7 ms·

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

71 points by larrys 12y ago

larrys 12y ago
Paywall - To get this full article use the google link: http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CB8QFjAA&url=http%3A%2F%2Fsloanreview.mit.edu%2Farticle%2Fwhen-is-it-legal-to-lie-in-negotiations%2F&ei=RsCtU4arKu21sATJr4Aw&usg=AFQjCNFZfFW3Y7a7i5MKut6R0vx2CfcLzQ&bvm=bv.69837884,d.cWc&cad=rja http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd... (Or Google "when is it legal to lie in negotiations")
- zentiggr 12y ago
  Paywalled again even on the google link.
  - gatehouse 12y ago
    try opening in private/incognito. apropos nothing, congrats the the NYT for convincing my parents to do general browsing with cookies off.
    - robterrell 12y ago
      Indeed, my wife now keeps Google Chrome on her iPhone solely to open NYT links in incognito mode.
  - larrys 12y ago
    Just google " "when is it legal to lie in negotiations""
- teachingaway 12y ago
  Follow-up article: "When is it Legal to Just Google Around a Paywall?"
- esbonsa 12y ago
  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."
larrys 12y 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.
- Argorak 12y 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.
  - larrys 12y 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.
    - Argorak 12y ago
      That's an interesting one. I have a another example: trying to put codify in a contract. For example, I recently had a client asking me for on-call duty on a weekend. So I quoted that and put it in the offer. (fixed fee for being on call, + a bonus for every hour worked) Now, they were asking me whether it shouldn't be included that if I build the stuff, I would feel obliged to make sure it runs well. Sure, I do, and if the team I am working with is firefighting, I will be a good colleague. But if someone wants the right to call me at any time, they shouldn't be surprised that this has a price.
cowpig 12y ago
Can someone alter the link so that it's no longer a paywall?
YokoZar 12y 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.
- Zigurd 12y 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 12y ago
    I know some of these words.
  - tptacek 12y 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.
    - jackgavigan 12y ago
      > It is strictly and empirically speaking not a red flag if a prospective employer refuses to disclose the cap table, since blah blah blah.. Not for you, maybe. For the rest of us... http://www.eligiblemagazine.com/wp-content/uploads/2013/01/red-flag.jpg http://www.eligiblemagazine.com/wp-content/uploads/2013/01/r...
    - Zigurd 12y ago
      I was imprecise. I meant that you need to know financing rounds, prices, classes, and financially relevant terms such as preferences and ratchets. You probably want to know who led each round, and a business should not have a problem disclosing that. The fact that uncle Lenny has 10,000 shares in the seed round is not neccessary.
ForHackernews 12y ago
Is it legal to lie to get around paywalls?
- deleted 12y ago
  [deleted]
- davidu 12y ago
  Don't lie then, just search google and click through.
michaelochurch 12y 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 12y 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 12y ago
  Whats the idea?
- michaelochurch 12y 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).
dzink 12y 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.

71 points by larrys 12y ago

Paywall - To get this full article use the google link: http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=1&ved=0CB8QFjAA&url=http%3A%2F%2Fsloanreview.mit.edu%2Farticle%2Fwhen-is-it-legal-to-lie-in-negotiations%2F&ei=RsCtU4arKu21sATJr4Aw&usg=AFQjCNFZfFW3Y7a7i5MKut6R0vx2CfcLzQ&bvm=bv.69837884,d.cWc&cad=rja http://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd... (Or Google "when is it legal to lie in negotiations")

zentiggr 12y ago
Paywalled again even on the google link.
- gatehouse 12y ago
  try opening in private/incognito. apropos nothing, congrats the the NYT for convincing my parents to do general browsing with cookies off.
  - robterrell 12y ago
    Indeed, my wife now keeps Google Chrome on her iPhone solely to open NYT links in incognito mode.
- larrys 12y ago
  Just google " "when is it legal to lie in negotiations""
teachingaway 12y ago
Follow-up article: "When is it Legal to Just Google Around a Paywall?"
esbonsa 12y ago
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."

larrys 12y 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.

Argorak 12y 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.
- larrys 12y 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.
  - Argorak 12y ago
    That's an interesting one. I have a another example: trying to put codify in a contract. For example, I recently had a client asking me for on-call duty on a weekend. So I quoted that and put it in the offer. (fixed fee for being on call, + a bonus for every hour worked) Now, they were asking me whether it shouldn't be included that if I build the stuff, I would feel obliged to make sure it runs well. Sure, I do, and if the team I am working with is firefighting, I will be a good colleague. But if someone wants the right to call me at any time, they shouldn't be surprised that this has a price.

cowpig 12y ago

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

YokoZar 12y 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.

Zigurd 12y 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 12y ago
  I know some of these words.
- tptacek 12y 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.
  - jackgavigan 12y ago
    > It is strictly and empirically speaking not a red flag if a prospective employer refuses to disclose the cap table, since blah blah blah.. Not for you, maybe. For the rest of us... http://www.eligiblemagazine.com/wp-content/uploads/2013/01/red-flag.jpg http://www.eligiblemagazine.com/wp-content/uploads/2013/01/r...
  - Zigurd 12y ago
    I was imprecise. I meant that you need to know financing rounds, prices, classes, and financially relevant terms such as preferences and ratchets. You probably want to know who led each round, and a business should not have a problem disclosing that. The fact that uncle Lenny has 10,000 shares in the seed round is not neccessary.

ForHackernews 12y ago

Is it legal to lie to get around paywalls?

deleted 12y ago
[deleted]
davidu 12y ago
Don't lie then, just search google and click through.

michaelochurch 12y 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 12y 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 12y ago
Whats the idea?
michaelochurch 12y 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).

dzink 12y 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.