Registered Trade Name vs Registered Trademark: Who Wins?

Kum & Go,” photo by Dustin Murrell Broadcast Journalist (Creative Commons License)

Last week, I wrote about intellectual property disputes where one side had the website domain and the other side has the registered trademark. Someone asked me how do registered trade names factor into these situations.

What’s a Trade Name?

In general, a trade name is something you register with your state. This is different than registering a trademark with the U.S. Patent and Trademark Office (USPTO). This is a way to register the name of your company or your product with your state. It typically takes only a matter of days to get and is cheap. In Arizona, the filing fee for a trade name is $10.00, whereas the minimum filing fee to register a trademark with the USPTO is $250, and it takes months (if not longer) for the USPTO to process your application. Your state may also give you the ability to register a state-level slogan or logo.

Value of Registering a Trade Name

To be honest, there’s little value in registering a trade name at the state level. It could be helpful in situations where the name of your legal entity is different than the company or product name. For example, if your entity was XYZ Company LLC and your did business as Green Ice Marketing, if you registered Green Ice Marketing as your trade name, your state might not let another company use the same name and compete with you ask Green Ice Marketing LLC.

Even if you have a state-level trade name, it does not automatically give you statewide common law trademark rights. Common law trademark rights are based on your established geographic market, based on where you’re using the mark in commerce. Thus, if you register a trade name with your state, but you’re only using it commerce in your county, your common law trademark rights may only be that county, not the whole state.

Registering a trade name creates a third-party record of when you started using a trademark, which may be helpful in a trademark dispute, but there are other ways to demonstrate when you began using a particular trademark in commerce.

Trade Name vs Trademark

In a trademark dispute, timing is often a deciding factor when two companies are selling similar products using the same or confusingly similar trademarks. In a trade name vs trademark dispute, there are two ways it could go down.

Option #1: You Registered a Trade Name Before They Registered the Trademark.

As stated above, when you only register a trade name with your state, there are no associated federal trademark rights that come with that registration. You only get common law trademark rights based on the established geographic market where you’re using your trade name in commerce.

The moment your competition registered the trademark with the USPTO, you become “frozen” in your established geographic market. The registrant gets the exclusive right to use the trademark everywhere else in the United States except within the geographic market you established prior to their registration.

It’s like a snow globe dropped over your area at that moment. They can’t go into your area, and you can’t expand beyond that invisible barrier unless you rebrand. This is what happened in the Burger King situation.

Option #2: You Registered a Trade Name After They Registered the Trademark.

Once someone registered a trademark with the USPTO, they have the right to keep competitors from entering the marketplace in the U.S. while using their trademark or one that is confusingly similar to it.

Once they get their trademark, you can’t start using it too for a similar product or service.

Here’s the rub. You state probably will not cross-check the USPTO database if you try to register the same mark as a trade name. They will deny your trade name application only if it matches something in their database of registered trade names in that state. Similar to the web domain situation, a lot people get a false sense of security when they can get a state-level trade name, but it won’t provide any protection from an accusation of trademark infringement in this situation.

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You Have the Domain. They Have the Trademark. Who Wins in the IP Dispute?

“Stone Stacks – Lindisfarne” by Linton Snapper from Flickr (Creative Common License)

I saw this scenario come through my Reddit feed. Two U.S. companies are in the same industry and using the same name for their brand. One has the dot-com web domain. The other has registered the brand as a trademark with the U.S. Patent and Trademark Office (USPTO). Which company should get to use the brand and force the other to change their name?

Timing Matters: Who Was First

The answer to every legal question starts with “It depends,” and here it depends on which company was using the mark in commerce first. By “use” I mean which company made the first bona fide offer for sale to the public, not who came up with the idea for the brand first.

Option #1: You Started Using the Domain Before They Registered the Trademark

If two companies in the same industry the U.S. are using the same trademark, but not one has registered it with the USPTO, then each one can establish what are called common law rights in the mark in the geographic areas where they are respectively using the trademark. They can co-exist peaceful as long as one doesn’t try to infiltrate the other’s established geographic market.

