Adding indemnification provisions for expenses incurred in addressing a breach of regulated personal information and protected health information (and adding a carve out for indemnification to the consequential damages disclaimer). In granting Silverpop’s motion for summary judgment, the district court assumed that LMT had suffered damages. In contracting for IT services, it is important for purchasers to thoughtfully consider the risks of harm presented by the services, and then negotiate terms that appropriately allocate those risks between the parties. The court dismissed LMTs breach of contract claim because LMT had agreed to include the waiver of all consequential damages in the contract it had entered into with Silverpop. In a telling passage, the court reasoned: [T]he loss suffered by LMT is of a type resulting from the breach of a specific term of the agreement. The court’s analysis could apply to almost any breach of data provided to a vendor under an IT service contract, and highlights the need to carefully scrutinize a proposed waiver of consequential damages when confidential or sensitive data is involved in the contract. That position has some support from the recent decision of the Eleventh Circuit Court of Appeals in Silverpop Systems, Inc. v. Leading Market Technologies, Inc., 61 Fed. It was therefore critical for the Court to decide whether the damages … Silverpop makes this possible by using customer data and each individual’s behaviors to inform and drive every interaction in real time. In the absence of a breach of the confidentiality provision, LMT would not have incurred the loss to the sale value of the LMT List. 849 (11th Cir. Silverpop argued that it was engaged to provide access to its online system, not specifically to keep data secure. But hackers accessed the portion of Silverpop’s network where LMT’s email list was stored, and  the list may have been misappropriated (though this could not be confirmed). An article in Norton Rose Fulbright’s Data Protection Report discusses a recent ruling by the 11th U.S. All Rights Reserved. in no event shall the regents or contributors be liable for any direct, indirect, incidental, special, exemplary, or consequential damages (including, but not limited to, procurement of substitute goods or services; … The type of consequential damages most often sought is lost operating profits of a business. Norton Rose Fulbright LLP © 2020. Some writers have argued that any damages from the breach of a confidentiality obligation are necessarily consequential, because the specific harm caused by the breach would rarely be apparent on the fact of the contract. The U.S. Court of Appeals for the Eleventh Circuit —one of the highest federal courts below the Supreme Court—recently affirmed a decision in Silverpop Systems, Inc. v. Leading Market Technologies, Inc. finding that all damages flowing from a vendor’s data breach were barred by a standard provision in IT service contracts, disclaiming all liability for consequential … … Silverpop Systems specializes in planning, executing, and managing permission-based e-mail marketing campaigns. Silverpop filed a declaratory action seeking payment. In November of 2010, Silverpop’s web-based system was hacked, potentially affecting the security of the nearly 500,000 e-mail addresses Leading Marketing had uploaded to the system. Textbooks and treatises on contract law will define consequential damages in the context of the following summary of contract damages: Even using this scholarly definition, direct and consequential damages are difficult to differentiate. Appx. Silverpop Systems, Inc. v. Leading Market Technologies, Inc. The company blends strategic services that include policy development, campaign … It said that the parties’ agreement was not one for … LMT argues that it seeks to recover the lost market value of the LMT List and that lost market value is a direct injury rather than consequential … In that case, the Plaintiff Silverpop … Previously known as the Silverpop … Silverpop / IBM Campaign automation (Watson) is a marketing technology provider that offers a marketing automation solution built on a scalable email marketing platform. In addressing this argument, the court acknowledged the black-letter “foreseeable to a stranger/foreseeable to the parties” test of direct versus consequential damages, but decided that the Second Circuit’s “value of performance/additional losses” analysis was a helpful gloss on that test. Every online business should have a Terms and Conditions agreement that lays out rules for customers and users, as well as any necessary legal terms. Consequential damage waivers are a frequent part of merger and acquisition agreements involving private company targets. After an … Silverpop is a digital marketing software company focused on helping marketers transform the customer experience— increasing engagement and driving revenue. Ga. App. The Eleventh Circuit Court of Appeals, in Silverpop Systems, Inc. v. Leading Market Technologies, Inc., 2016 U.S. App. Removing the consequential damages waiver entirely, and relying on the background common law that damages unforeseeable at the time of contracting are not recoverable; Carving out from the consequential damages waiver any claims arising from breach of confidentiality, even if such claims are already exempted from the contractual damages cap; Adding indemnification provisions for third-party claims arising from a breach of confidentiality (and adding a carve out for indemnification to the consequential damages disclaimer); and. Thus there was no breach of its obligations under the agreement. By Editoron October 6, 2016 in Computers & Technology, Contracts. Recent Case Highlights Dangers of Consequential Damage Waivers in IT Contracts. The district court then assessed whether the contract prohibited the damages LMT sought … This requires both parties to reconsider the standard vendor-friendly term waiving all consequential damages,” the authors write. Silverpop argued that it was engaged to provide access to its online system, not specifically to keep data secure. In Silverpop v. Leading Market Technologies , 2016 U.S. App. In November of 2010, Silverpop’s web-based system was hacked, potentially affecting the security of the nearly 500,000 e-mail addresses Leading Marketing had uploaded to the system. However, lost profits are not the only kind of consequential damages. Leading Marketing counterclaimed, arguing that it was justified in withholding payment since Silverpop had failed to keep the addresses secure. The typical vendor-friendly IT service contract will contain a section titled “limitation of liability” with two key provisions: Purchasers will often focus on the first provision but fail to address the second provision, perhaps because it reads like boilerplate language that reasonably confirms that the vendor will