Candor Compass LLC v. iDentivisuals SRL

IN THE COURT OF CHANCERY OF THE STATE OF DELAWARE CANDOR COMPASS LLC, ) ) Plaintiff/Counterclaim Defendant, ) ) v. ) C.A. No. 2024-1179-MTZ ) IDENTIVISUALS SRL and ) IDENTIVISUALS INC., ) ) Defendants/Counterclaim ) Plaintiffs. ) POST-TRIAL MEMORANDUM OPINION Date Submitted: May 1, 2026 Date Decided: September 4, 2026 David G. Holmes, CROSS & SIMON LLC, Wilmington, Delaware, Attorney for Plaintiff/Counterclaim Defendant. Renee Dudek, FAEGRE DRINKER BIDDLE & REATH LLP, Wilmington, Delaware, Lawrence G. Scarborough, FAEGRE DRINKER BIDDLE & REATH LLP, New York, New York, Desmonne A. Bennett, FAEGRE DRINKER BIDDLE & REATH LLP, Denver, Colorado; Edward J. DeLuca, III, FAEGRE DRINKER BIDDLE & REATH LLP, Philadelphia, Pennsylvania, Attorneys for Defendants/Counterclaim Plaintiffs. ZURN, Vice Chancellor.1 1 Sitting by designation under Del. Const. art. IV, § 13(2). Docket item (“D.I.”) 82.  A startup hoping to commercialize its artificial intelligence-based emotion detection technology sought out a partner with more experience and access to the legal technology space. The startup was cash-strapped and its technology was far from ready for market. Still, it found a well-connected partner and mentor who saw promise. After two months of negotiations, the startup and the partner’s company executed a term sheet for a license agreement. The licensee bargained for contractual insurance against the risk of the startup’s failure. Under the term sheet, the startup had to make the developing technology available to the licensee so that the licensee had something to work with should the startup fail to complete product development. The startup had to deliver to the licensee everything it needed to use the technology independently, then escrow the rest of the intellectual property. The parties also agreed that if the startup breached, the startup would transfer ownership of the licensed technology to the licensee. The startup wanted the term sheet to be a binding agreement, so it could book revenue and tell investors it had entered into a license agreement. At the startup’s urging, the parties agreed to make the term sheet a binding contract. The startup never delivered or escrowed the technology as the contract required. It never could: unbeknownst to the licensee, the startup had stopped paying its product developers, so the developers stopped working, limited access to the 1 product, and threatened to keep and liquidate their work. The startup concealed this from the licensee until after the term sheet was executed. For nearly a year, the licensee shuttled between the company and the developers to save the product. It could not develop the product on its own because the startup never delivered or escrowed the licensed technology, and the developers were threatening to walk away with the product. When enough was enough, the licensee declared the startup in breach of the term sheet and came to this Court seeking an order enforcing the term sheet’s transfer requirement. This post-trial opinion finds in the licensee’s favor on all its claims and the startup’s counterclaim. It concludes the term sheet is a valid and enforceable preliminary agreement giving rise to fully binding contractual obligations, rather than an agreement to agree. It finds the startup breached those contractual obligations, knowing what was required and why the licensee had bargained for them. And it concludes the licensee is entitled to a decree of specific performance. 2  I. BACKGROUND2 Trial took place over four days, featuring four live witnesses and over three hundred joint exhibits.3 The following facts were stipulated to by the parties or proven by a preponderance of the evidence at trial.4 A. IDV Recruits David Noteware As An Advisor. Defendant/counterclaim plaintiff iDentivisuals SRL is an Italian technology startup founded by Christian Candela in 2016.5 Its vision is a tool by which artificial intelligence can discern and analyze human emotions.6 By 2021, it had successfully developed a proprietary algorithm and sought to expand into the United States.7 It incorporated a subsidiary in Delaware called iDentivisuals Inc. (together with iDentivisuals SRL, “IDV” or the “Company”) and brought on Ian Wilcox first as an advisor and then chief executive officer.8 2 Citations in the form “[Last Name] Tr. —” refer to trial testimony of the referenced witness, available at D.I. 60 through D.I. 63. Citations in the form “JX —” refer to the parties’ joint trial exhibits. Citations in the form “PTO —” refer to the parties’ stipulated pretrial order, available at D.I. 49. 