I’ve negotiated countless agreements during my legal career, complex corporate finance transactions, sticky licensing agreements, simple loan agreements and everything in between. And though every deal is different, and every client’s needs are unique, there is always one constant. Someone is always trying to pull the Jedi Mind Trick of the Law (JMTL) on me or my clients. It’s easy to spot. Question a contract provision and someone on the other end of the deal will say something like, “Oh, that’s standard,” or “that’s just boilerplate the lawyers say has to be in the document.” With just those words, and not even an Obi Wan Kenobi wave of the hand, they expect your mindless acceptance of their terms. There are other variations on this powerful force weapon, and we’ve all heard them. “We aren’t going to change our contract.” “All the other executives have the same contract, and so should your client.” “Our Warranty is standard.” “This Force Majeure clause is just the same as in any other contract.”
To fight the JTML, we need to go back to square one.
The Most Fundamental Rule of Contract Negotiation (MFRCN): EVERYTHING is negotiable, nothing is standard and nothing is necessarily “boilerplate.”
Price, repayment terms, venue, jurisdiction, notice provisions, word choice, grammar and punctuation, its all negotiable. Yet, I’m constantly amazed by how often I run into the JMTL. Of course, opposing deal counsel always try to use it. I’ll admit to using it myself. We’ve all done it. My own clients sometimes bring me documents prepared by the other side’s lawyer, assuring me of the other side’s assurances that the major aspects of the agreement are standard or just boilerplate.
The JMTL is a powerful weapon, indeed. When used effectively, it prevents the target from being able to access that portion of their brain where the MFRCN is stored. With access to the MFRCN disrupted, the target is perfectly positioned to accept a bad or less favorable deal.
A strong will (and/or Leverage, a.k.a The Second Most Fundamental Rule of Contract Negotiation) can defeat the JMTL. Armed with a strong will and/or Leverage, one can shrug off the JMTL and insist that everything is on the table and up for negotiation. Clearly, not everyone is so equipped.
JMTL has long been used in connection with online agreements, such as Terms of Service, Terms of Use, End User License Agreements and similar agreements. Recently, Adobe was discovered using a built in JMTL in their EULA for the Photoshop Express web service. The EULA is presented as a standard agreement and so users click right through, often oblivious to the deal they’ve just struck with a website provider. I’m sure countless users clicked right through Adobe’s EULA, failing to read the following:
“Use of Your Content. Adobe does not claim ownership of Your Content. However, with respect to Your Content that you submit or make available for inclusion on publicly accessible areas of the Services, you grant Adobe a worldwide, royalty-free, nonexclusive, perpetual, irrevocable, and fully sublicensable license to use, distribute, derive revenue or other remuneration from, reproduce, modify, adapt, publish, translate, publicly perform and publicly display such Content (in whole or in part) and to incorporate such Content into other Materials or works in any format or medium now known or later developed.”
Wow! Great deal for Adobe, bad deal for users. Adobe gets to use your content for free and make money from it without paying you a dime. Chalk one up for the power of the JMTL. Wait! Not so fast! Some strong willed, careful readers fended off Adobe’s JMTL and complained. Adobe responded by changing their EULA.
Yes, the use of “boilerplate” is a powerful force for neutralizing a contract party. It has been studied in depth, which may surprise many of you. For an in-depth analysis of boilerplate, I heartily recommend “The Strategy of Boilerplate” by Robert B. Ahdieh (Michigan Law Review, Vol. 104, p. 1033, 2006 Available at SSRN: http://ssrn.com/abstract=907414). The use of “boilerplate” continues largely because bargainers place precedent and convention ahead of their best contracting interests. To make this point, Ahdieh’s article begins with a powerful quote from Thomas Schelling, the Nobel Prize winning master of bargaining and negotiating behavior:
“Precedent seems to exercise an influence that greatly exceeds its logical importance or legal force. . . .Sometimes, to be sure, there is a reason for a measure of uniformity, and sometimes there is enough similarity in the circumstances to explain similar outcomes; but more often it seems that there is simply no heart left in the bargaining when it takes place under the shadow of some dramatic and conspicuous precedent.”
Schelling developed the theory of “focal points” or “Schelling Points“, as they’ve come to be known. Schelling Points are solutions toward which people gravitate without communication, mainly because the solution seems natural, conventional, special or relevant to them. Schelling believed this to be important in coordinating social interactions. Schelling’s most famous example of this was asking students to assume they needed to meet a stranger in New York City and to determine where and when that meeting should occur. Schelling found the most common answer was noon at Grand Central Station. For whatever reason, and we can probably think of many, that time and location is deemed conventional by many and so by default it became the logical choice for the hypothetical meeting. Importantly, that choice had almost no customized relevance to the real needs of either party to the meeting. Building on Schelling’s theory, Ahdieh applies it to support his theory for the widespread use of boilerplate:
“The use of boilerplate in bargaining may play an important role in facilitating agreement at an equilibrium favorable to a particular party. Because of the multiple equilibrium dynamic of bargaining, some extrinsic mechanism will often be needed to define the parties’ ultimate point of agreement. In this exercise in coordination, boilerplate may offer a “focal point” of sorts, facilitating resolution of the game.“
There it is. The JMTL is just another Schelling Point. One party introduces boilerplate into the negotiations and attempts to convince the other side it is so natural or conventional that acceptance of it is best and will lead to the least conflict and a better deal. If this kind of negotiation is accepted, boilerplate is adopted.
Many lawyers and law firms actually perform the JMTL on themselves through a forms-based approach to a transactional law practice. A forms-based practice can lead to an unhealthy acceptance of “boilerplate”, which is dangerous. Many lawyers reach into a forms bank, find an applicable form, change the names and numbers, and assume their job is done. Such lawyers have little appreciation for the meaning, effect and nuance of each and every contract provision, and often fail to research changes in the law that may have drastically altered the applicability of the form. It is also highly likely they are ignoring or diminishing the importance of a client’s particular needs, goals or desired results. Forms can be useful as a starting point for drafters, but there is no substitute for a well negotiated agreement tailored to the client’s specific needs.
Every once in a while, an article appears in the American Bar Associations’s Busines Journal about the dangers of a forms-based transactions practice. These are important observations every practitioner should take to heart. My favorite is Howard Darmstadter’s 2002 article entitled “In the petrified forest.” Darmstadter cleverly takes on the area of commercial guaranty agreements, which are notoriously prone to the self-inflicted JMTL. I particularly enjoyed his observation that forms tend “to contain ossified bits of what was formerly a vibrant legal practice.” In less than a sentence, he captures the essence of the problem: a forms-based practice leads to sloppiness, lack of legal due diligence and creativity, and a grave disservice to clients.
Last week, we were all reminded about the dangers of boilerplate. In his 81-page legal memorandum to the Pentagon regarding interrogation tactics for al-Qaeda captives, Justice Department lawyer John Yoo concluded that federal laws prohibiting assault and other harsh interrogation techniques did not apply to military interrogators who questioned al-Qaeda prisoners because the President’s ultimate authority as Commander in Chief overrode such statutes. As the Washington Post reports:
“Yoo, now a law professor at the University of California at Berkeley, defended the memo in an e-mail yesterday, saying the Justice Department altered its opinions “for appearances’ sake.” He said his successors “ignored the Department’s long tradition in defending the President’s authority in wartime.”
“Far from inventing some novel interpretation of the Constitution,” Yoo wrote, “our legal advice to the President, in fact, was near boilerplate.“
A “long tradition” prevented more careful legal research and reasoning. That is the danger of boilerplate. That is the danger of the Jedi Mind Trick of the Law.
