I really disagree with the idea of loser pays systems and binding arbitration being some kind of acid tests for honesty. They both have their problems. Depending how they are set up loser pays systems can encourage harassment suits or make it even harder for the poorer party to win. Note that in a loser pays system you are potentially liable for the other sides legals fees, but you do not get to choose their lawyers or watch over their lawyers to ensure they are being cost effective. If you are fighting a much richer party, then they will choose lawyers you cannot afford and yet there will be a chance that you will have to pay for them. If you are personally liable for these costs and there is a chance that you and your family will lose everything, you will think twice about suing even if you have a strong case.
Arbitration has a lot of problems. The biggest one being bias. Arbitrators tend to favor repeat business. They tend to favor clients, lawyers or classes of clients or lawyers that bring them repeat business. There is nothing dishonest about a businessman or anyone for that matter avoiding binding arbitration.
The entire article is very preachy and simple. Those are two very important subjects and they do not have a simple answer.
If the main concern is that the vc will sue to take over the company, hen the best answer is to make clear provisions in the contract that prevent him from doing that. If you are afraid of not getting your prototype done within six month put one year in the contract. Same thing with government approvals.
Well written clear contract provisions may allow the case to be decided at the demurer stage, before discovery - this is both fast and cheap even in ordinary court.
The "loser pays" was a wedge issue to see if the guy would be honest about his intentions.
In a lot of these negotiations you have to use what you know about the actual party to decide what to ask for and how to behave. In this case, they knew that the VC was well known for pushing his technical partner out of the company using a lawsuit when the R&D timeline inevitably slipped, and then taking over the company. When you know that about someone you make it a wedge issue -- are you going to do that to me? And if you say that's not your intention, then why don't you feel secure giving me more protection in the contract?
If it wasn't about lawsuits but about something else like terms or board seats they would've used a different test. But they were negotiating with a person, not an abstract concept, and that's why they went the direction they did.
> And if you say that's not your intention, then why don't you feel secure giving me more protection in the contract?
This is the crux of it for me. If you don’t intend to enforce a clause, you won’t argue about taking it out. If you say you don’t intend to enforce it, but you refuse to take it out, you’re being dishonest and we’re done here.
Arbitration has a lot of problems. The biggest one being bias. Arbitrators tend to favor repeat business. They tend to favor clients, lawyers or classes of clients or lawyers that bring them repeat business. There is nothing dishonest about a businessman or anyone for that matter avoiding binding arbitration.
The entire article is very preachy and simple. Those are two very important subjects and they do not have a simple answer.
If the main concern is that the vc will sue to take over the company, hen the best answer is to make clear provisions in the contract that prevent him from doing that. If you are afraid of not getting your prototype done within six month put one year in the contract. Same thing with government approvals.
Well written clear contract provisions may allow the case to be decided at the demurer stage, before discovery - this is both fast and cheap even in ordinary court.