3 D.I. 58; D.I. 66. 4 See generally PTO; Reynolds v. Reynolds, 237 A.2d 708, 711 (Del. 1967) (“The side on which the greater weight of the evidence is found is the side on which the preponderance of the evidence exists.”). 5 PTO ¶ 2; Candela Tr. 794. 6 Candela Tr. 794. 7 Id. at 795–96; PTO ¶ 4; Wilcox Tr. 528–29. 8 PTO ¶ 3; Candela Tr. 797–98; Wilcox Tr. 518–19. 3  IDV struggled to obtain funding. In early 2022, after a failed attempt at an IPO, IDV went back to the drawing board.9 Wilcox suggested reaching out to his friend and colleague David Noteware.10 Noteware is an entrepreneur who founded, ran, and sold a successful litigation support company called NextGen Reporting (“NextGen”), among other companies.11 He also taught entrepreneurial finance at the University of Utah and worked in its technology transfer office, where he helped bring University innovations to market.12 Wilcox believed Noteware’s experience with NextGen could help IDV explore a potential application in the legal technology space.13 IDV found its initial conversations with Noteware helpful and envisioned a more formal role for him at the Company.14 On September 19, Noteware agreed to serve as an advisor.15 In that capacity, Noteware introduced IDV to subject matter 9 Candela Tr. 799–800. 10 JX 9; Wilcox Tr. 531–32. 11 Noteware Tr. 6, 10. 12 Id. at 7–8. 13 See id. at 9–10; JX 9; JX 17; Wilcox Tr. 532–33. 14 See JX 17 (inviting Noteware to “join [IDV] as an advisor and board member”). Noteware did not end up joining IDV’s board. PTO ¶¶ 2–3. 15 PTO ¶ 5; JX 24 (“The focus of the contract is twofold: 1) your role as a business developer for us with the legal deposition market segment[;] 2) your role as strategic advisor[.]”); JX 28; see also JX 18; JX 20; JX 21; JX 22. 4 experts,16 advised IDV on fundraising processes,17 and guided IDV through the patent application process.18 B. IDV Hires A Development Team To Create A Minimum Viable Product. With Noteware’s help, IDV’s vision crystallized into a platform to aid attorneys in assessing witness credibility during depositions.19 To get there, IDV planned to develop the technology, turn it into a “minimum viable product” usable by early customers, and then iterate on that product until it was ready to be commercialized.20 IDV did not have a platform to implement its technology or the software developers to build one: its existing development team was inadequate.21 Wilcox looked to hire a new development team to build a minimum viable product.22 16 See JX 30 at 1; Noteware Tr. 25–27. 17 See JX 76; JX 30 at 1. 18 JX 46; Noteware Tr. 26–27. 19 See JX 40; JX 41. 20 Randall Tr. 314 (“So as part of any sort of entrepreneurial effort you’ll want to develop what’s called an MVP, minimum viable product . . . . [I]t’s a tool that’s sufficiently developed that a very early adopter . . . [can] play with the tool and give you feedback on how well it works, the idea being you take that feedback, you make constant improvements, and at some point you’re able to get something good enough that you can start selling to people.”); Candela Tr. 812 (defining a minimum viable product as “a software with a minimum set of features that are required for a user to actually make it work, test it, and to prove the value of the application”). 21 Wilcox Tr. 560; see also Noteware Tr. 78–79; Randall Tr. 314–15. 22 PTO ¶ 6; Wilcox Tr. 560; see also Randall Tr. 314–15; Noteware Tr. 78–79. 5 Around January 2023, Wilcox reached out to Michael Jabbour about hiring his development company, Engage Consulting, LLC (“Engage”).23 IDV and Engage continued discussions through the spring.24 Noteware was introduced to Jabbour in March,25 but did not participate in any negotiations.26 IDV created an Italian subsidiary to contract with Engage called Emotize SRL, which qualified for public grants that could pay Engage.27 In May and June, Emotize entered into virtually identical retainer agreements with Engage and its subcontractor Flatstack, LLC.28 Both agreements stated “[t]he goal of this project is to develop an AI-based web application for emotion detection analysis.”29 They defined the “scope of work” to include “engineering services for the development of an Emotion detection application utilizing existing algorithms.”30 The project would last twenty-two weeks, and IDV would be billed biweekly.31 Payments were due on the first day of each month after the agreements went into effect.32 IDV gave the 23 Wilcox Tr. 560–61, 563; Noteware Tr. 37–38. 24 Wilcox Tr. 560–61, 563; Noteware Tr. 37–38. 25 See JX 58. 26 Noteware Tr. 38. 