If you’ve raised money, borrowed venture debt, made a sale to a customer or sold your company – or, for that matter, negotiated any agreement whatsoever with a third party – then you’ve already encountered the proverbial “blackline”. This term refers to an agreement format that reveals (or highlights) modifications to an earlier version (see the picture above for a simple example). I’ve never seen a first draft that turned out to be the last draft. Most, if not all, agreement negotiations are going to result in multiple versions and the need to compare one version against another to understand the differences. If you haven’t already seen a blacklined agreement, then it’s only a matter of time.
My goal with this post is to lay out a simple framework, one that will reduce confusion, hopefully create some efficiencies and eliminate the chance of disclosing meta-data, thus allowing you to devote your time to getting the deal (whatever it is) closed. Work more intelligently and efficiently with your lawyer using the following guidelines.
Agreements of any type start in Microsoft Word format. Word dominates the business arena. So when it comes to business folks or lawyers, everyone drafts and makes changes using Word. The agreement, without highlighted changes, is referred to as a “clean” copy. However, when you are finished making changes internally to an agreement, you need to send those changes to the other parties involved in the negotiation. How do you do that? There are really two basic methods to reflect modifications to an agreement: (i) using Microsoft Word’s track changes feature, or (ii) using third party software, like Workshare’s Compare product. Other methods, or even software programs, exist, but frankly these are the two I see in the overwhelming majority of situations. If you are working on a “deal” or “transaction” (e.g., venture or private equity financing, debt financing, an acquisition, sale of your company, etc.), then expect your lawyers to utilize third party software to generate the “blackline.” If you are working on a “commercial” agreement (e.g., customer contract, non-disclosure agreement, licensing agreement or some other form of commercial contract), then expect business people and lawyers to utilize Microsoft Word’s track changes feature. Programs, like Workshare, are feature rich and have incredible utility in comparing two versions of a Word document. Workshare is capable of not only comparing the body of the agreement, but also capable of comparing data inside tables, columns and other formats. Workshare can highlight when language was simply moved from another part of the agreement. Track changes lacks much of this functionality. When doing a “deal” versus working on a “commercial” agreement, third party comparison software is the preferred method of comparison.
Setting Up Workshare for the “Deal” Environment
On the business side, you really don’t have to worry about setting up Workshare (or whatever program your lawyer uses). Lawyers typically have their software already set up to generate blacklines in a customary format. In a “deal” environment, the business folks are most likely conveying their changes to the lawyers verbally or possibly some other format, but those changes will always be reflected back to the other side using third party comparison software.
For lawyers, I do have a few simple suggestions when using third party comparison software:
- Stick to red-colored
strike-throughsfor deletions (this is the most common format);
- Stick to blue-colored double underscores for additions (again, most common);
- Stick to green-colored language to signify moved provisions (not everyone sets up their software to track moved provisions, but if you do . . .);
- Get rid of the last page of the blackline that is auto-generated by most programs and that tracks the overall changes in the blackline – it’s a complete waste of paper and no one looks at it;
- Circulate your blacklines in a PDF format and your clean versions in a Word format – it’s (i) easier on the eyes, (ii) keeps unwitting business folks from thinking the blackline is actually a track changes document and then trying to make comments in it (I’ve had deals where I got back track changes in a Word version blackline and then had to take the time to back them all out and transfer them to the “clean” version), (iii) it prints better, and (iv) it’s viewable on mobile and tablet devices (track changes generally doesn’t show up in a Word documents on mobile or tablet devices); and
- Take the time to learn how to use the features of your third party comparison software (there are many great, un-used features particularly around the elimination of meta-data).
Setting Up Track Changes for a “Commercial” Agreement
Whatever you do, take control of your track changes. Please don’t just accept track changes in it’s default format. Take the time to make the following changes using the track changes options pulldown:
- Set up track changes to highlight strike-throughs, additions and moved provisions as set forth up above in the “Deal Environment” section;
- Eliminate the bubble feature (as seen below), where deletions or additions are indicated in word bubbles off to the right side of the document. When dealing with complicated modifications, the bubbles become more of a distraction than a help.
- Avoid the use of embedded comments (as seen below). Many business people prefer to embed their comments, mostly because they know conceptually what the modification to the agreement should be, but they don’t know how to word it (that is left for the lawyers). All too often, however, I’ve received documents from the other side where the embedded, internal comments were not scrubbed from the document. This, of course, provides a tremendous amount of insight into the other side’s internal thinking or positioning.
- Do not use track changes’ “compare documents” feature. In my honest opinion, this feature is not consistent and I’ve seen it reveal modifications made through track changes that folks thought were deleted or removed.
One final comment regarding the exchange of agreements during a negotiation. Please don’t password protect your Word document – it’s obnoxious. Do you really believe your leverage is so great, or your drafting so spectacular that no one is going to have a reasonable comment? Not all comments flow from disagreement. Some are simply meant to adjust, modify or articulate proper context, facts, etc. There’s nothing offensive about that. All you do by password-protecting your Word document is you create a 1-2 day delay in the process while someone has to come back to you and ask for the password so their lawyer can make some suggested changes. I don’t see this as often as I used to – and, frankly, it tends to be an offense committed more often by people that work at larger organizations. Sometimes, rather than password-protected, you receive the document in a PDF format. It sends the same, intentional message – you are not permitted to comment on our document. I find the tactic a huge waste of time.