Apparently there’s no I in team. And there’s no objective and subjective in use and interpretation of efforts provisions.
When I ask seminar participants to tell me the difference between best efforts and reasonable efforts, it’s routine for someone to suggest that the former represents an objective standard and the latter a subjective standard, or vice versa. That question is in fact rhetorical, as the only reasonable interpretation is that both standards mean the same thing. So it comes as no surprise that I can’t think of any way that objective and subjective relate to efforts standards.
First, what do objective and subjective mean? This from an Indiana University website:
Objective refers to objects and events in the world that anyone can, in principle, observe. Subjective refers to feelings and experiences that depend on the individual’s own particular viewpoint and traits.
The first problem with tying best efforts and reasonable efforts to objective and subjective is that nothing in the labels best efforts and reasonable efforts suggests a distinction analogous to the distinction between objective and subjective.
But beyond that, whether someone has expended sufficient efforts is a function of the circumstances—in other words, objective reality. That includes the apparent attributes of whoever is under the efforts obligation, although as we saw in this post you can’t count on courts to take into account factors such as solvency.
I’ve seen nothing suggesting that it would be appropriate to (1) leave it to a party under an efforts obligation to determine whether it felt it had expended sufficient efforts and (2) have courts bound by that determination, no matter how divorced from reality.
So I suggest we can consign to oblivion the notion that objective and subjective play a role in efforts provisions. As usual, I’m open to alternative ideas.
10 thoughts on ““Objective” and “Subjective” in “Efforts” Provisions”
Consider the example of a patent licensee, let’s say a pharmaceutical company, who take an exclusive licence of a drug in development. In return for exclusivity, they promise to make efforts to develop and commercialise the drug.
A subjective standard is one where they say they will make the same efforts that they apply to their own drugs in development, taking into account their commercial objectives and various other factors. This is useless for the licensor, as it may be in their interests to put your drug on the shelf and develop others that make more money, or which don’t have royalty obligations attached to them.
An objective standard is one where they are required to take the steps that a reasonable third party would take, wishing to develop and commercialise the drug in a timely manner and for the commercial benefit of both licensor and licensee.
An astute licensee will finess the latter standard by referring to a reasonable third party of a similar size or similar financial situation to the licensee, so that a small biotech is not lumbered with the standards of a major pharma.
Whether or not best efforts or reasonable efforts carries any of the above meanings would be for a court to decide. I prefer to avoid that lottery by including, when acting for a licensor, a definition of the standards required, along the lines of the objective standard mentioned above.
I understand the distinction, but it’s different from what people generally understand by objective and subjective, and as such I suggest that using those labels in this context is unhelpful.
And generally, the more one strips reality out of an efforts obligation, the greater the risk that it becomes a meaningless theoretical exercise. As in, Yes, let’s ignore financial constraints on Acme and force it to drive off a cliff!
In a somewhat different context to Mark’s, this duality of “what you normally do” and “reasonable efforts” appears frequently in non-disclosure agreements, where the recipient promises to take reasonable measures to prevent disclosure, but in any event no measures less stringent than those it applies to its own confidential information (sometimes the standards are reversed, with the “reasonable” clause being the backstop–it comes to the same thing). I wouldn’t consider either of those standards to be subjective, but I agree that it’s unhelpful to apply a label to them.
One can, if one wishes, distinguish ‘best efforts’ from ‘reasonable efforts’ on the basis that the former is subjective and the latter objective. That’s not nonsensical, and parties can define things as they wish.
But what flows from the distinction is that a drafter should seldom use ‘best efforts’ because ‘feelings and experiences that depend on the [obliged party’s] own particular viewpoint and traits’ should seldom determine compliance with a contractual duty.
Put otherwise, if you grant your seminar participants their distinction, they should use ‘best efforts’ only on the rare occasions when a subjective standard is appropriate.
“That’s not nonsensical”? I disagree.
I refer explicitly to the magic of definitions. If a contract *defines* ‘best’ efforts as those the one obliged to make the efforts ‘deems her personal best’, and ‘reasonable’ efforts those a reasonable person ‘would deem appropriate under the circumstances’, you have distinct efforts standards, one subjective and one objective. (I’m assuming the two standards apply to different goals.) A subjective efforts standard may rarely be wise, and certainly presents problems of enforcement, but it doesn’t offend logic in any way I can see. How is it ‘nonsense’?
First, as I say in the post, “nothing in the labels best efforts and reasonable efforts suggests a distinction analogous to the distinction between objective and subjective.” You’d be better off making up new labels—say, squirrel efforts and meteor efforts—instead of employing labels associated in the minds of many with a different and bogus distinction.
And second, the point of this post is that the distinction between objective and subjective expressed in this post doesn’t make sense. Using defined terms doesn’t change that.
I think the post addresses two questions:
First, is it smart to use the phrase ‘best efforts’ to designate a subjective ‘efforts’ obligation and the phrase ‘reasonable efforts’ to designate an objective ‘efforts’ obligation?
You say no, that’s poor labelling, and I agree.
Second, is a subjective ‘efforts’ obligation (a) an intrinsic absurdity and therefore never to be used, however labelled or defined, or (b) just a hard thing to enforce and therefore best avoided in favour of an objective obligation whenever possible?
I think you say (a), and if so, I respectfully disagree, opting for (b).
“I could always be wrong, but I’m always Wright.”
You think that’s what the post says? That’s not surprising, because that’s in fact what the post says, explicitly. No deduction required.