Here’s what happens when they register the trademark with the USPTO – they get the exclusive right to use the trademark everywhere in the U.S., except within your established geographic area at that time. It’s like a snow globe drops over your geographic market. They can’t go into your area, but you can’t expand your market beyond that boundary. This is what happened when the chain Burger King registered their trademark and there was a mom-and-pop restaurant with the same name already in existence. If you want to expand your geographic market beyond that invisible boundary, you have to rebrand.

These rules are easier to follow when businesses were brick and mortar establishments. Now that commerce is largely internet-based, a company is likely to naturally expand merely by being online. You probably can’t add any new social media platforms using the trademark without them claiming your infringing on their intellectual property rights.

If you come to me with this situation, unless you’ve established nationwide common law rights before they registered the trademark, it’s often best to save your money on litigation and rebrand instead.

Option #2: They Registered the Trademark Before You Start Using the Domain

Remember, when they registered their trademark with the USPTO, they got the exclusive right to use their trademark everywhere in the U.S. except any geographic area where you established your market for the same mark prior to that date. If they registered before you started using the mark at all, you can’t enter the marketplace using that trademark in that industry. They win. You lose. You have to rebrand.

What if it’s the same situation, but you were using the mark before they registered but you hadn’t created the website yet? Publishing the website after they registered, even if you were already selling the product using that brand, would be an act that would expand your market beyond your now-limited established geographic area, which is not allowed. I would expect them to send you a cease and desist letter demanding that you take down the website.

Getting the Domain is Not Proof to Trademark Availability

A lot of people make the mistake of thinking that if they can get the dot com domain they want that there aren’t any trademark issues that they need to worry about. There are many reasons why a company might not get the dot com of the trademark, even if it was available:

  • They are using another type of domain, like .org.
  • They are only use companyname.com for their website and not get separate domains for each of their brands or other trademarks used by the company.
  • You and they have trademarks that sound the same but spelled slightly different.
  • You and they have slightly different domains, such as XYZ.com and TheXYZ.com.

When I’m working with a client on selecting a company name, product name, or other trademark, I encourage them to search for their prospective trademark on the internet as well as on the USPTO database. What’s tricky about this is that even if you don’t find an exact match to the trademark you want to use, there could be one out there that is confusingly similar to the one you want to use. It’s best to do as thorough of a search as possible before investing your time and money into your brand.

Can the Trademark Owner Force You to Give Them the Domain?

There are lots of reasons why a person or company would have a domain that matches your registered trademark that don’t violate your intellectual property rights. If it’s a situation where your website infringes on their rights, they can demand that you remove the website. It doesn’t mean they can force you to give them the domain, though that is something you can try to leverage. They can always offer to buy it off you. (I often advise my clients wait for them to offer to buy it first so as to avoid looking like a cybersquatter.)

If they are willing to fight you for the domain, there is a risk that they may file a claim against you in court or under the Uniform Domain-Name Dispute-Resolution Policy (UDRP). If you find yourself in a trademark dispute where you have the coveted domain, it’s best to consult a trademark attorney who can examine your specific situation, explain your options, and advocate on your behalf.

Question of the Day: Two Companies Using the Same Trademark 

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Cost to Move a Business from California to Arizona

Arizona Welcomes You” by AlmightyWorm, public domain

Frequently, I receive emails from people who need help moving their business from California to Arizona. They typically find me after reading my post about how challenging it is to move a company from California to Arizona, particularly a corporation. One of the most common questions they have is, “What will this cost?”

Cost to Move a Corporation from CA to AZ

Moving a corporation from California to Arizona is complicated because it requires forming a new business entity in Arizona and then merging with the California entity where the Arizona entity is the surviving business. This requires extra steps and extra fees. Here is the process if the surviving entity is an Arizona corporation, with all filing expedited.

  • File the Articles of Incorporation with the Arizona Corporation Commission (ACC): $95
  • File the ACC Statement of Merger: $135
  • Once the Statement of Merger is approved, request and obtain a certified copy of Statement of Merger: $42
  • Send the notice of the merger to the California Secretary of State: $100

Total filing fees: $372

In addition to these filing fees, you are required to publish notice of your Articles of Incorporation and Statement of Merger in a local newspaper if your Arizona business is located outside of Maricopa or Pima County: Each approved newspaper sets its own prices, which I’ve seen range from less than $40 to over $400. In my experience, the fewer approved newspapers in the county, the higher the publication fee.