27 Candela Tr. 809–10, 814; Wilcox Tr. 562. 28 PTO ¶ 6; JX 290; JX 350; JX 354. 29 JX 290 at 8; JX 354 at 8. 30 JX 290 at 8; JX 354 at 8. 31 JX 290 at 8; JX 354 at 8. 32 JX 290 § 3; JX 354 at 7. 6 developers a set of formulas; IDV’s proprietary algorithm; and IDV’s “core layer of technology”—i.e., the layer responsible for “processing . . . biometrics or [] nonverbal metrics.”33 Armed with a new development team, IDV’s work accelerated that summer.34 Jabbour and his team were sophisticated, competent, and capable of delivering “uniformly high quality” work.35 The team worked particularly hard on the project in July.36 In September, the team led a demonstration to two potential Italian investors and “walked away with very positive feedback.”37 C. IDV Negotiates A Term Sheet While Failing To Pay Its Development Team. IDV was running out of cash.38 The development team was expensive, and European fundraising efforts were unsuccessful.39 IDV went back to the drawing board and concluded the next strategy would be to license its technology for various 33 Candela Tr. 811–12; see also JX 78 (discussing the delivery of IDV’s formulas to Engage); JX 97. 34 Wilcox Tr. 565. 35 Noteware Tr. 78; Randall Tr. 311. 36 Wilcox Tr. 565. 37 Wilcox Tr. 570–71; see also JX 91 (email from Wilcox noting his frustration at not securing financing after a successful call). 38 See JX 76; JX 91. 39 JX 91; see JX 102; Noteware Tr. 81. 7 vertical applications.40 That way, IDV could show investors it had “partner[s] who could take and commercialize [IDV’s technology].”41 Wilcox wanted Noteware to lead a legal technology vertical in the United States.42 Specifically, he proposed that Noteware found a U.S.-based entity to commercialize IDV’s deposition tool while paying royalties as a licensee.43 The idea was originally floated to Noteware in the fall of 2022, weeks after he agreed to be IDV’s advisor.44 Noteware was hesitant: he did not want to run another company on his own and lacked confidence that IDV’s technology worked.45 By the fall of 2023, Noteware felt better about a licensing arrangement, as the developers’ work gave him more confidence in the technology, and he had identified a colleague to join him in running the new company.46 Ross Randall was Noteware’s 40 JX 91; Noteware Tr. 30; JX 51 at 2; Wilcox Tr. 576. 41 Wilcox Tr. 576. 42 See JX 91 (noting Wilcox’s belief that “given the robust nature of the legal tech market in the US currently . . . the European investor does not have the appetite or understanding of the market opportunity . . . . In the meantime, we are working with David Noteware to consider various strategic options, including a possible pivot and focus to re-brand ourselves to target US investors”); Noteware Tr. 30. 43 JX 42; Noteware Tr. 30, 32. 44 JX 42; Noteware Tr. 29–32. 45 Noteware Tr. 31–32; see also JX 51 (January 25, 2023 email noting that “before finalizing a[] [license] agreement, [Noteware] has asked for the following”: (1) an “independent verification of the video based detection software platform,” and (2) a “description of how deception is evaluated”). 46 Noteware Tr. 32. 8 colleague at the University of Utah’s technology transfer office.47 During his time there, Randall managed its intellectual property portfolio and analyzed early-stage technologies from patentability and business perspectives.48 He left the technology transfer office in July 2023 to work full time with Noteware as a partner, devoting most of his time toward IDV.49 On August 30, Noteware sent Wilcox a draft of a term sheet for an “intellectual property license agreement” (the “Term Sheet”) between IDV and Noteware’s “NewCo,”50 which would be plaintiff Candor Compass LLC.51 As Noteware explained, “this first draft anticipated there would be a second, more extensive dispositive agreement with recitals and all that stuff.”52 The Term Sheet defined “Technology” to include: The source material from which object materials are compiled, including the fully commented source code and internal system documentation for the computer software, as well as all other materials, in both machine readable and hard copy form, which are used to develop or test the software, as well as all electronically readable source documentation, design documents, data models, help materials, tutorial programs and appropriate debug code.53 47 Id. at 8; Randall Tr. 301. 48 Randall Tr. 300. 49 Id. at 301, 304–06. 50 JX 88; see also JX 79; JX 81. 51 PTO ¶¶ 1, 14; JX 140. 52 Noteware Tr. 35–36. 53 JX 88 at 2. 