Why write?....to get it right, that's why

I was re-reading some older cases today and came across an interesting one from late 2006 that I think illustrates several important points business people need to consider when they enter into a business relationship with other parties, and particularly parties with whom you are not familiar.

The case (formally known as Onkea Interactive Ltd. v. Smith 2006 BCCA 521) actually centred around an application for an injunction by the plaintiff (Onkea) against the defendants (Smith and others).

It is the background of the case that interests me. The plaintiff created what it described as a proprietary system whereby it used peer-to-peer file sharing networks to advertise adult websites. It wanted to join forces with the defendant to further develop the business.

The plaintiff and defendants incorporated a company (it is not mentioned in the case but I presume the plaintiff and defendants were shareholders) with the intention that the newly incorporated company would function as a joint venture vehicle.

Subsequently the joint venture broke down and the sides went their respective ways – except that the plaintiff alleged the defendants took the proprietary technology the plaintiff says it invented and started using the technology in its own business.

The plaintiff started a legal action against the defendants.

Two points in the history of the dealings between the parties need to be highlighted:

First, they did not enter into a written agreement. Almost always a big mistake. Here, the plaintiff was alleging the defendant committed various acts in violation of their agreement….except that it is incredibly hard to prove someone has violated an agreement when there is no concrete evidence as to the terms of that agreement.

Second, even if you have a written agreement it is important, especially where there is sensitive or proprietary business information at stake, to have specific clauses (or a separate stand alone agreement) dealing with the confidentiality of information and, as well, non-competition when the relationship ends (regardless of how it ends).

The moral of the story – put your contracts in writing and don’t go for the “quick 2 pager” either.

Comments

[Bryan]

Another moral - Don't partner with megalomaniacs