All of this does not include attorneys’ fees. I tell my prospective clients to expect this total process to take 3-4 hours of my time. (My current rate is $275/hour, so up to $1,100.)

Cost to Move an LLC from CA to AZ

Moving a limited liability company from California to Arizona is much less complicated than moving a corporation. Thankfully, this does not require a merger.

  • File the Statement of Conversion with the ACC: $85
  • Along with the Statement of Conversion, file the Articles of Organization: $85
  • Once these filings are approved, file a Statement of Conversion with the California Secretary of State: $30

Total filing fees: $200

The form for each Statement of Conversion is provided by their respective states. Like a corporation, if your Arizona LLC is not located in Maricopa or Pima County, you must publish a notice of your Arizona LLC in an approved newspaper. As stated above, each publication sets its own prices and they can vary greatly, so it’s often worthwhile to call all the approved newspapers in your county, unless you have your heart set on publishing in a particular one.

Of course, there is also the fee for your attorney’s time. I tell my prospective clients to expect this process to take 2-3 hours of my time (so at my current rate is $275/hour, it would be up to $825.)

Moving an Entity from California to Arizona Without an Attorney

You are not required to use an attorney to move your business entity from California to Arizona. You can submit these filings yourself. However, I strongly recommend that you consult with an attorney along the way. I’m working with a client right now who is doing their own merger. Each step of the way, he checks in with me via email, and I helped him write the notice of the merger to the California Secretary of State.

I have another client who came to me after trying to move their entity themselves and it backfired. He tried to move his California corporation to Arizona using a Statement of Conversion. The ACC approved it, but the California Secretary of State won’t accept a Statement of Conversion as a way to move the entity out of the state. He essentially wasted his money and time filing the Statement of Conversion in Arizona, because I still have to file the Statement of Merger and the subsequent notice to California to achieve his goal of moving the entity out California. It probably cost him more trying to do it himself, because I also called the Secretary of State’s Office to see if I could untangle this mess and merely send a notice of the conversion – which they said is not permitted.

I frequently say it’s easier and cheaper to avoid problems than to fix them. If you’re preparing to move your business to Arizona, please contact me if you need help – whether you want me to do everything for you or be available to help you do it yourself.

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Funny but Binding Contract Terms for Late Payments

Pizza” by stu_spivack (Creative Commons License)

One of the biggest challenges facing small businesses seems to be getting clients to pay their bills. Dealing with non-paying clients or delinquent clients is one the most common complaints I hear about from other entrepreneurs. Your first line of defense against these people is in your contract.

Create an Upside When Clients Don’t Pay – in Your Contract

You can put anything you want in a contract, as long as it’s legal. (This is why you can’t have a legally binding contract to buy/sell heroin or a human kidney.) Most contracts include a provision about a late fee, so if your client is late in paying you, you can make them pay more, up to the maximum interest rate allowed by law.

If you are a professional creative, such as a website developer, graphic designer, or photographer, you can put in your contract that you won’t give the client the final deliverables until they’ve paid the balance on their account. This is an effective way to hold your clients’ financial feet to the fire.  

Don’t Publicly Shame Your Clients

No matter what you put in your contracts, don’t shame your clients for being late in paying their bill. Don’t put in a provision that says if they’re late, you can put up a sign or billboard, or hire a skywriter to tell the world that the client didn’t pay their bill. That doesn’t help anything. That could easily backfire because it makes you look like a jerk.

I had some ideas that aren’t publicly shaming, but still could make you look worse than your non-paying client if it became public information, like including a provision that says, if you’re more than 90 days late, every time we send you a reminder, the subject line will be, “Hey Asshole! Pay your bill!” As validating as that might be in the moment, it probably wouldn’t be an effective strategy for getting referrals, or even getting them to pay.