9 The delivery and acceptance provision required: The Licensor shall provide materials sufficient to enable Licensee to test, operate, adjust, modify, and adapt the technology independently, without the need to seek technical support from [L]icensor.54 The Term Sheet’s first draft also contained an escrow provision that read: Licensor shall cause any IP not explicitly provided to be held by an escrow agent at its own expense. Licensor shall cause this material to be updated not less frequently than monthly. If [L]icensee fails to either (a) cause the escrow account to be updated on the monthly basis above, (b) fails to respond to any queries or requests from Licensee, or (c) breaches this license agreement, then (1) this Agreement will be in breach, (2) Escrow Agent shall be automatically directed (per the terms of the escrow agreement) to release all escrowed material to Licensee, and (3) all Technology and escrowed material shall be automatically conveyed in fee simple to Licensee.55 The first draft also stated: This term sheet is for discussion purposes only, [and] is not intended to create legal rights or obligations. Any past or future action, inaction, or course of conduct relating to a possible transaction does not constitute a binding offer or a binding agreement and does not give rise to any obligation on the part of either party to negotiate or otherwise continue discussions with respect to a transaction.56 54 Id. at 4. 55 Id. 56 Id. at 5. 10  Wilcox responded around three weeks later with revisions.57 IDV wanted a binding license agreement that allowed it to book revenue, so it could tell potential investors it had a paying licensee.58 IDV was in a hurry to sign a binding license agreement it could show potential investors.59 IDV’s relationship with Engage was collapsing, and IDV was about to 57 JX 93. 58 See, e.g., JX 116 at 1 (October 24, 2023 email from Wilcox describing the benefits of an executed agreement as a “win”); JX 118 at 5 (reflecting IDV’s desire for “some way to recognize revenue/raise an invoice and show revenue from the deal”); JX 140 at 5; JX 50 (noting IDV’s focus on executing an agreement); JX 107 at 5 (Term Sheet markup changing the language to reflect the agreement “create[d] legal rights and obligations” rather than being used for discussion purposes); JX 141 (November 8, 2023 email from Candela stating “[t]he Term Sheet [is] signed with Candor Compass . . . let’s plan a call soon so that we can start this fundraising process”); JX 286 (July 31, 2024 email from Wilcox explaining “[w]e have a signed agreement with Candor – for use in the legal dep space – it is in force and provides us some cover”); Wilcox Tr. 662 (“That was what . . . we were focused on, was the ability to book the revenue.”); id. at 663 (“I wanted to have something that was more than just a heads of agreement. Because I knew that if I just showed that to you as an investor, you’d go, so what?”); Noteware Tr. 55 (“[T]hey told us that their advisors told them they had to have revenue. They needed to be able to book revenue for fundraising purposes . . . . The ‘[o]ther [l]icense [f]ees’ is the effort to create some sort of revenue line item that they could show to potential investors.”); id. at 57 (“If you have, like up-front payments and revenue being booked and such, it can’t be an agreement to agree. It has to be an agreement, otherwise you can’t book it.”); id. at 63 (“So [Wilcox] and [Candela] are asking for changes there because they want to be able to use this as an agreement that they can book revenue against and have a revenue line item on their P&L for fundraising purposes.”); Randall Tr. 321–22 (explaining IDV was having trouble raising money and wanted an agreement to book revenue); id. at 329 (“[B]ut it’s more important for them to actually book the 60k than it is to actually have it. That’s really their interest here . . . it was clearly communicated that they wanted the ability to go out and say, look, we raised 60k or we have this and to book that AR on their books.”); id. at 341–42 (testifying that IDV was negotiating the royalty provision primarily to be able to book revenue). 