Microsoft’s Dispute Resolution Provisions Are a Mess
June 12, 2023
The Microsoft Corporation (“Microsoft”) and its foreign subsidiaries buy goods and services from companies all around the world. To streamline the contracting process, Microsoft has drafted a purchase order that contains standard terms and conditions. This purchase order – viewable here – is used by Microsoft and its subsidiaries in 109 different countries. This agreement contains a “Jurisdiction and Governing Law” clause. This clause is, regrettably, a mess. This post first notes a number of problems in the standard iteration of the clause. It then discusses six variants whose content defies logic and reason.
The Standard Clause
The standard “Jurisdiction and Governing Law Clause” in the Microsoft purchase order is comprised of four parts. Each part is identified by a bracketed number below:
[1] For Goods, Deliverables, Services and Cloud Services provided to Microsoft in the United States, these PO Terms are governed by Washington State Law (disregarding conflicts of law principles), and the parties consent to exclusive jurisdiction and venue in the state and federal courts in King County, Washington. All Cloud Services are deemed provided in the United States if any access or use of Cloud Services by Microsoft occurs in the United States. [2] For all other Goods, Services and Cloud Services provided to Microsoft, the Laws, jurisdiction and venue of the country where Microsoft (i.e., the entity other than Supplier who is the contracting entity to these PO Terms) is incorporated or otherwise formed will govern these PO Terms. [3] Neither party will claim lack of personal jurisdiction or forum non conveniens in these courts. [4] In any action or suit related to these PO Terms, the prevailing party is entitled to recover its costs including reasonable attorneys’ fees.
The analysis begins with the part of the clause that deals with goods or services provided in the United States [1]. It then considers the part of the clause that deals with goods or services provided outside the United States [2]. Finally, it considers the parts of the clause addressing forum non conveniens [3] and fee shifting [4].
Goods or Services Provided in the United States
The first part of the clause [1] applies when good or services are provided by the contract counterparty in the United States. The text makes clear that cloud services are deemed to be provided in the United States if Microsoft or one of its subsidiaries accesses those services in the United States.
The choice-of-law clause in this part stipulates that purchase orders shall be “governed by Washington State Law (disregarding conflicts of law principles).” This language clearly selects the law of the state where Microsoft is headquartered – Washington – to govern contract claims. The effect of this language is to give Microsoft a home-field advantage when it is sued for breach of contract. As drafted, however, the clause does not select any law to govern tort or statutory claims. This is a curious omission. Why wouldn’t Microsoft want to press its home-field advantage by also selecting the tort and statutory law of Washington?
The choice-of-law clause also makes no mention of the United Nations Convention on Contracts for the International Sale of Goods (CISG). U.S. courts have held that merely selecting the law of a U.S. state is not enough to exclude the CISG. If Microsoft or one of its U.S.-based subsidiaries were to purchase goods from another country that has ratified the CISG, the resulting sales agreement would not be governed by Washington’s Uniform Commercial Code. It would be governed instead by the CISG. It is not clear that Microsoft intends this result; most large U.S. companies contract out of the CISG at every opportunity and select the Uniform Commercial Code of their home jurisdiction in its place. As drafted, however, the clause here selects the CISG.
The second half of the first part is a forum selection clause. It provides that “the parties consent to exclusive jurisdiction and venue in the state and federal courts in King County, Washington.” This clause requires contract claims to be brought in Washington. It is silent, however, on where tort and statutory claims must be brought. This omission is again surprising. Because Microsoft has the leverage to dictate terms to its counterparties, why wouldn’t it mandate that all claims – regardless of whether they sound in contract, tort, or statute – be brought in Washington?
Goods or Services Provided Outside the United States
The second part of the clause [2] applies when the good or services are provided by the supplier outside the United States.
This part functions solely as a choice-of-law clause. It stipulates that the “Laws . . . of the country where [the Microsoft entity] is . . . formed . . . will govern these PO Terms.” If the Microsoft subsidiary is incorporated in Ireland, the contract will be governed by the laws of Ireland. If it is incorporated in India, the contract will be governed by the laws of India. Like the language in the first part of the clause, this provision only selects the contract law of the chosen jurisdiction. It is similarly silent as to whether the CISG shall apply.
This part also provides that the “jurisdiction and venue of the country where [the Microsoft entity] is . . . formed will govern these PO terms.” This language is gibberish. Neither “venue” nor a “jurisdiction” can “govern” the terms of an agreement. Since the sentence does not select a court, it is not a forum selection clause. This means that counterparties providing goods or services outside the United States can sue Microsoft wherever they want. It is unclear why Microsoft prefers this outcome. It could easily channel all claims to the same jurisdiction selected in the choice-of-law clause. As drafted, however, this second part of the clause does not contain a forum selection clause.
Personal Jurisdiction and Forum Non Conveniens
The language in the third part of the clause [3] states that neither party shall “claim lack of personal jurisdiction or forum non conveniens in these courts.” The language “these courts” seemingly refers to the state and federal courts in King County, Washington as these are the only courts specifically referenced in the clause. The defenses of lack of personal jurisdiction or forum non conveniens are therefore waived when the lawsuit is brought in Washington. If a lawsuit is brought in any other country on earth, the parties retain the ability to move for dismissal on the basis of forum non conveniens. Again, it is unclear whether this is what Microsoft intended.
