Yesterday was devoted to grading assignments submitted by students in my Penn Law contract-drafting course. One of them unintentionally made me aware of the formula Party X hereby grants Party Y the right to [verb]. It’s language of performance functioning as language of discretion.
If a contract contains the provision Acme may sell the Assets, it’s appropriate for the reader to read that as meaning that the contract grants Acme that right. (The alternative would be that Acme acquired that right through some other means and the contract is simply acknowledging that right.) Consequently, saying Widgetco hereby grants Acme the right to sell the Assets would convey exactly the same meaning, but by using ten words rather than five.
So instead of the formula Party X hereby grants Party Y the right to [verb], you’re always better off using Party Y may [verb].
Here are some slightly modfied examples from real life:
Upon occurrence of an Event of Default, Borrower grants to the Holder the right to [read Holder may] set off against this Revolving Note all of Holder’s liabilities to Borrower, if any, and all money or property in the holder’s possession held for or owed to Borrower.
Customer hereby grants to Pegasus the right to [read Pegasus may] use and display, and store on Pegasus’ servers, Customer’s and each applicable Affiliate’s trademarks, service marks, trade names, trade dress, logos, names, and pictures to the extent necessary to perform Pegasus’ obligations in accordance with this agreement.
The Regents also grants to Licensee the right to [read Licensee may] issue to third parties in the Field of Use royalty-bearing sublicenses having rights no greater than those granted to Licensee.
Here’s a wrinkle. In MSCD 3.60 I suggest that when one party’s discretion depends on performance by another party, you’re better off using is entitled to rather than may. So depending on the context, sometimes instead of the formula Party X hereby grants Party Y the right to [verb] you’d want to use Party Y is entitled to [verb], as in the following example:
The Company hereby grants to the Underwriters the right to [read The Underwriters are entitled to] purchase at their election up to 3 million Optional Securities.
This is a distinction that I’ll be running by linguists before I repeat it in MSCD2. But more to the point, “It would … be simplest to ignore this nice distinction and instead address matters directly by using language of obligation.” (MSCD 3.61.) If you were to rephrase the above example using language of obligation, it would look something like this:
The Company shall at the election of the Underwriters sell the Underwriters up to 3 million Optional Securities.
In intellectual property licensing, we think of the license itself as a separate object from the contract that grants it. This is important in IP, where whether a right derives from a license in IP versus a contractual condition can make all the difference in the world. (It boils down to whether acts by the licensee that might be outside the scope of the license grant will be a breach of contract, with contract remedies, or an infringement of the out-of-scope IP, with the usually much more nasty IP infringement remedies.) A less monumental problem is that we often want to have the license grant itself have a term that is different than the contract that granted it, and thus having it carved out as its own blob of existence right from the get-go leads to some less ponderous drafting in the survival clause. (Arguably, one need not even have the survival clause deal with the license if one has granted the license correctly, since once it’s granted it lives under its own terms separate from the existence of the contract.)
Thus, the language of ‘hereby grants’ is used by IP license drafters, since it’s a relatively proven way of ensuring the judge will read that as a grant of license rather than a contractual condition.
I’m not suggesting that we couldn’t work on some less ponderous form, since there’s nothing in the statutes that actually requires the ‘hereby grants’ language. Especially in IP, I think the ‘hereby grants’ structure typically leads to terribly drafted run-on sentences, and thus it’s ripe for reconsideration. Nonetheless, I would suggest caution in stepping away from ‘hereby grants’ where it might actually make a substantive difference in IP licenses.
Michael: I’m drawing a distinction between “Acme hereby grants Widgetco a license” and “Acme hereby grants Widgetco a right to [verb].” I think that the former addresses your concerns, and I’m happy to leave it alone. The latter is the one that I’m interested in. Ken