59 JX 104 at 5; Noteware Tr. 57 (testifying IDV was “in a hurry and needed to be able to trumpet that they had success and had one contract signed . . . . If you have[] [] up-front 11 lose the development team and the platform it was building. IDV owed Engage nearly $20,000,60 and Engage threatened to shut off access “to everything.”61 On September 19, just a couple weeks after receiving the first draft of the Term Sheet, Wilcox wrote to another IDV advisor: “I have been advised that we will be in breach of contract [with Engage] shortly, and thus we will not have access to the platform for demo purposes.”62 Neither Noteware nor Randall were included on this email.63 They did not know IDV was in arrears and risked losing access to the platform.64 Noteware knew IDV wanted a binding agreement, not just a term sheet.65 Noteware sent a markup on October 11 that struck the language indicating the Term Sheet was solely for discussion purposes and replaced it with the following payments and revenue being booked and such, it can’t be an agreement to agree”); Randall Tr. 323–24 (testifying IDV changed the language to “create legal rights and obligations”). 60 See JX 80; JX 90 (September 4, 2023 email from Jabbour to Wilcox and Candela noting that “we need to consider how to address outstanding payments and funding”); JX 355 (September 19, 2023 email from Wilcox to an IDV advisor stating “I was informed by Engage/Flatstack that our engagement is 80% complete. However, we have been unable to pay our invoices to them in a timely manner”); JX 105 (October 11, 2023 email noting outstanding invoices “in the amount of $18991.31”). 61 Noteware Tr. 83–84. 62 JX 355. 63 See id. 64 Noteware Tr. 82–83, 118, 288–89; Randall Tr. 315–16, 339, 342, 349. The only evidence that Noteware and Randall knew of the outstanding invoices to Engage, and the consequences for nonpayment, is Wilcox’s trial testimony stating he consulted with Noteware about the invoices and potential fundraising options. Wilcox Tr. 574–75, 591. On this point, Noteware and Randall were vehement and quite credible. Wilcox was not credible. 65 See Noteware Tr. 57. 12 language: “This term sheet creates legal rights and obligations. In a prompt manner, the parties will convert this term sheet into a set of final document[s] expanding the details of the agreement between the parties.”66 That same day, Wilcox told Candela that they were “running out of time” and needed to “close the deal with David [Noteware].”67 On October 24, Wilcox advised Candela, “[W]e simply need to execute this, signature blocks, etc., and sen[d] it . . . . [I] will tell you this is a win for the short term; let’s look beyond the ‘technical details’ and focus on what having an agreement enables for the company longer term.”68 IDV also suggested edits with an eye towards booking revenue. IDV inserted a royalty comprising “3% of net profits for the first nine (9) years of the agreement”; an “equity interest in the Licensee, amounting to (7)% of its total and outstanding shares in the form of common stock”; and a “one-time $75,000 royalty payment by end of June 2024.”69 Noteware countered with a royalty of “2% of net profits for the first nine (9) years of the agreement”; an “equity interest in the Licensee, amounting to (8%) of its total and outstanding shares in the form of common stock”; and a “one-time payment of $100,000 royalty after Licensee attains $2 million in net 66 JX 104 at 5; JX 106-N at 4; JX 107 at 5. 67 JX 105 at 1. 68 JX 116 at 1. 69 JX 93 at 4. 13 income in a fiscal year.”70 From there, IDV focused on obtaining recognizable revenue. IDV asked if they could break the payment into installments so revenue could be recognized immediately.71 Eventually, the parties settled on one $60,000 payment that could be invoiced on execution but was not payable until IDV earned income.72 As IDV pressed for a signed agreement with bookable revenue, it also ensured it understood the delivery and escrow obligations. IDV had its attorney in Italy review the draft.73 On October 5, Wilcox asked about the term “source code” and the purpose of the escrow provision.74 As to the source code, Noteware explained, “We’ll need the source code for the entire algorithm to be escrowed and available for management should the NewCo be forced to complete development.”75 As to the escrow provision, Noteware explained, “The escrow protects the licensee from any sort of problem at the licensor level. Given the instability at the SR[L] level, 70 JX 106-N at 4; see JX 107 at 4. 71 JX 118 at 5 (“Can we break this into payments of $20k over five years? CC wants to find some way to recognize revenue/raise an invoice and show revenue from the deal.”). 72 JX 140 at 4. 73 JX 93; JX 95; JX 96; see Wilcox Tr. 646; Candela Tr. 832–33. 74 JX 101 at 2. 75 Id. at 1. 