Free Ideas for Revising Your Contracts

Recently, I wondered what else a company could put in their contract that would encourage clients to pay their bill and have an upside for the company. For the purpose of these suggestions, “you” and “your” refer to the client and “we,” “us,” and “our” refer to the company.

  • If you’re more than 30 days late paying your invoice, you agree that you will pay for an office pizza party for us every Friday, and we will add the amount to your unpaid invoice as well as send you a photo of us eating pizza.
  • If you’re more than 6 months late paying your bill, we will send a hug-a-gram to your office reminding you to pay us. (It’s like a singing telegram, but instead of singing, they hug you.) We will add the amount of their fee to your unpaid invoice along with a substantial tip.
  • For a web designer: If you are 30 days late paying your final invoice, not only will we not launch your new website, you consent that we can commandeer your current site to promote the charity of our choice.

Final Thoughts

Having non-traditional contract terms is not a new idea. Lots of people have had seemingly crazy provisions in their contracts. I want to do more blog posts this year with sample verbiage for contracts that I would love to write, that would be legally binding, and not your traditional legalese.  

I want to humanize contracts. I love writing contracts in everyday language. Your contract should be written in a way that you and your clients can easily understand it. If you want to hear more about what I’m doing in my business and practical legal tips to run yours more effective, please add yourself newsletter.

It’s the Law: Put Down Your Phone and Drive

“Hang Up and Drive” by ToastyKen (Creative Commons License)

Starting January 1, 2021, you can be ticketed in Arizona if you talk or text on a cell phone while driving unless the device is in a hands-free mode. The same law also applies to tablets as well as music and gaming devices It’s the 48th state to ban texting while driving. (Missouri and Montana are the only states left that don’t have laws that restrict texting while driving.)

This law actually passed in April 2019, but drivers didn’t start getting tickets until the beginning of 2021. In the meantime, law enforcement gave over 15,000 warnings to people who were caught on their phones while driving.

What Does This Law Actually Require?

Essentially, you can’t touch your cell phone or other stand-alone electronic device while you’re driving. It has to be in hands-free mode. It can’t be in your hand, cradled between your ear and your shoulder, or supported by any other part of your body.

This means you can’t write or read texts, scroll through social media, watch or record videos, or do anything else with your device that causes a distraction and requires the use of your body.

So, I Can’t Touch My Device At All?

There are a few exceptions. You’re allowed to touch your device to:

  • Start or end a call,
  • Use a device, like on your GPS, to navigate the vehicle, and
  • Respond to an emergency situation, like calling 911.

It’s ok to talk on your phone while wearing an earpiece or headphones or communicate through a smart watch.

What If I’m at a Stoplight?

I called the Phoenix Police Department and the officer said you’re allowed to touch your phone while you’re sitting at a red light. If you’re that person who isn’t paying attention and doesn’t go when the light turns green, you can be ticketed for impeding traffic.

What About a Stop Sign?

According to the police officer, you’re not allowed to pick up your phone while at a stop sign. Their exact words were, “We don’t want you marinating at a stop sign.”

Can I Shoot Video While Driving If I Hit “Record” Before I Start Driving?

Technically, yes, but if you’re shooting a vlog while behind the wheel, I suspect you’re not paying as much attention to the road as you should be. You can still be ticketed for operating your car unsafely.

How Can a Cop Prove I was on my Phone?

It might be their word against yours.  Under this law, a police officer cannot confiscate or inspect your device.

How Bad is the Fine If I Get Caught?

For your first violation, it’s a $75 – $149 fine. If you get caught using your device while driving again, it’s a  $150 – $250 fine.

Is It Really That Dangerous to Text and Drive?

According to a study from the National Highway Transportation Safety Administration, texting and driving is six times more dangerous than driving while intoxicated.

It’s scary to be driving and see other drivers talking on their phones, or worse, looking down at their lap where they’re texting with both hands. One time I was in the passenger seat of my friend’s car and while they were talking on their phone with one hand, they started writing on a notepad with the other! I told him he wasn’t allowed to do that while I was in his car. (If he needed something jotted down, I was happy to do it for him.)

