When Is It Legal to Lie in Negotiations? (1991)

Might be because I blocked their cookie but this is what I get clicking your link: "This is a summary of the full article. To enjoy the full article sign in, create an account, or buy this article."

larrys4• 12 years ago

This is important to always consider, as a reason that having someone with a legal background can sometimes contradict entrepreneurship:

"Note that such lies are not always illegal. Rather, the law is content to leave the ultimate question of liability to a jury, with all the expense and risk of a full trial. Of course, victims of such conduct may decide that litigation is not worth the trouble."

The reason is is that this is not strictly a legal question but also a strategy questions as well as probabilities. Also the dollar amount comes into play. A large negotiation by Boeing is the not same as a small startup or even 500 person business with a $100,000 transaction.

Argorak4• 12 years ago

Another pattern I found is that CEOs with legal background tend to see contact negociations as an exercise in writing legally correct text (down to writing it themselves, even if they are not expert in that part of the law), which ends up taking far more time than negociating on the important facts and then having external lawyers formulate that out.

larrys4• 12 years ago

"even if they are not expert in that part of the law"

Agree. And what's even more dangerous is someone with legal background but not years of experience that is able to weigh, on gut, the pros and the cons of adding that legally correct text. [1] It's like the paradox of system security. A trade off between being, say 100% secure but then either opening up other potential security issues or having usability problems caused by something with a extremely small chance of happening.

[1] Here's an example. You have a tenant. You want to be able to charge them for a certain thing upon move out. You can add the exact item or you can be vague. Both come with risks. The risk of adding the text is that you bring it to their attention and they nix it. The risk of not adding it is that you may not be able to charge for it upon move out. What do you do? It's not a legal question (legal wise you would add it) it's a strategy question.

sliverstorm• 12 years ago

down to writing it themselves, even if they are not expert in that part of the law

Wow, that sounds just like engineers.

cowpig• 12 years ago

Can someone alter the link so that it's no longer a paywall?

YokoZar• 12 years ago

"And companies selling their securities are required to disclose important adverse facts about their business to prospective buyers."

Does this include prospective employee stock options? It would be great to know that startups seeking to hire me have a legal obligation to tell me about financial troubles.

Zigurd3• 12 years ago

It's a red flag if the person making you an offer stumbles if you ask to see the cap table, or can't express the ISO part of the offer as a percentage.

robotomir• 12 years ago

I know some of these words.

tptacek3• 12 years ago

It is strictly and empirically speaking not a red flag if a prospective employer refuses to disclose the cap table, since most companies will not do that. You can't reasonably call standard operating procedure among all professionally managed startups "a red flag".

On the other hand, I agree that it is a red flag to refuse to disclose the percentage an allocation represents.

davidu2• 12 years ago

Not a red flag not to share cap table.

But you should see the grant as a percentage of fully-diluted outstanding stock, and you should know the preference on top of the cap table, and you should know the last granted strike price and if there is anything that would prevent your grant from being granted at that price.

ForHackernews• 12 years ago

Is it legal to lie to get around paywalls?

davidu2• 12 years ago

Don't lie then, just search google and click through.

michaelochurch2• 12 years ago

You can also break the law while telling the truth in negotiations.

For example, if you condition a lawful but harmful action on an unrelated demand (and "unrelated" is very subjective here) from another party you are, in many jurisdictions, committing extortion. (If the adverse action and condition are related, e.g. "I'll sue you if you wrong me", then it's not extortion. "I'll expose your affair unless you give me $100,000" is extortion because there's no connection between the affair and demand for payment, and because the extortionist derives no benefit from exposing the affair.) It's not illegal to write bad reviews of a restaurant, but if you demand a price discount and threaten a bad review, you can be found guilty of extortion. So "I'll write a bad review if you don't give me a discount" might be truthful-- you can lawfully do so, and even have this intent (intent being impossible to prove)-- but you still can't say it.