not be liable for speculative damage claims. Silverpop’s failure was a failure to uphold one specific term of the contract (the confidentiality provision), and, based on that, any damages from Silverpop’s lack of security were … Before addressing the Eleventh Circuit’s decision in Silverpop, some background on consequential damage waivers may be helpful –. You also learn how to connect a Silverpop connector endpoint to the Silverpop … Matthew Spohn and David Navetta explain that the court’s analysis could apply to almost any breach of data provided to a vendor under an IT service contract, and highlights the need to carefully scrutinize a proposed waiver of consequential damages when confidential or sensitive data is involved in the contract. In most cases, the purpose … The decision that was made in this case was actually a pretty important one to the world of information technology. Here, LMT's damages are best characterized as consequential. Thus, considering the purpose of the parties’ agreement, the damages LMT seeks are not the type that “arise naturally and from the usual course of things.” LMT’s damages are consequential rather than direct. The power of a contract’s consequential damages waiver was most recently illustrated in an Eleventh Circuit Court of Appeals decision, Silverpop Systems, Inc. v. Leading Market Technologies, Inc. 2 In that case, the appellate court summarily affirmed the federal district court’s “well-reasoned and thorough decision,” finding, among other things, that the parties’ consequential damages waiver barred all damages caused by a technology vendor’s data breach. In most cases, the primary purpose of such a contract is to provide IT services—the obligation to maintain the confidentiality of the data involved is only incident to that main purpose and performance. The court then dismissed LMT’s claim for breach of contract because it had agreed to waive all consequential damages—even though claims for breach of confidentiality were exempted from the contract’s separate cap on total damages. According to LMT, it is entitled to summary judgment because Silverpop breached Section 4.1 of the parties' agreement by failing to protect the LMT List from disclosure to third parties, the damages it incurred as a result of the breach were direct rather than consequential and, thus, recoverable under the contract, and even if those damages were consequential, … Recent Case Highlights The Dangers Of Consequential Damage Waivers in IT Contracts By Matthew Spohn (US) and David Navetta (US) on September 26, 2016, Norton Rose Fulbright US LLP The U.S. Court of Appeals for the Eleventh Circuit —one of the highest federal courts below the Supreme Court—recently affirmed a decision in Silverpop … Consequential damages - The US Court held that based on this distinction L’s damages were best characterised as consequential. Silverpop moved for dismissal of that claim with the argument that those damages were consequential, and were therefore barred by the consequential damages waiver in their agreement. The U.S. Court of Appeals for the Eleventh Circuit—one of the highest federal courts below the Supreme Court—recently affirmed a decision in Silverpop Systems, Inc. v. Leading Market Technologies, Inc. finding that all damages flowing from a vendor’s data breach were barred by a standard provision in IT service contracts, disclaiming all liability for consequential damages. The court dismissed the case despite the fact that claims for a breach of confidentiality were excused from the contracts separate maximum of total damages that could be incurred and paid out. 3 LMT sued Silverpop for breach of the confidentiality provisions in their agreement, alleging that the value of its confidential email list was diminished by the data breach. The contract contained the following exclusion " In no event will Silverpop be liable to the other party for consequential damages ". Silverpop’s system and appeared to have exported at least some of Leading Market’s e-mail addresses. (Stand-alone non-disclosure agreements might be exceptions). The U.S. Court of Appeals for the Eleventh Circuit—one of the highest federal courts below the Supreme Court—recently affirmed a decision in Silverpop Systems, Inc. v. Leading Market Technologies, Inc. finding that all damages flowing from a vendor’s data breach were barred by a standard provision in IT service contracts, disclaiming all liability for consequential damages. Silverpop Sys., Inc. v. Leading Mkt. And … Options for addressing these risks at the contracting stage include: Not all of these options are mutually exclusive, and together they provide a toolbox for allocating the parties’ liabilities in the event of a data breach. January 5, 2016) enforced a contractual waiver of consequential damages provision, thereby reaffirming the validity of such provisions in Georgia. Although these waivers are heavily negotiated, the au-thors believe that few deal professionals understand the concept of consequential damages Circuit Court of Appeals that affirmed a decision in Silverpop Systems, Inc. v. Leading Market Technologies, Inc., finding that all damages flowing from a vendor’s data breach … LEXIS 196 (11th Cir. Thus there was no breach of its obligations under the agreement. And if a court uses the Silverpop analysis and finds that maintaining the confidentiality of data is not the primary purpose of the IT contract, then damages from the confidentiality breach will be consequential. 641 (1997), which held that a waiver of consequential damages provision was enforceable and barred the plaintiff’s alleged consequential damages, even when the other party wrongfully terminated … “[T]o the extent that consequential damages are recoverable in breach of contract actions, a clause excluding such damages is valid and binding unless prohibited by statute or public … Against this background, breaches of confidentiality agreements present unique challenges in sorting direct from consequential damages. An article in Norton Rose Fulbright’s Data Protection Reportdiscusses a recent ruling by the 11th U.S. On July 19, 2012, Silverpop filed this action, seeking a judgment declaring that LMT was not damaged by the data breach or that the damages incurred were consequential damages and, as such, not … Silverpop then sued for declaratory judgment that LMT wasn’t entitled to any damages, and LMT filed its negligence and breach-of-contract counterclaims. If the IT contract contains a standard waiver of consequential damages, then the aggrieved party may be without a remedy. Fine-tune email marketing and lead-generation activities with these four tips for using Silverpop connector activities with IBM WebSphere Cast Iron. This requires both parties to reconsider the standard vendor-friendly term waiving all consequential damages. 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