If you want more information about this new law, visit the Arizona Department of Public Safety, and please put down your phone and keep your hands on the wheel and your eyes on the road.  

What Zach Kornfeld is Doing Right with his New Business

“Thumbs Up!” by Kevin Gale from Flickr (Creative Commons License)

This week, Zach Kornfeld of The Try Guys announced that he is starting a new tea company in two months or less, without leaving his apartment, and spending less than $500. The goal is to create and sell two original blends: “one for energy and one for chillin’ out.”

Constraints are Good for Creativity

It’s intriguing to watch someone create a new company is real time, particularly in this situation where Zach has a limited budget and is sheltering in place. These limitations are not necessarily bad things. On the contrary, entrepreneur and keynote speaker Jay Acunzo regularly talks about how “Constraints are a strength.” They increase the need for thoughtfulness and creativity. Also, check out his fantastic book Break the Wheel. It has an entire chapter dedicated to constraints and decision-making.  

Zach started by consulting Jason D’Mello at the Fred Kiesner Center for Entrepreneurship for business advice, who advised him to create a DBA (doing business as) as the start of his company. (I recommend that every entrepreneur create a separate business entity – LLC or corporation – for their company, but in California, that comes with a hefty annual fee that would break Zach’s budget, so I get why he’s starting with a DBA.)

Before filing DBA, Zach needed a name for this new company. Zach’s first idea was to name his tea company Turtle Tea because it doesn’t matter how you start or how many times you fail. What matters is that you keep trying – slow and steady.

What Zach Did Right – Legally Speaking

Trademark laws apply to branding in the U.S. – company names, product names, logos, slogans, etc. There are many legal issues that can crop up when selecting a brand. Before Zach ran with Turtle Tea as his brand, he did a lot of things right.

He Checked the USPTO Trademark Database

Zack used the Trademark Electronic Application System (TEAS) on the U.S. Patent and Trademark Office  (USPTO) website, to try to register Turtle Tea as a trademark. He didn’t just submit an application but checked the USPTO’s trademark database first to see if anyone else had already registered that name.

Unfortunately, someone else already owns a trademark for Turtle Herbal Tea. If he tried to register Turtle Tea with the USPTO, he would have been throwing money away. If Zach used Turtle Tea as a trademark anyway, he would have set himself up to get a cease and desist letter (or worse) from this trademark owner and would have had to rebrand his company.

He Checked Alternative Spellings for Potential DBAs

Now that Turtle Tea was off the table, Zach started running trademark searches for other potential names. One thing he did was check alternative spellings. A primary rule in trademark is you’re not allowed to have a trademark that is confusing similar to someone else’s such that consumers will be confused about whose product they’re buying. You can’t register a trademark if it sounds confusingly similar to someone else’s – different spelling but sounds the same.

When Zach looked up “Zach,” he also had to check “Zack.” Likewise, when he looked up “Zach’s” he had to look up “Zax.” When I research my client’s trademarks, I try to look up alternative spellings to make sure a sound-alike trademark hasn’t already been registered.

He Checked Related Products for Similar Trademarks

When someone has a registered trademark, they have the right to use their name on their goods/services as well as on the ones they would logically expand into. For example, if someone sold milk, a product they’d like expand into is cheese or ice cream.

Likewise, Zach needed to consider not just tea companies that had registered similar marks to what he wanted, but also other beverages. One of the names he was considering had to be rejected because it was already registered by a coffee brand.

By the end of this video, Zach didn’t have a name for his company despite his many searches. This frequently happens. (Zach’s fans are suggesting names for his company via social media. The best one I’ve seen so far is Korndidtea – a take on his Twitter handle, @korndiddy.) Many clients send me dozens of trademarks to search against the USPTO database for them before deciding on a name. You don’t want to waste time and energy on a brand that have already been claimed as a trademark by someone else.

I love that Zach’s experience shows that Joe Average people can use the USPTO trademark database to do their own preliminary searches when considering a name for company or product. I don’t recommend filing a trademark without consulting a lawyer, but you can definitely your basic research yourself.  

