How to Understand a Confusing Commercial Contract

Jul 04, 2022

Use product and Intellectual property (IP) rights ownership as the first step to understanding a confusing commercial contract. 

Many of the contracts we receive to review are a mishmash of rights and obligations. It is easy to get confused when the terms don’t fall neatly into a recognizable category. It gets more confusing when the titles don’t match the terms. 

For example, you may receive a Software as a Service agreement that also has a software license, maintenance terms, and intellectual property development. Or you could receive a contract labeled as a distribution agreement, but really it is a contract manufacturing deal.

When you are in this situation, step back and focus on one thing -

Who owns what when.  

Because in almost all commercial contracts, one party sells or licenses something to the other party. 

How and when that sale or license happens is the key to understanding the other dynamics of the deal.  

Figure out who owns the goods and the IP rights. Then track how the title is transferred or rights are licensed. Sketch it out on a piece of paper when it is particularly confusing.  

Once you have a solid understanding of those concepts, it is a lot easier to review and identify what changes are needed in the rest of the contract.