Add Power to Your Purchase Order Form: A New Year’s Resolution Worth Keeping

January 2011
by Steve Gillen

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Add Power to Your Purchase Order Form: A New Year’s Resolution Worth Keeping

by Steve Gillen

In the age of depressed consumer spending, shrinking ad budgets, recessionary pressures, and the belt-tightening all that provokes, we are all looking for ways to be more efficient and improve our processes. One opportunity to do this is right under your nose in an everyday business form

The purchase order, or PO, is a ubiquitous transaction document introduced by accountants principally for the twin purposes of budget control and fraud prevention. But the PO form also gives you a chance to achieve certain legal objectives—it provides a vehicle for any publisher buying goods or services to set and memorialize the terms of the purchase transaction.

Accordingly, an effective PO form will incorporate not just some blanks on the front side for identifying the vendor and specifying the description of goods or services, the quantity, and the price. In addition, it will incorporate a set of standard terms and conditions (Ts&Cs), usually printed on the backside of the form.

Unfortunately, publishers (and others) often overlook these Ts&Cs. Make that mistake, and your state’s commercial law will fill in the gaps—but maybe not the way you would choose to have them filled. Or worse yet, your vendor may supply and bind you to a set of vendor-friendly terms when it confirms your order (in what you think of as the “small print” when it consists of the other party’s terms).

Basic Gap Fillers

What are the gaps you might fill with buyer-friendly terms? Here’s just a sampling. You might:

Reserve the right to cancel any undelivered portion of the order for your convenience without a

 

cancellation fee, restocking charge, or other liability.

Require warranties of good title, merchantability, workmanship, and conformance to specifications

(among others) and provide for your election of remedies in the event of any breach.

Disclaim acceptance of any delivery until you’ve had a reasonable opportunity to inspect the goods.

Require that the price to you is not less favorable than the price to any other customer and claim the

benefit of any later price cut.

Specify that time is of the essence with respect to any delivery (if you don’t specify this, then the

default standard is delivery within a commercially reasonable period of the time specified).

Reserve a right to set off against amounts due the vendor any claims you have against the vendor (if

you don’t expressly reserve this right you don’t have it).

Bar the vendor from assigning the contract without your consent (the general rule is that the contract

can be assigned unless it says it can’t).

Establish a private statute of limitations that bars any action against you based on the purchase unless

it’s commenced within a time that you specify.

More Issues, More Opportunities

Even after you have taken charge of your transactions and filled some of these gaps by incorporating a set of Ts&Cs on the back of your PO form, there is a good chance that the Ts&Cs you have incorporated were drafted with only the purchase of goods in mind.

Today, as businesses outsource more functions to specialists, commonly used Ts&Cs do not keep pace.

So size up the set of Ts&Cs on your standard PO form against this additional checklist of sometimes overlooked issues:

Work-made-for-hire. Even publishers who ought to know better accept the common misconception that any work specially commissioned has been “made-for-hire” and will be owned outright by the commissioning party.

Where the work product is copyrightable expression, however, this is just not the case. No doubt, you employ a contract that secures the rights you need in the works you publish, but there are other types of works where copyright ownership is at risk if you have not documented the transaction sufficiently—ornamental product designs, advertising and marketing materials, training tapes, photography, videography, Web development, and customization of software applications all entail copyright interests that won’t inevitably be owned by you.

When a copyrightable work is created by a contractor or freelancer rather than an employee, default rules in the United States vest copyright ownership in the human creator automatically at the moment of fixation. There is an exception to this default rule that permits certain classes of commissioned copyrightable works to be “for-hire” by agreement under certain circumstances, but only if your PO form contains the right provisions and you get the vendor’s signature.

Your PO form should also include an assignment provision as a backup to cover those works that are ineligible, as a matter of law, for treatment as works-for-hire. Without the right language in your PO, the best you will get is a nonexclusive license of indefinite scope and duration—you won’t own the material; you won’t be able to keep the vendor from repurposing it for someone else; and you may have to pay again to repurpose or redeploy it yourself.

Inventions, trade secrets, and sensitive information. Information shared with nonemployees loses its proprietary/confidential character in the absence of an obligation to maintain the confidence.

Accordingly, your PO form should anticipate not only your sharing of proprietary information and proprietary specifications with your vendors but also incorporation of technology or information that you wish to own and protect as either proprietary or sensitive in work product delivered to you.

In other words, the PO form should provide for a transfer of ownership of trade secrets associated with in-bound work product and should restrict further use or disclosure of any confidential material you might disclose to a vendor. You want to be sure the market research you commissioned doesn’t end up being repurposed for a competitor. If the Ts&Cs in your PO cover this, you don’t have to remember to address it specially.

Warranties of noninfringement. It is also important for your PO forms to incorporate warranties of noninfringement against the possibility that the vendor’s deliverables might include intellectual property that it does not own. Your PO form should oblige the vendor to defend and indemnify you against risks of this sort, and should oblige the vendor to carry errors and omissions insurance sufficient to ensure that it can do so.

Employee/independent contractor. When services are to be performed at your facility and the contractor/vendor is an individual rather than a business entity, it is important that the relationship not be interpreted as an employment relationship (unless that is your intention), which would trigger income tax withholding, Social Security, workers’ compensation, and unemployment insurance obligations as well as entitlement to benefits.

Publishers have come under heightened scrutiny in recent years for testing the limits with freelancers engaged to provide services previously rendered by staff. And state and federal legislation targeting this misclassification across all businesses is currently pending.

Although it’s not what you and your vendor call the relationship that is controlling, there are circumstances you can document in well-crafted provisions in your PO form that will go a long way toward minimizing your exposure on these issues.

Battle of the Forms

In cases where you and your vendor are both on top of your Ts&Cs game (i.e., where the vendor has also included vendor-favorable terms in a written order confirmation), a battle of the forms ensues. Anticipate this and include the right language in your PO form, and you will have gone a long way toward winning that battle, or at least minimizing your casualties.

Throughout the year, your PO form captures and supports a substantial portion of your business transactions. It’s worth a little time now to review it and update it to be sure that it does everything you want it to do.

Steve Gillen is a lawyer and partner in the intellectual property firm of Wood Herron & Evans and has focused his practice on publishing and media matters for 30 years. He is a member of IBPA and a frequent contributor to the Independent. To reach him, email sgillen@whepatent.com, or call 513/241-2324.

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