What does "reasonable" mean?

Question

I have seen the phrase 'reasonable conditions' used quite often in legal texts, and I always get nervous, as I don't know how to interpret it. Imagine a Confidentiality and Assignment Agreement with the following phrase:

I also declare that I will assign any and all intellectual property rights generated by me and based on the Proposer’s intellectual property rights or Confidential Information to the Proposer on fair and reasonable conditions, which in case of disputes shall be the same as [...]

How would I go about interpreting this part? And how would the legal ramifications be different if the "reasonable conditions were dropped"? I.e:

I also declare that I will assign any and all intellectual property rights generated by me and based on the Proposer’s intellectual property rights or Confidential Information to the Proposer, which in case of disputes shall be the same as [...]

Answer 1

"Reasonableness" is meant to be vague, because what is reasonable in one case or contract or industry is not always reasonable in another. Generally, though, you'll probably find courts interpreting it to take into account normal practices in your geographic area, in your industry, and between you and the other party.

If one party looks like they're trying to unjustly enrich themselves or is asking for something that people just don't agree to in the real world, it's probably going to be unreasonable. If people are asking for the fair value of their work on terms that are normally agreed to when they're the subject of negotiations, it's probably reasonable.

Dropping the reasonableness language would probably leave the assigning party in a bad position, as they're now required to make the assignment, with no qualifications as to the terms. The assignee could argue that they're free to take the IP on any terms whatsoever, though courts often read in a reasonableness requirement anyway.

This answer is based on U.S. law, but there will be probably be pretty strong parallels if you're in a common law jurisdiction.

Answer 2

"Reasonable" is an objective criteria that courts apply in deciding a case.

Its usage and interpretation depend on what specifically is being considered: for example, damages for breach of contract must be what a reasonable person entering that contract would expect at the time the contract was entered, the care to be taken to avoid liability for a tort is what a reasonable person in the tortfeasor's position would do, directors of companies must "exercise their powers and duties with the degree of care and diligence that a reasonable person would exercise" [s180(1) Australian Corporations Act].

So who is this "reasonable person" who always acts "reasonably"?

He is the man on the Clapham omnibus - since the phrase was coined in the 19th century the person was a man but reasonableness is not now gender constrained. The reasonable person is one of many fictitious individuals who embody legal principles. Healthcare at Home Limited v. The Common Services Agency recognized several others: "the right-thinking member of society, familiar from the law of defamation, the officious bystander, the reasonable parent, the reasonable landlord, and the fair-minded and informed observer." The case added "the reasonably well-informed and normally diligent tenderer" to the family.

The "reasonable person" is subject to the facts of the case: both as to who they are (e.g. in a medical malpractice case we have the "reasonable doctor") and their particular circumstances "... it must be observed that in all cases that amount of care which a prudent man will take must vary infinitely according to the circumstances. No prudent man in carrying a lighted candle through a powder magazine would fail to take more care than if he were going through a damp cellar." [Mcintosh v Mcintosh (1864)].