Corporate Opportunity And Self-Dealing

Joseph W. Bartlett, Special Counsel, McCarter & English LLP, Co-Founder of VCExperts

McCarter & English LLP


If A and B, both ethical drug companies, join hands to exploit a particularly expensive field of research, what happens if A independently uncovers a promising compound which might complement the joint venture's end products? Under the law of corporate opportunity as developed over the years, must A bring the development to the venture? Assume A does in fact offer the compound to the venture, can A charge any price it elects? Yet again, if the drafting is anemic, the court must marry its guesstimate as to the parties' original intent and reasonable expectations within the conceptual framework the court elects to apply to the animal it confronts—a partnership in Cardozo's sense, with the comprehensive fiduciary obligations Cardozo's prose suggests, versus a limited contractual relationship entailing no special duties other than those expressly written down.

Variations on this conflict theme are numerous. Thus, one venturer may wish to block the venture's expansion into a market the venturer assumes is its exclusive domain. The joint venture may generate commercially valuable information which one of the venturers may appropriate for use in its main line of business, perhaps to the detriment of another venturer's prospects. The difficulty in drafting responses to these contingencies is, of course, that there are so many of them.


Introduction to Venture Capital and Private Equity Finance