The Ever-Confusing World of Contract Lingo – Part 1

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While much of OTT’s work deals with the review, protection, and management of the inventions made by our faculty, there is a whole other side that is of equal importance: negotiating contracts with industry, be it for licenses, clinical trials, collaborations, sponsored work, or confidential discussions. Just as the world of patents has its own set of jargon and terms, contracts do too. Below we’ve compiled a helpful list of some common terms you may encounter in contracts.

What is a Contract?
At its most basic, a contract is a binding legal agreement voluntarily entered into by two or more parties. Those parties can be individuals, companies, organizations, or as is the case with most contracts OTT handles, the university and an industry partner. Contract law is governed by state law. Courts review contracts based on the law of the contractually specified state or the state in which the contract was formed.

Common Contract Terms & Concepts
Recitals: Preliminary statements at the beginning of a contract that presents the background and purpose for the contract. Recitals are not part of the actual contract and are merely considered statements that set the stage for the relationship contemplated in the contract and provide explanations to a reader as to why the contract exists.

Definition: Words can have multiple meanings, so in most contracts, important words and terms are specifically defined, either in their own section of the contract or noted to have the specific meaning in another fashion. Once defined, the word is generally capitalized throughout the remainder of the contract and interpreted to have the specific meaning. If a term is defined, these given definitions take precedent over given word’s typical definition.

Consideration: Money, articles, services, or promises to do or not do something that are outlined in a contract. Both parties must receive consideration in a contract (for example, one party receives money in exchange for the services of the other party). If the only consideration is unidirectional, it is actually considered a gift.

Severability: If a term in a contract is unlawful or ineffective then the entire contract may be voidable by the other party. To avoid a contract being voided in its entirety most contracts include a severability clause that states that if there is a provision in the contract that is defective then only that term will be void and the parties can negotiate to arrive at a replacement term.

Force Majeure: If something occurs outside a party’s control that cannot be rectified by exercise of due care by that party and it hinders the party’s ability to fulfill the contract, then the party is excused from its failure to perform. Examples of this are “acts of God” like natural disasters which cause one party to be unable to fulfill its obligations under a contract.

Survival: A clause in a contract that maintains that certain terms of a contract, for example confidentiality, survive or continue for a period of time after the contract is terminated. When a contract expires or is terminated, a court would consider only these specific terms to exist and be in effect.

Notice Provisions: Clauses stating how two parties in a contract communicate with one another in a written form, for example each party must notify each other in writing delivered by courier or email. Usually it will also include to whom notifications should be sent.

Stay tuned for part two of our contract jargon blog.