Recently Eric Goldman (otherwise know as @ericgoldman) alerted me to In re SuperMedia, Inc., an opinion by the Delaware U.S. Bankruptcy Court. (Go here for a PDF copy.) It has a lesson to offer regarding how to avoid confusion over whether contract terms apply to changed circumstances.
Marketing company SuperMedia had a contract with Yellow Pages Photos, Inc., a provider of stock images. Here’s the relevant provision:
[SuperMedia] may not transfer these images to other parties or individual[s] unless authorized by YPPI; provided, however, that [SuperMedia] is authorized by this Agreement to use the photographs and images in advertising purchased by its customers for inclusion in [SuperMedia’s] products. All users must be employees or contractors of [SuperMedia].
The idea was that YPPI photos would be used on SuperMedia’s own computer system, but that contractors would be allowed to use that system, by sitting at computers in SuperMedia’s offices.
But you won’t be astonished to hear that SuperMedia got into outsourcing in a big way. As part of that, it transferred YPPI’s photos to outside contractors. And YPPI’s images started appearing in all sorts of unexpected places—hence the lawsuit.
SuperMedia argued that “contractors could not feasibly use the images unless SuperMedia transferred them.” The court wasn’t sympathetic, pointing to the previous arrangement, with contracts using SuperMedia’s system.
I have some sympathy for SuperMedia. The no-transfer and contractors-okay parts of the contract were compatible as long as contractors were using SuperMedia’s system. But once SuperMedia started outsourcing, the potential for disconnect arose, and SuperMedia went with the part of the contract that seemed to allow them to do what they wanted to do.
What’s the moral in this for contract drafters? Whoever drafted the contract at issue in this dispute would have done well to be explicit about what arrangement was contemplated: “All users must be SuperMedia employees or contractors and may access YYPI images only on SuperMedia computer networks.” Generally, being explicit would make it clear whether changed circumstances pose a problem, whereas being oblique would leave it to contract parties to figure out whether the original terms still apply to the changed circumstances.