Telehealth Soapbox: Negotiating a Vendor’s Limitation of Liability Clause

This is the third of an occasional series on US law and intellectual property (IP) as it affects software and systems used in health technology. This article is a ‘how to’ on achieving a more equitable liability arrangement between a company and a vendor. A standard clause a vendor uses to protect their company from liability can cause a great deal of trouble and financial heartache for a contracting company when ‘things go sideways’. Correspondingly, if you are a vendor or partner, this enables you to anticipate issues a skilled negotiator on the other side of the table will present.

Mark Grossman, JD, has nearly 30 years’ experience in business law and began focusing his practice on technology over 20 years ago. He is an attorney with Tannenbaum Helpern Syracuse & Hirschtritt in New York City and has for ten years been listed in Best Lawyers in America. Mr. Grossman has been Special Counsel for the X-Prize Foundation and SME (subject matter expert) for Florida’s Internet Task Force. More information on Mr. Grossman here.

When clients come to me to consider suing because of a tech deal that has gone bad, the single worst lawsuit killer is often the “standard” limitation of liability clause found in a vendor’s form agreement. It never ceases to amaze me how people don’t pay attention to these clauses as they blithely sign-off on a one-sided agreement. It’s just one little clause and yet it can cause so much damage.

Here’s an example of the type of provision that you’ll see in tech agreements:

“The liability of vendor to customer for any reason and upon any cause of action related to the performance of the work under this agreement whether in tort or in contract or otherwise shall be limited to the amount paid by the customer to the vendor pursuant to this agreement.”

Yes it’s heavily slanted in favor of the vendor—it’s the vendor’s form. I draft them just as one sided when I’m representing a vendor so that I protect MY client. As I always say, he who drafts sets the agenda. (more…)