"Famous Last Words"

Unique! Unusual! Extraordinary! (September 2006)

Dear Jim:

I can generally understand the contract our publisher gave us for our game.

But one thing is confusing.

It sounds like we are amazing. When the agreement says that our work has “a unique, unusual, extraordinary and intellectual character which gives a special value,” it comes off like a great compliment!

Then it says they are entitled to injunctive relief to prevent loss.

What does that all mean? Are they being nice to us?

Dear Good:

Our discussion will be heading into one of the most highly technical legal issues in a contract; so sit down and let's take it slowly.

This analysis starts way back in the mid 16th century when two court systems emerged in England for resolution of civil disputes.

Law courts had the power to order payment of money damages.

Equity, or “chancery” courts had other powers. Equity courts could issue injunctions to stop someone from doing something; or conversely, order “specific performance” to compel performance under a contract.

Over time, law and equity merged. Today, there is only one common law court system that has the power to determine and apply both legal and equitable remedies.

An injunction, the power to stop something or someone from doing something, is a powerful tool that is used in situations that can go far beyond contract matters. However, before a court can issue an injunction, regarded as an extraordinary remedy, the party seeking the injunction must show that unless the other side is stopped, it will suffer irreparable loss that can not be compensated adequately in monetary damages. (Keep that in mind for later.)

Typically, a party will go to court to seek an injunction as soon as it gets wind of the action or purported action of the other side that gives rise to the application. And frequently, the other side (the party sought to be enjoined) may not be present or available to argue that the injunction is not an appropriate remedy under the circumstances.

When only one side goes before the court, it is known as an “ex-parte” action. If an injunction is granted to the one side appearing in the ex-parte action, it may be for a short time only, and a date is set where the issue can be argued with both sides present.

Given the potential for abuse of an injunction, and the extraordinary nature of the remedy, courts will frequently require a party seeking the injunction to post a bond (a bond is a way to guarantee financial responsibility of the party who sought the injunction). This bond may give some protection to the other side if it is shown that there was no cause for an injunction; and in fact, the side that was enjoined has suffered damage as a result.

The language cited in your question is one element of the foundation that your publisher is trying to build to show a court that it would be entitled to that injunction.

Here is an example of a typical publisher-oriented equitable relief clause:

Equitable Relief. Developer acknowledges that the performance of its obligations hereunder and the rights and licenses assigned to Publisher hereunder are of a unique, unusual, extraordinary and intellectual character which gives them a special value, the loss of which cannot be reasonably or adequately compensated in damages in an action at law, that a breach by Developer of this Agreement will cause Publisher great and irreparable injury and damage and, therefore, while expressly reserving all of Publisher's rights and remedies hereunder, Publisher will be entitled to injunctive relief without the requirement of posting a bond to prevent such injury or damage.

Remember that we discussed the standard for issuance of an injunction. The party applying for the relief must show that the default for which the injunction is sought causes “great and irreparable injury” that can not be adequately compensated by money. In making an ex-parte application to a court for this relief, your publisher must show to the satisfaction of the court that the claimed default meets that high standard.

In stating Developer's services are “of a unique, unusual, extraordinary and intellectual character which gives them a special value,” Publisher is helping the court see it Publisher's way. This language says, in effect, that no other developer could fill in here and do the job.

If developer would not complete the job, or would not complete it on time, or would take any other work that might prevent completion on time, this language opens the door for Publisher to ask the court to enjoin (stop) Developer from working for anyone other than Publisher until Developer performs all of its obligations for Publisher.

As Developer's counsel, I understand the publisher wanting to make sure it gets the services and work product for which it is contracting.

However, this clause presupposes that any default by Developer rises to the extraordinary level. The parties here are agreeing in advance that Publisher will be entitled to injunctive relief when the facts of a claimed default are unknown.

How can the parties know at the start of the agreement, before a line of code is written, that some future default would rise to this level?

That determination must be left to the court after review of the facts.

Publisher (or Developer, for that matter) has the right to apply for equitable relief at any time. A few simple adjustments to the contract language above can preserve these rights while making it clear Developer is not admitting in advance that Publisher has an automatic right to this remedy.

Using the word “may” rather than “can” or “will” in the proposed contract clause introduces an important element of judicial discretion into Publisher's application. And Developer may acknowledge that Publisher can “seek” injunctive relief, but should avoid any “confession of judgment” that can lead to an automatic determination in Publisher's favor!

An example of a much more favorable equitable relief section may be:

Equitable Relief. Developer acknowledges that the performance of its obligations hereunder and the rights and licenses assigned to Publisher hereunder may be of a unique, unusual, extraordinary and intellectual character which could give them a special value, the loss of which may not be reasonably or adequately compensated in damages in an action at law, that a breach by Developer of this Agreement may cause Publisher great and irreparable injury and damage and, therefore, while expressly reserving all of Publisher's rights and remedies hereunder, Publisher will be entitled to seek injunctive relief to prevent such injury or damage.

Such changes as these protect Developer from admitting in advance that Publisher may get an injunction, while preserving Publisher's right to argue to the court that it is entitled to injunctive relief.

Thank you to my father, Irvin B. Charne, for his invaluable assistance in editing this column!