View Thread > Cyberlaw and the Global Economy 2003 > Lawful Intercept Drafting Exercise > Need to narrow the terms of the contract.
You are an associate in-house counsel for an IP-based network equipment manufacturer ("Vendor") that is exploring the introduction of lawful intercept technologies as part of its offerings to its customers. The counsel to a prospective large customer ("Buyer") has asked your company, Vendor, to agree to the following language as part of a master purchase agreement. The deal is very important to your CEO. If your company is able to close this deal successfully and quickly, the CEO will be able to announce the deal to analysts at a critical moment for the company in terms of securing a very favorable financing arrangement from some large banks. Buyer is a global company, headquartered in New York, as is your company. The governing law of the contract is New York.
"Vendor warrants, represents and guarantees that all of the products it sells to Buyer under this Purchase Agreement shall be compliant with any and all applicable lawful intercept laws whether in existence now or in the future. To the extent Vendor breaches this section, and any of its products are found to be non-compliant with a lawful intercept law, Vendor shall immediately cause the relevant product to conform to those laws. In addition, Vendor shall indemnify, defend and hold harmless Buyer for all fines, penalties, damages, or claims sustained by Buyer arising out of Vendor's non-compliance with the terms of this section. Vendor shall dispatch an on-site technician to any of Buyer's sites which are unable to meet the technical requirements contained in an interception order issued by an authorized government agency or regulatory agency or regulatory body and shall use best efforts to fix the problem, including repairing or replacing the defective products."
Please draft a memo to your company's Executive Vice President and General Counsel as to how your company should respond to this proposed contractual language. (Make reference, as needed, to the readings for this week's class 4.2. If you can't find a fact that you need to rely upon in the readings, please make it up and state your stipulation(s) in the text of the memo). As usual, the GC needs your memo pronto, so you only have a few days to come up with this memo to her (she's generously given you the weekend, but she needs the memo on Monday by 5:00 p.m.). If you miss the deadline, or you'll foul up the negotiations. She's a busy woman, so please stay within the prescribed word limit (250 - 1000 words).
Let's start with the first sentence: "Vendor warrants... that all of the products... shall be compliant with any an all applicable lawful intercept laws whether in existence now or in the future." I think it is clear that this language is overly broad. Buyer is a global company; as such, they may deploy our products in any part of the world. If ten years from now (when Buyer is no longer an active customer), Buyer uses our product in a country with extreme lawful intercept laws (say PRC), our company would be held to the terms of the contract. This problem is exacerbated by the high-profile nature of the transaction, as it is likely that all future customers will want substantially the same guarentees.
[As an aside, it is unlikely that future laws will penalize services rolled out before the law itself was passed. I would feel comfortable keeping "in the future" as-is if we were only warranting products to be used in the United States, as our political process would not allow ex-post-facto-ish laws to be passed.]
"To the extent ... any of [Vendor's] products are found to be non-compliant with a lawful intercept law, Vendor shall immediately cause the relevant product to conform to those laws." As stated in the previous paragraph, this line in the contract should be packaged and sold as a seperate service. A related question emerges: what line of business is Buyer in? Is Buyer a global telecommunications carrier, or just an international law firm looking for in-house IP services?
The distinction is relevent in the United States. If Buyer *is not* a telecommunications carrier, it falls under the Electronic Communications Privacy Act, which does not impose technically difficult requirements. Slapping an IP packet sniffer on the product should be sufficient. If Buyer *is* a telecom company, it falls under the Communications Assistance for Law Enforcement Act, which imposes more thorough requirements. Buyer could not simply deliver all packets sent through the product (as with a packet sniffer), as CALEA mandates that a telecom only make available the information law enforcement was authorized to intercept. Moreover, under CALEA we are _required_ to provide updating services to the customer (although we may impose "a reasonable charge" for doing so).
"Vendor shall dispatch an on-site technician to any of Buyer's sites which are unable to meet the technical requirements..." Again, these terms need to be limited to specific countries. Apart from the cost and hassle of potentially having to send on-site technicians to the far corners of the world, most technicians need to be able to communicate with the local staff. Will we be required to train technicians in a variery of foreign languages to meet this requirement?
Overall, I recomment limiting the terms of the contract to the United States, where our company is located, and to any other countries where the Buyer _currently_ does business. I would also limit the warranty to some reasonable period of time (five years?), and give the Buyer the option to purchase service contracts should the amended terms be insufficient.
In the most part I concur with the opinions stated in the memo.
I am not so sure that I would recommend the company to subject itself to any future laws, however, even if it were only American laws we were subjecting ourselves to. Any future events even remotely similar to those that occurred at 9/11 might cause the government to impose new rules even on existing networks, thus exposing us to possible liability if we guarantee compliance with future laws.
I also believe it is important that we clearly define exactly what requirements the different products should live up to, and not only which laws they should comply with. As mentioned in the memo, different rules might apply to different uses of the products. Since Buyer is better situated to determine what the products will be used for, it is Buyer who should assume the responsibility of determining which standards each product should live up to.
The goal of the redrafting of the clause should be to create clarity as to our present and future obligations, and to specify exactly what the specifications of the products are.