Ethics: Drafting Templates for Two Clients in the Same Industry

Here’s an issue I’ve occasionally pondered: What if you prepare a template for one client in a given industry, and then another company in the same industry asks you to prepare the same kind of template for them?

It’s not a matter of copyright. Here’s the relevant extract from my article Copyright and the Contract Drafter (here):

[T]he level of control that a law firm exerts in performing work for clients is, if you consider the factors listed in Community for Creative Non-Violence, that of an independent contractor rather than an employee.

And it follows that if a law firm that drafts a contract for a client is in that capacity acting as an independent contractor, it would, under 17 USC 201(a), own the copyright in that contract.

What does this mean for law firms and their clients? If a client asks a law firm to draft a form of agreement to be used by its businesspeople, it’s unlikely that the law firm would subsequently object that such copying violates its copyright, and it’s hard to imagine how it could plausibly do so.

Here’s a more likely scenario: A client asks its law firm to draft a form of agreement for a new kind of transaction. The client ends up paying the law firm plenty for their work, and the client’s personnel spend many hours helping the lawyers grasp the technical and business nuances that have to be addressed in the agreement. Subsequently the client finds that law firm has cheerfully been selling to other clients a substantially identical form of agreement. From a copyright perspective, the law firm is at liberty to do so, and it’s unlikely that a law firm would agree to forget that it had ever worked on a given agreement. Perhaps the best that the client could hope for is that the law firm would agree not to use that form of agreement in representing the client’s competitors.

Absent prior agreement with the first client, I think that a law firm can in good conscience prepare a template for one client and then use that template when preparing a template for another client, but only if that which it uses from the first template in preparing the second template reflects general commercial principles. The first client would have a legitimate complaint if the law firm imported into the second template business practices of the first client that aren’t widely known—in particular, that aren’t know to the second client.

What about disclosure? It would be prudent for the law firm to disclose to the second client its work for the first client. Presumably that would be a simple matter; the second client might be pleased to know that it’s getting a free ride.

It might be awkward for the law firm to disclose to the first client its work for the second client. But it would be better to have the first client learn of it from the law firm, ideally before it starts work for the second client. It could be more awkward if the first client were to find out for itself.

Am I missing anything?

Posted in Ethics | 6 Comments

  • Bob Jessup

    If you’d be uncomfortable telling the first client that you’re undertaking the work for the second client, that should be a sign that maybe there is in fact something not quite right about. And if the first client finds out second hand, then you shouldn’t be surprised if you stop getting non-template work from the first client.

    And it’s not just the first client’s individual business practices that you’ve put in the templates, it’s also your own view of clever ways to handle the documentation. Coming up with good ideas that others don’t have is, presumably, part of the reason first client hired you, and if you now give those good ideas to a competitor, first client will understandably be upset that you’ve undermined its competitive advantage.

    So I don’t think you’re missing anything – I think you “can” do it and it’s not necessarily a problem of lawyers’ ethics. But it’s a good way to annoy (at least) an existing client, and another example of why just because you “can” do something doesn’t mean you should.

    Oh, and maybe this is obvious, but you’d have to tell second client that you intended to tell first client of the engagement before committing to the second client.

    Thanks for the useful and practical blog!

  • Vance_Koven

    Hmmm. Not only would it be awkward to disclose work for Client 2 to Client 1, it might be a breach of confidentiality with respect to Client 2.

    So how would Client 1 find out about the contract you’ve used with Client 2? If the companies are competitors, chances are it could only happen if a mutual customer violated its *own* confidentiality obligation by showing it the form of agreement. Not that that relieves the awkwardness with respect to the drafting lawyer, but it makes the problem much less likely to arise.

    More to the point, a client going to outside counsel (and I’m assuming here that you would be acting as counsel in drafting the template, rather than just as a non-legal consultant) knows or should know that counsel probably represents other clients whose interests may conflict with its own; that depth of experience is a feature, not a bug. The ethical rules in all states I know of construct the conflict rules for transactional attorneys differently from litigators for that reason, so that you can represent competing clients so long as you don’t represent one against the other in a transaction.

    If a client wants exclusive use of the template you’ve drafted, that should go into the fee agreement (and you should charge an extra-high fee to give them that privilege, which may discourage them from requiring it).

    As to the copyright question, as a part-time copyright lawyer I have found it amusing sometimes to lock horns with other transactional lawyers who try to slap copyright notices on their agreements in an effort to prevent re-use by my client. Sometimes they foolishly attempt to put their client’s copyright notice on it, in which case I remind them that it’s the lawyer not the client who would hold the copyright. More importantly, as you do in part in your article, I question whether even the lawyer could claim copyright in the contract, both because of literal copying from others and, more significantly, because even when the lawyer uses “original” language it is the usual traditionalist twaddle that probably fails under the “scènes à faire” doctrine (just mentioning that to a transactional lawyer usually results in a glazed expression). Finally, in the case of heavily negotiated contracts, the input of both sides will constitute the end result a document whose contents are jointly owned by the lawyers for both sides, either of whom can freely use the whole thing.

    • Bob Jessup

      As for the point of the confidentiality of Client 2, I guess I should have said you would have to tell Client 2 you could undertake the work only if disclosed to Client 1, so if Client 2 doesn’t agree to that you shake hands and move on.

  • Mark Anderson

    In my experience there is a difference between a template that is suitable for a particular type of transaction in a particular industry and a version that is prepared for a client, in discussion with that client. For present purposes, I think we are only concerned about the latter. In most cases, I am likely to go back to the former type of template as a starting point for the second project.

    The English rules on conflicts of interest for solicitors focus (to paraphrase broadly) on whether you have knowledge of client A’s affairs that may affect the work you do for client B. So, I could foresee a situation where there was a conflict of interest in the situation you describe, but it would probably only be on one or two details of the agreement, if it arises at all.

    The larger question, as others have said, is whether client A gets upset about you using the same template with their competitor. I agree with the comments about the client coming to you because of your expertise and that expertise has to be continually reinforced by client work for it to remain valuable. So, if the client thinks about it, they shouldn’t be too concerned about you drafting templates for others in the same industry. However, you should be careful to avoid those very client-specific provisions, if there are any.

    I would also note that US clients seem to be more proprietorial about their external lawyers, and object more to them acting for competitors, than is our experience with UK clients, so you should probably factor this in as well.

  • fplogue

    It is also worth bearing in mind that Client A indirectly benefits from this form of information recycling.

    One of the advantages of a law firm (or indeed any consulting firm) is that information gathered from multiple clients can be distilled into templates and other sectoral knowledge resources in a “safe” way overcoming issues of competition and conflict between competing firms.

    On the whole it seems to be to everyone’s advantage to permit such information sharing as long as no client’s interests are harmed.

  • AWrightBurkeMPhil

    In the 1970s, Big Bank wanted my then firm to draft templates for loans and lines of credit under some then-new laws.

    We did the job and charged Big Bank for drafting the forms “from scratch,” in the sense of tweaking the usual promissory notes to comply with the new laws.

    Big Bank started using the forms we drafted.

    Then Little Bank asked for loan forms that complied with the new laws.

    We produced the requested forms very quickly, not “from scratch,” since we had just done the work for Big Bank, but charged Little Bank only for the incremental time spent.

    Big Bank learned somehow — these bankers talk — not only of our work for Little Bank, but of the basis of the fee.

    Big Bank was livid, and told us if it happened again, Big Bank would get new general counsel.

    It didn’t happen again.

    The “takeaway”?

    (1) Assume that nothing is secret.

    (2) Never pee in the soup.