When is a deal done?

I have found it interesting that there is too often a different perspective between when business people and lawyers think a deal is done. I have met some business people that believe the deal is done once they orally discuss (not necessarily agree to) certain important terms. On the other hand, lawyers generally believe that deals are not done until a written contract is signed by the parties (there can be oral contracts in certain situations too, but I leave that to another day). 

So why should this matter to an expansion stage software company or a company seeking venture capital? 

Well, as a case decided on September 25, 2009 in New York demonstrates, if you are not careful about your email communications, someone may take an aggressive stance that an email exchange was a binding agreement to an exclusive license in your IP. In this case, there were many emails between the parties discussing/negotiating an exclusive license to a copyright in a hot movie (it had won a bunch of awards recently). Then I think, out of the blue, the plaintiff wrote back and essentially stated that the deal is done. The defendant responded, in essence, with we will get back to you. The court correctly decided that there was no contract as the parties were still negotiating the deal, and dismissed the case. A good decision by the judge!

The lesson to be learned here, is that if someone takes an aggressive stance in an ’email exchange’ that an important deal is done, or confirms the terms of an orally discussed deal, you should immediately and clearly communicate (assuming you can’t get hold of your lawyer first) that: 

– the deal is not done, and

– any deal needs to be documented in a final written agreement signed and acceptable to both parties, before it is done. 
 

By the way, this is basic offer and acceptance law, and applies to all types of contracts. Remember to protect your gold, and be wary of aggressive emails stating or confirming that a deal is done!