14 we’d need security that the code won’t disappear into the ether.”76 He also explained the escrow requirement is “standard for software.”77 On October 29, Noteware circulated another markup.78 Wilcox sought further clarification about the escrow provision by asking, “I assume what is in escrow would be elements of our work related to the product develop[ment]? How does the escrow work in practice? Does a third party hold the information?”79 In response, Noteware explained, “Yes the SRL would pay for a third party to hold the code and documentation of all the Technology. It’s pretty common when there’s a risk that the licensor is a start-up.”80 Wilcox did not push back.81 Wilcox then forwarded the Term Sheet to Candela, stating: “This is [Noteware’s] best and final from what I can tell . . . . I reiterate my position – an agreement at this point is a win.”82 Then Engage struck. On October 31, Wilcox wrote to an IDV advisor that “the development partners have informed me [that] they have suspended work and 76 Id. at 2. 77 Wilcox Tr. 653. 78 See JX 123; JX 123-N. 79 JX 123-N. 80 Id.; see also Noteware Tr. 66 (“[I]f [IDV] failed and we had to get access to [the technology] to continue the development, [the escrow provision] is how you get it without them actually giving it to us up front. They put the keys to the castle in escrow, and we only get it if they fail.”). 81 Noteware Tr. 66 (“[T]hey . . . never pushed back.”). 82 JX 125 at 1. 15 will not allow access to a demo until full payment is received . . . . [T]he demo/MVP and access to the development team has been suspended.”83 Again, neither Noteware nor Randall knew about this issue.84 On November 1, Noteware circulated a final version of the Term Sheet.85 Wilcox forwarded it to Candela the same day, asking him to “[p]lease sign and send to me now. We need to execute before David [Noteware] talks to MJ [Jabbour].”86 IDV wanted the Term Sheet signed before Noteware and Randall found out Engage was about to lock IDV and its partners out of the platform and its underlying technology.87 Had Noteware and Randall known, they would not have moved forward with the Term Sheet.88 83 JX 128 at 2. 84 See JX 128. 85 JX 135; see JX 133; JX 134. 86 JX 135 at 1; see JX 134 at 1. 87 When asked about what he meant by IDV’s “need to execute before David [Noteware] talks to MJ [Jabbour],” Wilcox testified: “I wanted MJ [Jabbour] to know that Candor Compass and iDentivisuals had a signed term sheet and were joint venture partners.” Wilcox Tr. 592. This explanation is not credible. It says nothing about why Wilcox did not want Noteware or Randall to speak to Jabbour. The preponderance of the credible evidence shows: Wilcox knew IDV was in arrears, he knew Engage had pulled the plug on product development and was going to lock IDV out, and he knew Noteware and Randall would have discovered all of those facts, and paused or stopped the Term Sheet, if they spoke to Jabbour first. See JX 355; JX 105; JX 128. 88 See Randall Tr. 331 (“Had we talked to MJ [Jabbour] and found out that [IDV] didn’t have possession of the technology and that we basically had to come up with half million dollars before we were in a position that we could commercialize the technology, we sure as hell wouldn’t have signed this agreement.”). 16  D. The Parties Execute The Term Sheet. IDV got the binding agreement and booked revenue it wanted. Wilcox and Candela signed the Term Sheet for IDV on November 1, and Randall countersigned on November 7.89 The final version states: “This term sheet creates legal rights and obligations. In a prompt manner, the parties will convert this term sheet into a set of final document[s] expanding the details of the agreement between the parties.”90 IDV touted the Term Sheet as a binding agreement. The day after it was executed, Candela told an IDV advisor it could begin fundraising now that it had a “licensee in the US.”91 Wilcox likewise told the advisor IDV had “executed a royalty/equity agreement with David Noteware and his new co.”92 A week later, IDV stated in an investor presentation that it had “begun its go-to-market by securing a licensing agreement in the legaltech market.”93 As for bookable revenue, the Term Sheet provides for a royalty amounting to “2% of net profits for the first nine (9) years of the agreement, declining by 1/9th per year”; an equity interest in Candor Compass amounting to “8% of its total founder shares in the form of common stock”; and “an upfront fee of $60,000” that 89 PTO ¶ 7; JX 140 at 1, 6. 90 JX 140 at 5. 91 JX 141. 92 JX 145 at 3. 93 JX 356 at 5; see JX 218 at 3. 