Six Ways to Work on Your Photography Business While in Quarantine

“Lens Cleaning” by The Preiser Project from Flickr (Creative Commons License)

I cringe every time I see a post about photographers and models teaming up to shoot during the COVID-19 pandemic when they should be social distancing and staying home. The only photographers who should be out shooting these days are the ones who are documenting the pandemic.

My business mentor taught me that when you’re not working in your business, you should be working on your business. Here are 6 ways you can work on your business while sheltering in place.

Edit Your Images From TFP Shoots

Models frequently complain that they rarely get images from open TFP shoots. They held up their end of the bargain. Now it’s time for you to do yours.

Brainstorm and Research Future Projects and Collaborations

Now is a good time to reach out to models you want to work with and research ideas for shoots you want to do when the Shelter In Place orders are lifted. There are lots of online groups where you can network with other photogs and models.

Create Your LLC

Are you still a sole proprietor? <shiver> Please fix that. No entrepreneur should be without a business entity for their company.

In most states, you can create a business entity online. Look up your state’s Secretary of State Office or Corporation Commission.

Review or Create Your Legal Documents

Do you have templates for your client contracts, model releases, and copyright license? If not, now you have the time to create them. If you have them, can you remember the last time your reviewed them? If not, now would be a good time to do that. A lot of people are double checking that they have an effective force majeure provision in their agreements.

If you want to respond to suspected copyright infringement by sending a cease and desist letter, now is the time to create an epic C&D template so you’re ready to lay the smack down on anyone who violates your rights.

Update Your Website

I bet it’s been a while since you did that. Make sure it accurately reflects your style and strengths. Even I’ve spent time while sheltering in place, updating this site.

Clean Your Gear

Now you have the time to clean your gear, including cleaning out gear you no longer use. Get your gear serviced if your camera shop is still open. Don’t forget to go through your memory cards and get rid of images you’ll never do anything with.

If you can’t resist the urge to pick up a camera, please limit yourself to shooting still life, self-portraits, and/or shooting at home with members of your household. You can also work on your craft by re-editing older photos and taking online trainings on various techniques and skills.

Lights Camera LawsuitTM

There’s always a need for quality legal information for photographers. That’s why I created an online course called Lights Camera Lawsuit: The Legal Side of Professional Photography to address photographers’ most important questions. It’s 23 lessons, nearly 6 hours of legal information, with tons of information about contracts and copyright. I want you to feel secure in your business, confident in the way you operate day-to-day, knowing that you’ve set yourself up to get paid what your worth without incident.

The course is $497, but until June 1, 2020, you can get it for 20% off with promo code thrive20.

Share, Don’t Steal Content in Response to COVID-19

Don’t Steal by Marguerite Elias from Flickr (Creative Commons License)

During this pandemic, many companies are reaching out to their audience with message of reassurance, information about changes in their services, and ways their audience can help during this challenging time.

My friend, Jessica Bay, walks dogs professionally as well as educates would-be professional dog walkers. She created a helpful graphic for her audience:

A short while later, she noticed this in her social media feed:

And later this one:

She asked me if these were instances of copyright infringement. If someone is copying word-for-word or close to it, that raises the red flag for copyright infringement. There are definite similarities. I wouldn’t be surprised if one of these graphics were inspired by another’s post.

Let’s assume that one of these graphics is a rip-off of another. It doesn’t make sense to me that someone would do that. In a niche market like dog walking and pet sitting, there’s no downside to sharing another’s graphic since the provider has to be in the physical vicinity of their clients. And for companies that educate would-be dog walkers, you should be confident enough in your work that your clients aren’t going to jump ship because of a graphic on social media.

Conversely, there are only so many ways to convey the same information, and independent creation is a defense against copyright infringement. It’s possible that each of these three companies independently came up with the idea of creating a graphic about how their audience could support the dog walking/pet care industry while under quarantine or practicing social distancing.  

My Two Cents

Speaking as a lawyer and as an entrepreneur, if you see a graphic that would be helpful to your audience, share it. The best way you can add to the conversation would be to create your own content that builds on the original message, not just repeats it. (If you’re going to create content that repeats another’s message or general information, at least find an original way to do it.) If someone wanted to build on this, they could have created a graphic about the importance of maintaining normalcy in your pet’s life, which includes their walking schedule.