This comes up in severance negotiations. If you say, "I'll [legal adverse action X, such as disparaging the company] unless given $Y", it's very easy to end up on the wrong side of the law. You probably won't end up in jail, but you lose all leverage as soon as you make a mistake, which is easy to do. If you're negotiating for severance, you should always let a lawyer do it. It's also a lot easier to get "soft" terms (positive reference, right to represent oneself as employed, possibly without pay) because those are connected to adverse actions. If you're getting a bad reference, you do have cause to get out in front of the smear and disparage the company. ("We have to get our stories straight. It's best for both of us. Here's what I want, and here's what you get.") But if it's about cash severance, the payment and your disparagement are unrelated enough that it's best avoided.

ignostic• 12 years ago

Wow, I learned something valuable here: that it would be illegal to use negotiation solely to harvest ideas.

I remember the story of a script writer who pitched his script, but then the studios rejected him. One studio just had their own similar script written. He never sold the script, and when the movie actually came out no one was interested because it was too similar to the (essentially stolen) version that had been produced. Could he have sued the studio if he could prove it was his idea? How similar would it have to be? Would he have to prove that they entered into negotiations just to get his idea?

---

I wonder because I've had an idea brewing in my mind for the last 5+ years, but I have nowhere near the millions in capital required to get it going. The price tag is so high that I don't expect any ownership, but I just want to be involved and to make a fair amount if it succeeds.

A law class once taught me that "ideas cannot be patented," so I completely shleved the hope. I couldn't patent the implementation because it would be easy to implement the same idea a hundred different ways. I bring nothing more than an idea to the table, and then I'd be easy to cut out.

I'll talk to a lawyer before I do anything, but it sounds like I could take my idea into negotiations with a larger company. As long as I can prove that the idea was mine, they can't just take it and copy it. Maybe?

I'm feeling a glimmer of hope that my idea could someday get off the ground, but I worry that the modification loopholes that have held me back in the past are too large.

lukeholder• 12 years ago

Whats the idea?

michaelochurch2• 12 years ago

What I'm curious about is where the legal line lands on social proof arbitrage.

For example, lying about competing offers-- for jobs or funding-- is generally considered ethical, insofar as social status inflation and self-promotion fall into the "everyone does it, and most people have to" bucket. (Is it legal? No idea. But few consider it unethical.) If you know an employer does a lot of back-channel reference checks, you absolutely should use a fake competing offer (if you don't have a real one) to put time pressure on them.

On the other hand, the article cites cases in which lying about a competing offer is illegal (and also, for those cases, unethical).

The weird, queasy line is that it seems to be illegal (and generally considered unethical) to lie about a product, whereas lying about yourself (i.e. "you are the product") is ethical, legal, garden-variety social status inflation-- except surrounding official, factual credentials where higher standards must be imposed (e.g., as in law and medicine).

nostrademons• 12 years ago

Lying about yourself is generally considered unethical as well. It usually doesn't get you prosecuted (unless you lie to the government for a security clearance or something), but it can and probably will get you fired if your employer finds out, and there have been some high-profile firings in that regard.

I think your confusion comes from the difference between "lying about facts" vs. "telling a story". Facts are things that are independently verifiable - things like your dates & places of employment, degrees conferred, job titles, salary, etc. There are varying degrees of consequences for lying about these - typically, lying about your salary gets at most a little distrust, while lying about your degrees can get you fired - and you can always simply refuse to answer or provide those facts, but lying about them is almost always considered unethical.

However, how you tell the facts is your story, and you can and should paint that in the most positive light. For example, "founder" of a product is usually a complicated title because of the twists and turns all ideas go through. It could legitimately be used to refer to the person who came up with the idea, the person who did the first workable implementation of the idea, the person who first realized an idea was a viable business, the person who contributed the bulk of the money toward making the idea a viable business, the founder of another organization that merged early on into the business in question, etc. And there are famous people who fit into all of those categories - Elon Musk, for example, basically never did the work of reducing an idea to a workable implementation, but he is credited with founding multiple companies where the heavy engineering lifting is done by others. Steve Jobs mostly contributed money and cheerleading to Pixar, but is widely considered a founder of that company.