17 IDV can invoice “[u]pon execution of th[e] Agreement.”94 IDV immediately booked the $60,000 upfront payment as revenue under Italian accounting principles.95 Candor Compass had not yet been formed as of the Term Sheet’s effective date. The Term Sheet notes that “[p]romptly after execution of this agreement,” the parties would “inform each other of the complete names of the entities.96 Candor Compass was formed as a Delaware limited liability company the same day.97 The Term Sheet sets forth a “summary of certain key terms of an intellectual property license and joint venture agreement” among IDV and Candor Compass.98 Candor Compass received an exclusive license to use IDV’s “Technology,” defined to include all of IDV’s “current and future intellectual property rights, including, without limitation, all patents, copyrights, trade secrets or ‘know how,’ and all applications and registrations for any of the foregoing . . . relating to evaluation of emotions and behavior using audio and video.”99 That includes any “subject matter claimed or enabled by any current or future patent or patent applications relevant to the technology”; the “computer software in object material form, to run the licensed 94 JX 140 at 4–5. 95 See Candela Tr. 817–18. 96 JX 140 at 2. 97 PTO ¶ 14; JX 137 (certificate of formation dated November 7, 2023); JX 138; JX 335 (operating agreement); Noteware Tr. 76. 98 JX 140 at 2. 99 Id. 18 technology”; the “object material in machine readable form, to run the licensed technology”; and the “source material from which object materials are compiled.”100 The term of the license is “perpetual” for the life of any intellectual property rights, unless and until the license is terminated.101 The “Territory” for the license is “worldwide within the application’s [F]ield of [U]se.”102 Its “Field of Use” is defined as “[a]ll applications with respect to the legal system, including courtrooms, depositions, and examinations related to civil, criminal and regulatory actions.”103 The Term Sheet entitles Candor Compass to “a right of first refusal on other applications in the North American market.”104 Relevant here, the Term Sheet obligates IDV to take two actions with respect to the licensed technology. Under the “Delivery and Acceptance” provision, IDV must “provide materials sufficient to enable [Candor Compass] to test, operate, adjust, modify, and adapt the technology independently, without the need to seek technical support from [IDV].”105 And under the “Escrow” provision, IDV must “cause any IP not explicitly provided to [Candor Compass] to be held by an escrow 100 Id. 101 Id. at 4. 102 Id. at 3. 103 Id. 104 Id. 105 Id. at 4. 19 agent at its own expense” and “cause this material to be updated not less frequently than monthly.”106 If IDV breaches any of those obligations, “all Technology and escrowed material shall be automatically conveyed in fee simple to [Candor Compass].”107 E. Candor Compass Tries To Keep The Development Team At The Table. Within the next month, Noteware and Randall found out from Jabbour that due to IDV’s nonpayment,108 Jabbour was “threatening to cut off access to everything” and proceed with asset reclamation by the end of the year.109 It was as if the “rug [had been] pulled out from under [them].”110 106 Id. at 5. 107 Id. 108 See JX 160 at 2 (December 13, 2023 email from Jabbour to Noteware noting outstanding invoices in the amount of $407,770); JX 148 at 2 (November 15, 2023 email from Flatstack expressing “concern[] about the radio silence . . . with regards to the updates on the grant and payment for [IDV’s] balance”); Noteware Tr. 83–84. 109 Noteware Tr. 83–84; see also Randall Tr. 350 (testifying it became “immediately apparent . . . he was of the position that he could simply just liquidate all of the work that had been done”); JX 145 at 3 (November 12, 2023 email from Wilcox to an IDV advisor stating “We are in breach of contract with Flatstack and Engage; the development team has been disbanded and MJ will no longer formally engage with us . . . . Further, if payment delays continue into 2024, Engage and Flatstack will seek punitive damages, including withholding access to the platform.”); JX 152 at 1 (December 11, 2023 email from Jabbour to Candor Compass stating “Our lawyer will send the breach and asset reclamation letter this week with a termination date of 12/31/23. At that point, we will simply be moving forward with asset resale or some other path.”). 110 Noteware Tr. 83–84. 20  Noteware needed Engage to finish development so that Candor Compass had something to sell.111 So Candor Compass’s first order of business was to keep Engage working.112 That required raising money with IDV.113 That was not an easy task. IDV kept making promises about unconventional “sources of funding” that never materialized.114 It was not transparent about the status of those sources. IDV was sometimes “radio silen[t]” when asked for updates.115 The developers did not trust IDV. Against that backdrop, Candor Compass had to “step into the void.”116 It had to convince Jabbour to “turn the lights back on,” so that Candor Compass could take 111 Id. at 84–85. 