Contracts: 10 Rules of Contract Redlining

This morning, I happened on a good article on Law Insider which I’m happily passing along, including for the benefit of anyone customarily doing contract review, modification and negotiations. The article at issue is entitled The 10 Rules of Contract Redlining, a text penned by Nada Alajafi (from Contract Nerds -something I can definitely relate to). You can download it free from Law Insider.

After reading this article, I agree that the idea of contract redlining etiquette (or CRE) seems like something we should collectively have come-up with long ago, including to teach it in law school. There’s the technical aspect (learn how to use Word and track-change, etc.), and then there’s how to go about passing along your changes in a way that will result in a better deal, in the most efficient manner possible. That last one is where this particular problem lies. Our process to modify those draft agreements isn’t exactly optimal, including buy taking more time and energy to actually reach a point where a deal gets made.

Indeed, sadly, how to go about making comments and suggesting changes to draft contracts is definitely NOT something being taught in law school, nor something everyone agrees how to go about doing. As the author mentions in her article, we basically all learn to do this redlining business (meaning making suggested changes and communicating them) as we go, without anyone ever bothering to really explain HOW this should be done. Well, for once, someone has bothered to provide us with the skinny on this topic, including by reducing her advice to 10 rules contract reviewers should generally strive to follow.

Without wanting to steal her thunder, her rules includes advice like:

  • Be transparent and, yes, do flag for the other party ALL your changes to draft contracts (surprising how often we find stuff that was not shown in track-change);
  • Do use track-change adequately, supplementing most of those changes with a comment explaining why this change is required;
  • Do refrain from commenting any insignificant changes, or  more material ones that may benefit from a strategic omission of any explanation;
  • Refrain from adopting a method of negotiations whereby the parties basically send one-another successive versions of the draft document, without ever talking or meeting (if only with a video-conference) to hash it out -limit the number of such rounds of emails to keep things flowing smoothly;
  • Do use color codes in your comments whenever required, either to distinguish certain things or comments meant for your client vs. those addressed to the other party;
  • Be ready to draft any substantial changes you are requesting, as opposed to lazily letting the other party do the actual work after you raise an issue;
  • Be mindful of the fact that the client or the other party or attorney may or may not be as sophisticated as you are with the contracting process, technology or the law -adapt your comments and methods accordingly;
  • At the end of the process, upon preparing the final version of the contract document, do make a point of checking and re-checking that all agreed-upon changes are properly reflected by that final version.

All in all, lot’s of those may seem obvious for those of us who’ve been doing this for a while, but I think a lot of people involved in contract work may certainly benefit from reading and internalizing these rules. Thank you Nada!

U.S. Decision in Omni Medsci Illustrates Continued Need for Proper Drafting When Attempting to Assign I.P.

A recent cases handed down by the United States Court of Appeals provides a good example that, even today, in an age where courts have largely abandoned formalism, yes, some legal documents still need to reflect precise words to express certain things and make certain things happen.

The case at issue, Omni Medsci, Inc. v. Apple Inc., stems from a lawsuit by a company called Omni Medsci, Inc. (“Omni”) against the Apple corporation, for patent infringement. Omni thus sought to avail itself of certain remedies that American patent law affords patent holders, when a third party uses their invention, once it’s been patented, without first obtaining a license to do so.

Unfortunately for Omni in this case, Apple was diligent about making its homework, and obtained a copy of the 1992 employment agreement of a university researcher. The rub? This agreement, which purported to transfer the invention (patent) rights of this inventor to the University of Michigan (the “University”), did so by using language which was, shall we say, less than ideal. Indeed, the clause of the employment agreement at issue supposed to transfer the intellectual property (“I.P.”) rights over the work of this employee (to the University), tried to do so by a somewhat ellipical sentence, to the effect that I.P. which resulted from research by this employee “shall be the property of the University,”. That’s right, no active verb, no present tense, just a statement of (apparent) fact that his work would (eventually) belong to the University. Oh ho.

The court of appeals agreed with Apple that this fell somewhat short of actually expressing an intent to assign I.P. rights right then and there, including because of the future tense and the fact that nowhere were the verbs “assigning” or “transferring” used in the key sentence. Rather than using usual phrasings like “assigns”, “agrees to assign” ou “does hereby grant title to…”, the University elected to use relatively convoluted and obscure language to express what could have been expressed plainly by using simple words that would adequately one’s intent to actually transfer I.P. on the spot. For the court, such language does NOT express an intent to transfer I.P., merely some sort of promise to eventually assign the signor’s rights, nothing more.

This being the case, the University did not possess the I.P. over the invention (patent) at issue when it purported to assign it to Omni. Classic case of: you can’t transfer something you don’t have. As a result, Omni is not the owner of the patent at issue and, thus, cannot legally sue Apple for infringement thereof. Checkmate.

Even though it may be a U.S. decision, this case nevertheless provides us with an excellent example of the fact that, yes, even in 2021, certain words DO matter, and should be used when attempting to effect certain things. Even though courts may, by and large, no longer get hang-up on formalities in legal documents, there remain certain essential things that will be required once you get in front of a judge. Eh, what do you know? Proper legal drafting is still important, who knew?