Ricardian Contracts are really a stepping stone to Smart Contracts. They are a way to link a contract to another system, typically an accounting system. Ian Grigg came up with the Ricardian Contracts some time ago. He first published about it in Financial Cryptography in 7 Layers in 1998. Ricardian Contracts were initially used for Ricardo (hence their name), a bond platform.
They are a melding of a traditional contract with a contract that can be read and executed by machines. A Ricardian Contract can be defined as a single document that:
- is a contract offered by an issuer of some item of value (think of a bond, coin, token, currency, etc.) to a holder of such item;
- for a valuable right held by the holder, to be managed by the issuer;
- can be read in plain language by humans (so like a normal contract);
- can be read by programs (and is parsable like a database);
- digitally signed;
- carries the keys and server information; and
- is allied with a unique and secure identifier.
Generally a Ricardian Contract is one that is used to define a value for issuance and holding of something over the Internet. It sets forth the applicable terms and sets it in cryptographic stone, so everyone knows who signed it, and when and exactly what it said at that time. It automates the offer and acceptance of the agreement and ensures they are enforceable.
It removes a good deal of the typical contract dispute issues, but not all of them. Items such as what was the offer and whether it was accepted, who the parties are, what the terms of the contract are are greatly resolved. When you use natural language however, there are always items that may be ambiguous, or changes in the nature of the parties, the industry or the economy which can greatly change what parties expected in a contract (that’s assuming they both had the same expectations for all provisions in the contract – another thing that is usually not the case).
The Ricardian Contracts are a bit unique, and likely cannot be used for anything, as drafting these agreements which must include markup language to enable them to be read by computers is a bit different. They are also pretty versatile and can be strung together (usually transactions are more complicated than one agreement can cover).
As a younger lawyer I was regularly working on securities offerings. For the bulk of the offerings they were private placements to accredited investors under SEC Rule 506(b), which involved filing a Form D and state notice filings. In most states it was pretty straightforward. New York, however, was not straightforward then, and still remains a mystery to many people. Over the years I searched for a book that covered the basics of New York’s Martin Act (the law covering securities offerings in the State), but never found exactly what I was looking for. I kept working on deals and writing posts for this blog (in addition to memos and white papers, etc.), and over time I compiled a decent amount of information and knowledge of the subject and decided to put it all into one place. Next thing you know I had the beginnings of a book. Link to see it on Amazon here.
Now I don’t profess to being a specialist in the field of securities, as there are many complexities and rabbit holes to go down if you get outside the more “vanilla” type offerings. Startups, emerging companies and even investment funds, however, generally are raising money through private placements under SEC Rule 506(b). This book gives the basics and is, like its titled, a primer. I tried to walk a fine line to allow it to be read by non-lawyers, with enough citations to assist legal practitioners.
Admittedly, this book is a niche product. The prospective audience is those whose companies are looking to raise money, or individuals otherwise involved in some aspect of companies raising money. I hope it can be helpful to such individuals, including younger attorneys just getting started in the field.
In any event, the book is for sale in paperback and e-book on Amazon. I personally feel the paperback is easier to read and to flip back and forth to things, and to view the exhibits and addenda, which should be consulted. I have a number of copies of the book, and if any readers of this blog or friends and colleagues of mine would like a free copy, feel free to reach out. Thanks for the support.
This is a follow up post on our series of merger and acquisition issues. If you are selling your company you’ll be faced with the prospect of indemnifying the purchaser for any damages they suffer in connection with the sale. Now such indemnification may arise for a number of reasons, such as an unknown debt or lien that was on an asset you sold, a claim that an employee or third party made against the company or an asset which you did not inform the purchaser of, or a number of other issues. These are usually breaches of the representations and warranties that sellers have to make to the buyers in the asset purchase agreement. For example, the seller will represent (i.e. state as true at the time of signing or closing or both) that there are no debts owed by the company or liens on the company assets. If the deal closes and a lender or lien of the company did exist, its a breach of that representation, and the seller is liable to the buyer for any resulting damages. Read more
Most companies licensing the use of their trademarks would not think that a simple license agreement, which provides nothing more than use of the trademark in exchange for a fee, would for legal purposes be treated as a franchise agreement. But if the trademark licensor is in New York then what it thought was a simple trademark license agreement relationship is likely really a franchise arrangement. Read more
There are changes coming to any business operation that is currently taxed as a partnership in the United States. The concept of the “tax matters partner” is being done away with in favor of what is called a “partnership representative.” Read more
Treiber & Straub, Inc. v. UPS, 474 F.3d 379 (7th Cir. 2007).
In this case, a user shipped a ring worth $100,000 via UPS’s online shipping website. He submitted the ring in a package for shipping with the shipping label. UPS then lost or misplaced the package.
The Court held that using a clickwrap agreement for online transactions was “common in Internet commerce” where “one signifies agreement by clicking on a box on the screen.” The court reasoned that merely because the user chose not to read the terms, that does not let him avoid any of the provisions he does not like.
In Davidson & Associates v. Jung, 422 F.3d 630 (8th Cir. 2005), the Court of Appeals for the Eighth Circuit upheld a clickwrap agreement that prohibited reverse engineering. In that case, the clickwrap agreement that had to be accepted prior to playing the online game prohibited reverse engineering.
The clickwrap agreement was included in the End User License Agreement that each user had to affirmatively agree to (by clicking on “I Agree” button) when installing the game, and you could not play the game without agreeing. Users also had to enter a CD Key which was included on the copy of the CD the game came on. The CD Key was connected to the CPU’s IP address to prohibit pirating and copying of the CDs.
Certain users, unhappy with the games’ performance and the system used to play the online game, reverse engineered the game and created their own site to play it against others on the game maker’s site. Blizzard, the game maker sued.
The Court of Appeals for the Eighth Circuit upheld the clickwrap agreement provision that prohibited reverse engineering, stating that the users had expressly relinquished their right to reverse engineer by agreeing to the terms of the license agreement.
There were various other copyright claims, and the court also held that the users violated the Digital Millennium Copyright Act, which seemingly made ruling against the users easier.
Compuserve v. Patterson, 89 F.3d 1257 (6th Cir. 1996).
Patterson, a resident of Texas (a lawyer and software programmer), sold his own software to third parties over Compuserve’s system, pursuant to the terms of a clickwrap agreement (where he had to type “I Agree” into various sections of the agreement).
Compuserve began to sell its own software that was similar to Patterson’s and Patterson demanded Compuserve pay him $100,000 as a settlement. Compuserve then filed a declaratory judgment action in Federal court in Ohio.
Patterson moved to dismiss the action due to alleged lack of personal jurisdiction, claiming he never visited, did business in, or consented to suit in Ohio.
The Sixth Circuit found that making Patterson subject to suit in Ohio due to his acceptance of the clickwrap agreement, a Shareware Registration Agreement, did not violate the due process clause of the United States Constitution.
The Court reasoned that Patterson personally availed himself to do business with Compuserve, and made money doing so, and could therefore have reasonably expected he’d have to defend himself in Ohio due to the terms of the agreement.
This is the seminal case in the shrinkwrap realm, which paved the way for the rise of the browsewrap and shrinkwrap cases. Upholding the software license as normally provided to purchasers, to get around the First Sale Doctrine under U.S. Copyright Law. Cite, facts and holding are below. Read more