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Limited Warranty and Freelance Agreements

by Vinay Jain

In this article, we share some of the legal research behind our forms. Please note that refining these forms is an ongoing process informed by continuous research as well as possible changes in the law. As a result, the language we reference below may differ from what’s currently in use on the app.

Shake’s freelance agreements contain the following limited warranty:

(THE FREELANCER) WARRANTS THAT NO OBLIGATION TO A THIRD PARTY PROHIBITS (THE FREELANCER) FROM ENTERING INTO THIS AGREEMENT, AND THAT TO (THE FREELANCER’S) KNOWLEDGE, WORK PRODUCED UNDER THIS AGREEMENT WILL NOT VIOLATE THE INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY.

This provision captures the explicit warranties made by the freelancer to the client.1  The first concerns the freelancer’s ability to properly enter into the agreement. Unbeknownst to the client, the freelancer may be bound by obligations to third parties, for example to previous clients via non-compete or exclusivity arrangements, which prevent that freelancer from working with the client or limit the work the freelancer can do.2  With the above language, the freelancer warrants that no such conflict exists. In this freelance agreement context, a warranty is just an assertion of fact, which can trigger liability if untrue.

The provision additionally provides that the freelancer will not knowingly violate the intellectual property rights of third parties.3  This could arise, for example, in the context of a freelance software developer re-using code that was developed for and belongs to a previous client.4  Because the freelancer herself does not always know whether previously developed material is encumbered by intellectual property claims, the warranty is qualified by the phrase “to the [Freelancer’s] knowledge.”5  It is important to note that this qualification applies only to the warranty and would not excuse either the freelancer or the client for liability that may accrue from the misappropriation of a third party’s intellectual property.6

 

  1. A warranty in contract law and common law is nothing more than “an assurance by one party to a contract of the existence of a fact upon which the other party may rely … It amounts to a promise to indemnify the promisee for any loss if the fact warranted proves untrue …”  CBS Inc. v. Ziff-Davis Pub. Co., 75 N.Y.2d 496, 503 (1990).
  2. Although non-competes and exclusivity provisions are often litigated in the employer-employee context, they can also apply equally to freelance and consulting agreements.  See e.g., Smith v. Stericycle, Inc. 538 F. Supp. 2d 960 (W.D. Tex. 2008) (analyzing a non-compete agreement between an employer and a former employee consultant as applied to a consulting services agreement); Avalon Legal Info. Services, Inc. v. Keating, 110 So. 3d 75 (Fla. Dist. Ct. App. 2013) (litigation concerning non-compete/non-solicitation covenant in an independent contractor agreement.)
  3. There are four general categories of intellectual property rights: copyright (protects against the copying of the original expression of a fixed, tangible expression), trademark (identifies and distinguishes a product with the purpose of identifying the product’s source or producer), patent (permits a patentee to exclude other from making, selling, or using the patented invention), and trade secrets (protects anything not generally known and which gives the holder a competitive business advantage).  See Howard M. Eisenberg, Patent Law You Can Use, Yale University Office of Cooperative Research, (2000).
  4. Elements of computer programs – including source and object codes – receive copyright protection.  See Computer Associates Intern., Inc. v. Altai, Inc., 982 F.2d 693, 702 (2d Cir. 1992).  The misappropriation of computer code can even have criminal consequences, especially under the Computer Fraud and Abuse Act.  See U.S. v. Aleynikov, 737 F. Supp. 2d 173 (S.D.N.Y. 2010) (A computer programmer employed at Goldman Sachs was charged with misappropriating computer source code from Goldman Sachs upon his departure for the purpose of using the code at a different firm.)
  5. It is not uncommon for a contract to define “knowledge.” For example, “knowledge” might be defined as the knowledge a party is expected to have after reasonable investigation and due diligence.  Such definitions are frequently negotiated and transaction-specific.  For that reason, Shake’s “knowledge qualifier” is general and intended to convey its plain meaning of “actual knowledge.”
  6. The warranty – and the rest of the Shake freelance agreement – is an agreement only as between the parties to the contract.  The warranty is not intended to, and will not, benefit any third parties under the contract.  If the freelancer breaches an obligation or duty to a third party, compliance with this agreement will not allow the freelancer to avoid such obligations and duties to the third party.
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Vinay Jain

As Chief Legal Officer, Vinay serves as Shake's general counsel, is responsible for the company's legal contracts and content, and leads efforts to educate consumers and small businesses about the law.

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