Quoth the Client "Nevermore": The Infernal Letter of Intent

November 2003
The Licensing Book

Opening the mail at the desk in my small study, I was pleased to find a letter from Larry Lexus the Licensing Lawyer among the mass of advertising circulars, requests for donations and credit card invoices.  Noting that the envelope was postmarked two days earlier in a city at the opposite end of the country, I opened the flap and withdrew two pages of Larry's precise cursive. 

A Letter from Larry

The letter began:

"My Dear Friend,

I sincerely regret having missed our appointment on the 19th and hope that my assistant was able to notify you in time to rearrange your schedule.  As you may be aware, I was summoned urgently to the Coast by a Client who had become embroiled in a very difficult license negotiation.

"As we have discussed on occasion, great harm can be done to a Licensee's position by preliminary documents signed all-to-casually prior to the negotiation of a 'formal contract', and such was the unfortunate circumstance into which I have been called.  Many Licensors have adopted the practice of requesting Licensees to sign seemingly innocent 'deal outlines', 'deal memos' or 'letters of intent', ostensibly to clarify positions, but the actual effect of which is to discomfit the unwary Licensee prior to entering formal negotiation.  Many Licensees sign these documents believing that they merely outline deal points, when in fact the documents commit them, legally or psychology, to obligations which they would be loathe to undertake if properly understood. 

"In the case at hand, I am representing a new Client who has not had the benefit of forewarning against the risks of signing documents of this nature without careful scrutiny by Counsel.  Without intending to do so, the Client has obliged his Company to terms that include the base royalty rate that he had anticipated, but with subtle incremental increases depending upon fulfillment of certain conditions that are completely beyond his control, and which when viewed objectively, appear more than likely to occur.  As a result, budgeting the true cost of the Client's product line has become quite unpredictable. 

"Furthermore, the subtly drafted language of the apparently informal document includes an obligation binding the Client to source design and development services and materials from the Licensor's own facilities, with no specification of pricing for those elements.  Thus, the Client finds himself committed to using services at uncontrollable cost to develop a product line that will bear royalty at unpredictable rates.  All in all, it's not a pretty picture.  Nevertheless, we are laboring toward rectifying at least some of the problems through "horse-trading" which has been necessitated only as a result of the Client's ill-advised execution of the document at hand.

"As I have explained to the Client, in terms couched to assuage his considerable embarrassment, there are certain guidelines to consider before putting pen to paper, even when the paper appears to be completely innocuous:

First, if the Licensor saw no advantage in creating the document, it would not waste time doing so. 

Second, even though the document has the appearance of a simple letter or memorandum, placing one's signature at the bottom can give it the force of law. 

Third, no document should be signed by one in authority who has not read each and every word and believes that he or she completely comprehends the meaning.  Any 'strangely worded' portions should set off mental alarms.

Fourth, more often than not, the Licensor's legal department will have drafted the document. Contrary to common perception, many lawyers are quite capable of drafting documents that appear to be expressed in simple English, but which embody subtle terminology that can change the essential meaning from that intended by the Licensee.

Fifth, even a document which is clearly labeled as being 'non-binding' will give one party or the other the leverage of precedent.  The more powerful the Licensor, the more 'binding' a 'non-binding' document will become.  A Licensee who blithely signs off on a 'non-binding letter of intent' may later succumb to the exaggerated protestations of higher-level Licensor management (equivalent to those much-loved 'closers' at automobile dealerships) who express contrived moral outrage at the Licensee's 'reneging on the deal'. 

"As you know, it is not my position that such preliminary documents invariably should be avoided.  Indeed, not only does a carefully reviewed and clearly understood deal-point document facilitate expedited resolution of the remaining terms of a deal, it also forestalls protracted and contentious renegotiation of any previously misunderstood aspects of those basic deal points.

"All things considered, my friend, the engagement of Counsel to review and advise the meaning of the 'deal memo', 'memorandum of understanding', 'letter of intent' or any other document that purports to set forth a mutual understanding of terms is always advisable. 

"In closing, I must share with you a humorous anecdote.  Notwithstanding my Client's ill-advised and disconcerting execution of the document at hand, he has retained his excellent sense of humor.  During one of our private caucuses at the Licensor's premises, I made a brief allusion to Poe's masterpiece, by paraphrasing thus:

'Leave no black plume as token of that lie thy soul hath spoken!
Rend from the page my name and the shame it doth betoken!
Wilt I scribe as hath done before?"

And at this point, my Client interjected,

"Quoth the Raven, 'No **!!** way!'"

Practices

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