The Licensing Corner

• Publication year: 2020
• Author: Sean Hogle

The Licensing Corner

Sean Hogle

Rooney Nimmo PC

ANTI-RELIANCE AND FRAUD DISCLAIMERS IN TECHNOLOGY TRANSACTIONS: LESSONS FROM THE M&A WARS

In high stakes transactions in which vast sums of wealth are exchanged in return for ownership in ongoing complex businesses, mergers and acquisitions (M&A) contracts are an oft-overlooked source of clever legal craftsmanship. With so much value and risk embodied in these transactions, counsel for both parties-sought after specialists in these pressure-filled transactions-play a tense game of textual jab and parry, each trying to minimize risk and maximize leverage for their clients. In doing so, they often create compelling contract language readily amenable for use in non-M&A contexts.

Legal acumen and attention in acquisition deals is most likely brought to bear on the representations and warranties, the indemnification provisions, the liability cap, and the fraud disclaimer. Glenn D. West, a prominent M&A lawyer and commentator whose insights reach well beyond the M&A context, has written extensively about the appropriate contract language to use in order to effectively disclaim the threat of fraud claims and avoid liability for extra-contractual statements. In two highly regarded pieces for the ABA Business Lawyer (Contracting to Avoid Extra-Contractual Liability-Can Your Contractual Deal Ever Really Be the "Entire" Deal?¹ And That Pesky Little Thing Called Fraud: An Examination of Buyers' Insistence Upon (and Sellers' Too Ready Acceptance of) Undefined "Fraud Carve-Outs" in Acquisition Agreements²), Mr. West has proven an effective advocate for, inter alia, the following propositions:

• more than a simple "entire agreement" integration clause is required to effectively disclaim reliance on extra-contractual statements;
• buyer should be required to disclaim reliance on extra-contractual statements; and
• a simple "except in the case of fraud" disclaimer at the end of an exclusive remedies provision is unacceptably vague and imbued with risk that most practitioners would not accept if they understood the implications.

These are worthy guidelines in the licensing and technology transactions context as well. Virtually any transaction in which one side is selling something of significant value (including high-dollar technology licensing or acquisition agreements, IT outsourcing agreements, and enterprise SaaS solution terms) would benefit from the clarity and certainty that comes with limiting the remedies and risks of the parties...