What are the Key Points to Check when Drafting Contracts for DX Support Businesses?

One of the buzzwords attracting attention recently is “DX”. DX stands for Digital Transformation. In simpler terms, it means “transforming people’s lives for the better by integrating advanced digital technologies”.

Among them, big data, AI, and IoT are representative technologies of DX, and companies aiming to make significant leaps forward by promoting DX are emerging.

Therefore, this article will explain what to pay attention to when creating a contract for DX support services, targeting companies that are considering conducting DX support services or those considering receiving DX support.

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What is DX Support Business?

DX Support Business refers to the business of supporting Digital Transformation (DX), which utilizes the latest digital technologies developed daily to enhance our everyday lives and living conditions.

The Ministry of Economy, Trade and Industry’s “Guidelines for Promoting Digital Transformation (DX Promotion Guidelines) Ver. 1.0” defines DX as “a company’s response to drastic changes in the business environment, utilizing data and digital technology to transform products, services, and business models based on customer and societal needs, while also transforming the business itself, organization, processes, and corporate culture to establish a competitive advantage.”

Benefits of DX Promotion

The first benefit of promoting DX is the realization of operational efficiency.

With the promotion of DX, it is expected that traditional working hours can be reduced. Additionally, digitization can prevent human errors, reducing the time spent dealing with such errors.

Furthermore, the human resources freed up by the promotion of DX can be allocated to tasks that cannot be handled by DX.

Such operational efficiency can lead to a reduction in workers’ working hours, which is expected to improve the working environment.

Next, it is expected that flexible responses to societal conditions and changes will be possible.

In cases where DX has not been advanced, it is required for the person in charge to respond to societal conditions and changes, but due to the relationship between disposable time and the amount of information, flexible responses may not be possible, and responses may be delayed.

When DX is advanced, the rapid development of digital technology allows for quick and flexible responses to societal conditions and changes.

Another benefit is the possibility of developing new products and launching new businesses.

With the promotion of DX, tasks that were difficult to perform in a short time can now be done in a short time.

As a result, things that could not be realized before can now be realized, and there are cases where it is possible to develop new products and start new businesses.

As digitization continues to advance, it is expected that the importance of DX support business will increase even more in the future.

Disadvantages of DX Promotion

The disadvantage of promoting DX is the cost involved.

When trying to promote DX, it is necessary to introduce new machines and computers, which inevitably incurs costs.

Also, promoting DX is not something that can be done immediately, and it takes time to build internal flows, so it may take time to see results, which can be considered a disadvantage.

Furthermore, companies that have not been promoting DX may not be able to transition smoothly to DX.

While there are disadvantages to DX as mentioned above, the benefits outweigh the disadvantages, so it is worth promoting DX even considering the disadvantages.

Key Points in Drafting Contracts for DX Support Services

To incorporate DX into your business, it is efficient to receive support from companies that provide DX support services.

However, contracts for DX support services are not typical contracts. In the following, we will explain what points to consider when drafting a contract for DX support services.

Clause on Contract Duration

As mentioned earlier, it takes time to promote DX.

Therefore, if the contract period is too short, the DX support may end while it is still incomplete.

On the other hand, if the contract period is too long, the DX promotion plan will be formulated based on a long contract period, which may take longer than originally expected.

Therefore, it is necessary to set an appropriate period for the contract duration, taking into account individual circumstances and situations.

Specifically, you may consider stipulating the following clause:

Article ● (Contract Period)

The contract period of this agreement shall be one year from the date of conclusion of this agreement. However, if neither party expresses an intention to terminate this agreement one month before the expiration date, this agreement shall be renewed for another year, and the same shall apply thereafter.

Clause on Remuneration

The clause on remuneration, which involves money, is a clause that is likely to cause trouble.

Therefore, to prevent trouble, it is important to clearly define the calculation method of remuneration, payment timing, and payment method.

Specifically, you may consider stipulating the following clause:

Article ● (Remuneration)

1. Party A shall pay Party B a monthly fee of ● ten thousand yen (excluding tax) as consideration for the services under this agreement.

2. The remuneration in the preceding paragraph shall be paid by transferring it to a bank account separately designated by Party B by the end of the previous month. The transfer fee shall be borne by Party A.

Clause on Ownership of Rights such as Software

Due to the nature of DX support services, intellectual property rights such as copyrights are involved.

If the ownership of intellectual property rights is not clearly defined, the party receiving DX support may not be able to operate in the way they intended due to the relationship with intellectual property rights.

Therefore, it is important to stipulate a clause on the ownership of rights such as software.

Specifically, you may consider stipulating the following clause:

Article ● (Ownership of Rights)

The patent rights and other intellectual property rights (including the right to receive patents and other intellectual property rights, and if such rights are copyrights, including the rights under Articles 27 and 28 of the Copyright Act. The same shall apply hereinafter.) related to inventions and other intellectual property or know-how, etc. (hereinafter collectively referred to as “Inventions, etc.”) that arise in the course of performing the services under this agreement shall belong to Party B.

Clause on Liability for Damages

During the process of DX support, some problems may arise.

In particular, when using a computer, unexpected bugs or malfunctions may occur.

Therefore, it is also important to stipulate a clause on liability for damages.

Specifically, you may consider stipulating the following clause:

Article ● (Damages)

Party A and Party B may claim damages against the other party for ordinary and direct damages incurred due to a cause attributable to the other party in the performance of this agreement. However, the liability for damages that Party A and Party B shall bear shall be limited to the total amount of the contract fee stipulated in this agreement.

Clause on Termination of Contract

For DX support services, a continuous contractual relationship is important due to the mutual trust between the contracting parties.

Therefore, if it is judged that the continuous contractual relationship cannot be maintained, it is necessary to allow for the termination of the contract.

Specifically, you may consider stipulating the following clause:

Article ● (Termination)

1. Party A or Party B may immediately terminate all or part of this agreement without any notice if any of the following events occur to the other party:

(1) In case of serious negligence or breach of trust

(2) In case of suspension of payment, or if there is a provisional seizure, seizure, auction, commencement of bankruptcy proceedings, commencement of civil rehabilitation proceedings, commencement of corporate reorganization proceedings, or commencement of special liquidation

(3) In case of receiving a trading suspension order from the bill exchange

(4) In case of receiving a delinquency disposition for public rent and public charges

(5) In case of other serious circumstances similar to the preceding items that make it difficult to continue this agreement

2. Party A or Party B may terminate all or part of this agreement if the other party violates any clause of this agreement and does not rectify its non-performance of obligations even after a reasonable period of notice, regardless of the degree of non-performance of obligations.

3. The exercise of rights based on this article shall not prevent the claim for damages.

Conclusion

In summary, we have explained the key points to consider when drafting contracts for companies planning to undertake DX support businesses or those considering receiving DX support.

DX support business is a new type of business that has emerged with digitalization, and therefore, it does not have much practical accumulation.

For this reason, we recommend that those in charge at companies planning to undertake DX support businesses or those considering receiving DX support consult with a lawyer who has specialized knowledge in this field.

【Introduction to Our Firm’s Measures】

Monolith Law Office is a legal office with high expertise in both IT, particularly the internet, and law. In promoting DX (Digital Transformation), the creation of contracts is necessary. Our firm handles the creation and review of contracts for various cases, from companies listed on the Tokyo Stock Exchange Prime Market to venture businesses. If you have any concerns about contracts, please refer to the article below.