If you get caught copying another’s content that’s so blatant that everyone will know that one is a rip-off of the other, it’s going to have an adverse impact. Instead of coming across has helpful, you risk being seen as lacking integrity and creativity.

If You Get Caught Stealing Content

If someone calls you out for potentially stealing content, and that’s what you did, just delete what you created, and don’t do it again. Saying it’s a “good message to spread” is not a valid excuse for copyright infringement.

Ripping off a company’s graphic is on the same level as claiming another person’s poem as your own because you thought it was pretty. I think some people have a mental disconnect where they don’t think copying commercial speech is as bad as other infringing behavior. (Creating a graphic with your business logo on it, even though it is not a sales pitch, is commercial speech.)

If someone has a good message to share, and their original content is shareable, then share it. That’s the best way to share the valuable message with your audience.

Sharing Done Right

I have seen this graphic all over social media over the last few days:

Hat tip to The Counseling Teacher for creating such a helpful graphic. This graphic has the right message at the right time. Additionally, I haven’t seen any instances where sharing this graphic had a negative impact on anyone’s business.

Force Majeure is a Contract Must-Have

“Disaster” by jiwasz from Flickr (Creative Commons License)

Recently, a member of one of the mastermind groups I’m in asked if he should modify the force majeure provision of this contract template in case he encountered a situation where he was unable to perform as promised due to restrictions related to COVID-19. 

Force Majeure = Worst-Case Scenario Clause

Force majeure comes from Latin meaning “superior force” and applies to unforeseeable circumstances that prevent someone from fulfilling a contract. A force majeure provision will state that One or both sides of a contract are not liable if they’re unable to perform their obligations due to circumstances that are outside of their control.

A force majeure clause might say something like:

Consultant shall not be liable for failure or delay in performance of Services if such failure or delay is a result of causes and/or circumstances beyond the Consultant’s reasonable control and without its fault or negligence.

Including, But Not Limited To . . .

Many times, this provision includes a list of things that qualify as force majeure situations. This list may include, but is not limited to:

  • Accident
  • Illness
  • Riot
  • Strike
  • Natural disasters
  • Terrorist attacks
  • Failure in transportation
  • Acts by deities (I prefer this over “Acts of God” because it’s more inclusive)
  • Fire
  • Flood
  • War
  • Zombie apocalypse

Remember: You can put in anything you want in a contract as long as it’s legal.

It’s important to include the phrase like, “Including, but not limited to,” so you don’t inadvertently limit want counts as a situation when the force majeure clause would apply.

Written Broadly on Purpose

This provision is purposely written broadly to cover any situation outside the person’s control that would impact their ability to perform their obligations under the contract. Going back to the question from my mastermind group, he’s a professional speaker and his provision had the “including, but not limited to” list that included “illness” and he asked the group if he should also include “public health emergencies.”

The word “illness” is broad. It could apply to situations where:

  • You get sick.
  • A family member gets sick.
  • There’s an epidemic in the country where you’re supposed to be going, and officials have closed the border.
  • There’s an epidemic and even though you can get to the location, if you do, you’ll be forced into a quarantine for 14 days afterwards, which will force you to miss your next speaking engagement or otherwise take care of your family.

Mitigate Damage

When a person is required to rely on the force majeure provision of their contract because they were unable to deliver as promised, both sides are required to mitigate their damages. For example, a photographer might have to cancel an outdoor photo shoot due to rain. The way to mitigate that damage is to reschedule for another day.

I’ve seen a professional speaker get into a situation where something interfered with his ability to travel to an event. The speaker and the event mitigated their problem by having him present remotely instead.

Always Have a Lawyer Create Your Contracts

Most, if not all, of the contract templates I create for people to use in their business includes a force majeure provision.

To date, I have never seen a contract template that was downloaded from the internet that was good to use as written. When it comes to the contract templates that impact your life and/or livelihood, it is worth the investment to hire a lawyer to draft or at least review the contract before you use it with a client. You don’t want to find out the hard way that there are gaps in its terms.