Corporate collaboration can be positive for all parties involved – so long as the extent and terms of the collaboration are spelled out completely and clearly in a well-executed Boston business contract.
This is especially true for technology firms, where the substance of operations and the details of the working relationship may be highly complex. Any modifications to these contracts should be in written form and thoroughly reviewed by your attorney.
The recent case of Vojdani v. Pharmasan Labs, Inc., decided Dec. 20, 2013 by the U.S. Seventh Circuit Court of Appeals, is a good example of why this is important. The case involved two separate trials, an alleged oral modification to the written agreement and an alleged breach of the confidentiality agreement.
According to court documents, the dispute arose out of a soured relationship between two technology firms – Immunosciences (Vojdani) and NeuroScience (Pharmesan Labs Inc.), sister companies that both offered medical testing to consumers.
Back in 2007, NeuroScience wanted to expand its offerings and approached Immunosciences with a plan to collaborate to make that happen. Both sides signed a letter of intent and agreed to a contract. The agreement was that Immunosciences would ship medical testing supplies to NeuroScience for 50 percent of the cost and that, in turn, NeuroScience would pay these invoices according to monthly sales. Both parties were to absorb their own costs of operation. The contract was valid for 180 days, at which point a new agreement would be established.
The agreement seemed to work well for those first 180 days. At this point, both parties agreed to an oral extension that would last several months. However, neither side put that new agreement in writing, though several draft forms of the contract were sent back and forth.
Nearly two years passed, at which point NeuroScience abruptly ended the relationship with Immunosciences. In response to this severing of ties, Immunosciences filed a federal lawsuit, alleging breach of contract. Immunosciences said it was not fully paid according to the agreement, and that NeuroScience continued using its testing supplies – without reimbursement – long after the relationship had fallen apart.
NueroScience countered it wasn’t required to pay the full amount, per the “ambiguous” terms of that initial letter of intent. Executives with Immunosciences reportedly did not complain throughout the relationship of any lack of payment or late payments and anyway, the oral modification to the agreement was in line with the amount paid.
The case dragged on through two trials. In the first, a jury favored Immunosciences for $1.2 million. However, the judge granted a second trial on the grounds that the jury was given improper instructions. The second trial resulted in a favorable outcome for NeuroScience.
In appealing that verdict, Immunosciences posited that in the second trial, NeuroScience should not have been allowed to argue that the agreement was orally modified. The appellate court rejected that theory, and affirmed the second trial’s findings.
The truth is, oral contracts can be binding. In fact, they can be as binding as written contracts. The issue is proving the terms of the agreement absent any written record if the deal goes south.
Having a single, clear and complete written contact, reviewed by attorneys from both sides, can help collaborating companies avoid this kind of protracted legal battle.
The Brown Law Firm, LLC, has offices in Belmont and Boston. For a free and confidential consultation, call 617-489-0817 or contact us online.
Vojdani v. Pharmasan Labs, Inc., Dec. 20, 2013, U.S. Seventh Circuit Court of Appeals
More Blog Entries:
Massachusetts Non-Compete Clause Litigation on the Rise, Oct. 25, 2013, Boston Business Contract Lawyer Blog