Fee Shifting
The fee-shifting provision [4] provides that “[i]n any action or suit related to these PO Terms, the prevailing party is entitled to recover its costs including reasonable attorneys’ fees.” Unlike the preceding parts of the clause, the fee shifting provision is drafted broadly. It applies to any action or suit “related to” the purchase order. This means that the fee-shifting provision will apply regardless of whether the underlying claim sounds in contract, tort, or statute. The broad language used here makes the absence of similar language in the rest of the clause all the more mystifying. Why should the fee-shifting provision apply to tort and statutory claims when the choice-of-law clause and the forum selection clause clearly do not?
Variations
There were exactly six agreements (out of 109) where the “Jurisdiction and Governing Law” clause differed from the standard template. Each of these variations is associated with a specific country. Each raises a separate and distinct set of questions.
Canada
The “Jurisdiction and Governing Law” clause in purchase orders between the Microsoft entity and its Canadian counterparties contains the following language:
These PO Terms are governed by the laws of the Province of Ontario and the federal laws of Canada applicable therein (disregarding conflicts of law principles), and the parties consent to exclusive jurisdiction and venue in the federal or provincial courts in Ontario in each case situated in Toronto, Ontario.
It is unclear why Microsoft would prefer to litigate disputes with its Canadian suppliers in Toronto rather than King County, Washington. It is similarly unclear why Microsoft would give away its home-field advantage by selecting Canadian law rather than the law of Washington to govern these agreements.
Myanmar and Singapore
The “Jurisdiction and Governing Law” clause in purchase orders between the Microsoft entity and its counterparties in Myanmar contains the following language:
These PO Terms are subject to and will be governed by and construed under the laws of Singapore. The parties agree that any dispute arising out of or in connection with these PO Terms (including any Supplemental Agreement and any Statement of Services), including any question as regarding its existence, validity or termination, shall be referred to and finally resolved by arbitration in Singapore in accordance with the Arbitration Rules of the Singapore International Arbitration Centre (“SIAC”), which rules are deemed to be incorporated by reference into this section.
This is the only clause in the entire set that calls for disputes to be resolved by arbitration. It is unclear why Microsoft prefers arbitration here and nowhere else. The arbitration clause does, however, contain broad language (“in connection with”). This fact distinguishes it from narrow language that defines all parts of the standard clause except the fee-shifting provision.
The “Jurisdiction and Governing Law” clause in purchase orders between the Microsoft entity and its counterparties in Singapore, by comparison, merely states that:
The laws of Singapore apply to these PO Terms.
This is a choice-of-law clause. There is no forum selection clause or arbitration clause in purchase orders with counterparties in Singapore.
To recap, disputes arising out of contracts concluded with Myanmar counterparties must be arbitrated in Singapore. Disputes arising out of contracts with Singapore counterparties, by contrast, need not be arbitrated in Singapore and may be brought in any court with personal jurisdiction. The logic underlying this difference is difficult to follow.
New Zealand and South Africa
The “Jurisdiction and Governing Law” clause in purchase orders between the Microsoft entity and counterparties in New Zealand or South Africa contains the following language:
For Goods and Services provided to Microsoft in [New Zealand/South Africa], these PO Terms are subject to and will be governed by and construed in accordance with the laws of [New Zealand/South Africa]. For all other Goods and Services provided to Microsoft, the laws, jurisdiction and venue of Microsoft’s physical location will govern these PO Terms.
This clause mirrors the standard clause in that it distinguishes between goods and services provided in New Zealand or South Africa and goods and services provided elsewhere. Unfortunately, it also mirrors the standard clause in that it nonsensically states that the “jurisdiction and venue” of a particular nation will “govern” the agreement. Unlike the standard clause, this one omits a forum selection clause altogether. It operates solely as a choice-of-law clause.
Puerto Rico
The “Jurisdiction and Governing Law” clause in purchase orders between the Microsoft entity and counterparties in Puerto Rico contains the following language:
These PO Terms are subject to and shall be governed by and construed in accordance with the laws of the Commonwealth of Puerto Rico.
It is unclear why this agreement omits any sort of forum selection clause. It is similarly unclear why Microsoft would give away its home-field advantage by selecting Puerto Rican law rather than the law of Washington to govern these agreements.
Conclusion
The “Jurisdiction and Governing Law” clause written into Microsoft’s purchase orders is a mess. It consistently omits language that would give Microsoft a significant tactical advantage in litigation. It does not clearly state whether the CISG applies. It is at times incoherent. And it is subject to random variations in six countries that lack any sort of rhyme or reason. These problems are, happily, easily fixed. Microsoft employs a great many lawyers. Any one of them could rework this provision in a few hours. One cannot help but wonder, however, how this mess of clause ever found its way into a standard-form agreement prepared by one of the world’s richest companies for use in 109 countries.