112 See JX 143 (November 14, 2023 email from Randall to Wilcox asking to “discuss how we might go about keeping [Jabbour]’s team engaged”); Randall Tr. 342, 350. 113 See JX 154 (Noteware proposing a payment plan); Randall Tr. 349 (“[W]e had to go back to step zero and start figuring out a way for MJ [Jabbour] to get paid for work that he had done on behalf of IDV.”); Noteware Tr. 84. 114 JX 215 (May 6, 2024 email from Wilcox to Noteware stating “we will have a small margin of cash to carry us forward until funds are received from Montenegro . . . . The Puglia grant money of $280k will be received after Christian pays an outstanding loan of $28k to Puglia”); JX 224 (May 23, 2024 email from Wilcox to Noteware explaining that “the Dubai world and the gold exchange is happening and RMA SWIFT communication between receiving and sending banks is live”); Wilcox Tr. 726–27; Randall Tr. 350–51; see, e.g., JX 148 at 1; JX 268; JX 162 at 1; JX 202 at 1; JX 228; JX 258; JX 348. 115 See JX 148. 116 JX 152; see JX 151. 21 the lead on fundraising and “get him paid.”117 To that end, Candor Compass convinced Jabbour to grant it limited access to the platform.118 Over the next few months, Candor Compass worked diligently to refine the platform and develop pitch materials.119 It spent time learning how the platform worked, devised a tool to measure the platform’s accuracy, and hired a team to help build that tool.120 It built a database to train the underlying algorithms.121 It also continued to advise IDV on the patent process,122 and used its own money when IDV could not pay its patent attorneys.123 Candor Compass kept IDV in the loop every step of the way.124 Meanwhile, Candor Compass failed to document any assignment of equity to IDV.125 The Term Sheet states, “[Candor Compass] shall assign to [IDV] an equity 117 Randall Tr. 352–53. 118 Id. 119 See JX 170; JX 171; JX 173; JX 179; JX 182; JX 186; JX 195. 120 See Randall Tr. 354–55; Noteware Tr. 93. 121 Randall Tr. 354–55, 496–97; JX 186; JX 206. 122 See JX 214; JX 217; JX 220; Randall Tr. 361–65. 123 JX 223; JX 217; JX 259; Noteware Tr. 91–92 (“Getting [Candela] to pay for things was really quite challenging, so sometimes it was easier just to pay for it. And the lawyers have to get paid or they’ll stop working, and we had to have them get paid.”). 124 See JX 182; JX 186; JX 190; Randall Tr. 356 (noting Candor Compass’s desire to “keep iDentivisuals in the loop, show them that we were making progress on deploying the technology, explaining some of the challenges that we were focusing on”). 125 See JX 180; JX 334; JX 335 Sched. 1. 22 interest in [Candor Compass], amounting to 8% of its total founder shares in the form of common stock at the time of the grant.”126 Noteware and Randall thought the assignment had happened when the Term Sheet was signed.127 It did not. To assign equity, Candor Compass had to receive manager approval and periodically update its ownership schedule to reflect changes.128 The operating agreement also provided that an issued “Share Certificate” was the “indicia of ownership of [s]hares.”129 But Candor Compass never issued a certificate of ownership, and failed to list IDV on its ownership schedule or its capitalization table.130 IDV was not listed on the capitalization table until February 10, 2025.131 F. The Parties Explore New Use Cases, And Attempt To Execute An Amended And Restated License Agreement. Candor Compass’s work revealed potential to expand IDV’s technology into new use cases.132 That had been IDV’s strategy from the get-go: to license its 126 JX 140 at 5. 127 Noteware Tr. 205 (“[W]hen the [Term Sheet] was signed, they owned it. It’s not like you have stock certificates.”); Randall Tr. 348–49 (“[I]n my view, the moment we signed th[e] [Term Sheet], that transition was effective. The assignment was effective.”). 128 JX 335 §§ 7(b), 7(f) (explaining that “[t]he number of Shares and Percentage Interest of each Member shall be as set forth in Schedule 1 hereto”); id. § 13(c). 129 Id. § 1 (defining “Share Certificate” as “the certificate or other indicia of ownership of Shares evidencing a Member’s ownership thereof”). 130 JX 180 at 1; JX 334; JX 335 Sched. 1; Candela Tr. 818–19; Wilcox Tr. 590. 131 JX 341 (Candor Compass capitalization table dated January 30, 2024 but edited on Februar