Joeri• 12 years ago

I don't see how lying about anything could be considered ethical. It may be socially acceptable to lie about yourself, but that doesn't make it ethical. Plenty of things that are socially acceptable are in fact profoundly unethical.

So, the line is in fact very simple: if you are an ethical person, you never lie.

Update: however, upon reflection, society forces us into practical considerations. If you avoid lying you will be taken advantage of because you weaken your position in society. For that reason, while lying is never ethical, it is sometimes the only realistic alternative. You may for example have people lying about being hiv-positive to get a job. There is no rational reason in many job categories to reject such an applicant, but in practice they won't get a job if they tell the truth. I also would make an exception for withholding the whole truth. Sometimes people have the right not to know things which would only hurt their feelings and bring no practical benefit.

xvedejas• 12 years ago

If the studio had pre-emptively given copies of all its scripts in production to some third party authority, it could avoid the negotiations issue. I'd imagine it doesn't come up enough to warrant this, though.

greedo• 12 years ago

If I recall correctly, this was over Eddie Murphy's "Coming To America." Art Buchwald wrote and pitched a script that was passed on, yet later produced almost identically.

HelloMcFly• 12 years ago

J. Michael Straczynski claims the same thing happened to him when he pitched Babylon 5 to Paramount, who passed. Then not too long after that Star Trek: Deep Space 9 debuted, and there were some noticeable similarities between the shows.

MadMoogle• 12 years ago

Could he have sued the studio if he could prove it was his idea?

It's been done before and is the reason why studios do not read unsolicited scripts. Art Buchwald sued Paramount when Eddie Murphy was given sole story credit for a movie he unsuccessfully pitched. Art won the lawsuit, but instead of appealing, paramount settled for $900k and in exchange the ruling was vacated.

swimfar• 12 years ago

The movie was "Coming to America" (1988)

https://en.wikipedia.org/wiki/Buchwald_v._Paramount

rasz_pl• 12 years ago

How about a trailer?

https://www.techdirt.com/articles/20140331/11334226752/anima...

dzink• 12 years ago

Negotiations or market research?

When Staples started, the founder proved the concept of an office-oriented superstore meticulously with a single store in the northeast. He picked a neighborhood, mapped every business around it, knew exactly how many accountants and offices were around his area through a survey, you get the idea. With the evidence, he talked to a number of investors. One investor gave him a pretty high valuation. In a meeting with another investor soon after, the investor asked a number of questions, hmm-ed the answers and escorted the founder out the door. In investor then promptly returned to his desk, opened up his rolodex and called the best retail exec on the list to start what is now Office Depot - in a different part of the country, to avoid a direct clash, because chains such as these expand geographically.

While this is an extreme case, it is not uncommon. Many investors who like a business idea from one startup, look up and talk to every competitor in order to pick their best bet for the race to that market. If the research surfaces a better competitor, the firm doesn't invest or choses the competitor. If it didn't it is useful as "market research" to help the startup. Either way, the entrepreneurs share plenty of information to appear attractive, and probably feel good about the VC attention they are getting. The "ideas are worth nothing" mantra is out there for a reason - execution is everything at the end of the entrepreneurial race.

The really sleazy negotiations happen when the competing firm starts applying "cloning" tactics to misinform or undercut its opponent. For example, having multiple uninterested parties call the seller with really low prices to create the impression the item for sale is worth little. Then the actual buyer comes in with a low offer that looks lush in comparison. Prepare for the worst and do your due diligence thoroughly if you are worried about this kind of stuff.

When Is It Legal to Lie in Negotiations? (1991)

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