Parties to a contract will, more often than not, include: (i) a forum selection clause to identify the agreed location where disputes among the parties should be litigated and (ii) a choice of law clause to select the law governing the contractual relationship. However, as demonstrated in the recent Second Circuit decision in Philips v. Audio Active Ltd., 494 F.3d 378 (2d Cir. 2007), unless care is taken in drafting these contractual provisions (often underappreciated as mere “boiler plate”), parties may not be as secure in their choices as originally believed.

Parties to a contract usually are cognizant of the legal distinction between permissive and mandatory forum selection clauses. A permissive forum selection clause, such as, for example, “any dispute between the parties concerning this Agreement shall come within the jurisdiction of the courts of New York,” generally confers jurisdiction on the designated forum for breach of contract, but might not prevent a party from bringing suit in a different jurisdiction. In contrast, a mandatory forum selection clause, such as, for example, “any dispute arising under or in connection with the agreement or related to any matter which is the subject of the agreement shall be subject to the exclusive jurisdiction of the state and/or federal courts located in New York, NY,” may preclude a successful suit from being brought in another jurisdiction.

A more difficult question is: To what causes of action will the forum selection clause apply? This question was addressed in the recent Second Circuit Philips case involving the hip hop DJ, producer and recording artist Peter Phillips, p/k/a Pete Rock.

Substantive Scope Of Forum Selection And Choice Of Law Clauses

The Philips case illustrates that the substantive scope of forum selection and choice of law clauses can be critical. Plaintiff Pete Rock entered into a recording contract with a music company which he subsequently sued in the Southern District of New York when it released an album containing his songs without permission. Mr. Rock alleged copyright infringement, unjust enrichment, unfair competition and breach of contract claims. The trial court granted defendant music company’s motion to dismiss all claims for improper venue based on the contract’s provision that “[t]he validity[,] construction[,] and effect of this agreement . . . shall be governed by English Law and any legal proceedings that may arise out of it are to be brought in England.” (emphasis added). The Second Circuit reversed, explaining that to “arise out of ” something means to originate from a specified source and that it does not construe “the words ‘arise out of ’ as encompassing all claims that have some possible relationship with the contract, including claims that may only ‘relate to,’ be ‘associated with,’ or ‘arise in connection with’ the contract.” The Second Circuit held that since the copyright claim was not predicated on any contractual provision, it did not “arise out of ” the contract and was exempt from the forum selection clause, as were the unjust enrichment and unfair competition claims. Only the breach of contract claim “arose out of ” the contract, according to the Second Circuit.

What This Means For You

When contractual relationships break down, parties to an agreement involving intellectual property will likely face a host of claims beyond breach of contract, including, if applicable, patent, copyright or trademark infringement, unfair competition, unjust enrichment, trade secret misappropriation and myriad other state and federal claims. To obtain greater certainty in the selection of both forum and governing law in the event of such a breakdown, parties should pay close attention to drafting forum selection and choice of law provisions that actually implement their forum expectations and that cover the entire range of interactions and possible claims between the parties, not just the specifics of the contractual agreement. The underlined sample language set forth above should help to expand the claims that can be brought only in the designated forum.