Reuters Mismanages License Option

I’ve previously noted that contract drafting attorneys aren’t done when their contracts are signed because post-signing activities can dictate whether a well-drafted contract works as intended. Specifically, important dates related to the contract need to be calendared in a reliable calendaring system because failure to adhere to those dates can foil the prettiest drafting.

A good example of this is FaceTime Communications, Inc. v. Reuters Ltd., 2008 WL 2853389 (S.D.N.Y. July 22, 2008). The Justia page. Reuters licensed FaceTime’s software for 2 years at $1.3M and invested substantially in customizing the software for its needs. To protect those additional investments, Reuters retained an option at the end of the 2 years to pay $150k for a perpetual license. For reasons that aren’t entirely explained, Reuters didn’t exercise the option before the exercise deadline, but instead tried to exercise the option after the window closed (and tried to do a little backdating at that). Not surprisingly, the court is completely unsympathetic to Reuters’ arguments to try to avoid the obvious consequences of blowing this option exercise (it calls it an “open-and-shut case”). Judgment for FaceTime. Now that the court has spoken, I’m sure Reuters will get to keep using the software if it really wants to, but I suspect the price tag will go up (i.e., to basically the full hold-up value that FaceTime can extract).

It’s not clear what went wrong at Reuters, but this loss should have been avoidable with a proper calendaring system that alerted its in-house lawyers to begin the option evaluation process well in advance of the option window deadline. (This principle holds the same for contract auto-renews, which I routinely see mismanaged–I usually don’t put auto-renews in my contracts because I’m confident that the deadlines won’t be managed properly). Stated differently, Reuters’ contract drafters did exactly what they needed to do when drafting the contract, but mistracking the contract’s option undid their nice drafting and cost Reuters a lot of money.

UPDATE: FaceTime’s CEO blogged his thoughts. The WSJ Blog’s comments.

UPDATE 2: In reference to the AP story: Isn’t it odd that on July 1, Reuters made a filing with the court saying that it would take several months to develop an alternative, but now it is saying that it will transition to an alternative with no problems by Friday?