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Johnson & Johnson’s appeal of a billion dollar judgment relating to an earnout payment in an acquisition, in particular its development obligations with respect to surgical robots of the acquired company, is scheduled to occur in Delaware on October 15. This article summarizes the situation and provides a good reminder that, while an earnout provision in an acquisition agreement may be a way to bridge a valuation difference between the parties, they can be a magnet for litigation. Both the hurdles that need to be clear and the protective provisions for both seller and buyer must be carefully considered in order to avoid litigation down the road.
It “sounds like a great idea at 3 a.m.,” according to Boston College law professor Brian Quinn. But putting the fate of the payments in the hands of the party responsible for them is a recipe for a court battle
