Term Sheet, Real Deal: Delaware Court Signals Willingness To Specifically Enforce Technology License

The Delaware Court of Chancery is poised to address significant questions about the enforceability of term sheets as binding agreements—so-called Type I vs. Type II agreements under Delaware law—as well as the availability of specific performance as a remedy for breach of IP licensing and joint venture terms in Candor Compass LLC v. iDentiVisuals SRL.

In November 2024, Candor Compass LLC (“Candor”) sued iDentiVisuals SRL and iDentiVisuals Inc. (together, “iDentiVisuals”) for breaching a November 2023 term sheet (the “Term Sheet”) that Candor claims constitutes a binding licensing agreement for iDentiVisuals’ patented emotion-recognition AI technology.¹ Candor seeks damages, specific performance, and declaratory relief transferring ownership of all technology and related patents.² iDentiVisuals counters that the Term Sheet is not a binding agreement, but rather, at most, a Type II preliminary agreement.³ Under Delaware law, a Type I agreement constitutes a binding contract, whereas a Type II agreement is simply a preliminary agreement to negotiate in good faith towards a final contract.⁴

At the May 1, 2026 post-trial arguments, Vice Chancellor Morgan T. Zurn took the case under advisement, but indicated that the Court is inclined to find: (i) that the Term Sheet is a binding Type I agreement; (ii) that iDentiVisuals breached by failing to deliver a required IP escrow; and (iii) that specific performance may be an appropriate remedy.⁵ The case showcases the potential dangers of contracting to deliver AI technology before it is fully developed, as well as the importance of clearly defining terms and remedies in technology licensing agreements.

I. Background

Candor, led by Chairman David Noteware, is a software company that uses AI technology to analyze witness credibility in depositions and legal proceedings.⁶ iDentiVisuals developed patented emotion-recognition technology, utilizing AI and human inputs, to identify and interpret human emotions for commercial applications.⁷

In Summer 2022, iDentiVisuals approached Noteware about commercializing its technology in the United States.⁸ The parties executed an Advisory Agreement effective September 19, 2022, under which Noteware agreed to provide strategic advisory services in exchange for deferred compensation and stock options.⁹ Separately, iDentiVisuals’ subsidiary Emotize S.r.l. retained Engage Consulting, LLC (“Engage”) in May 2023 to develop iDentiVisuals’ technology into a workable software application—the Minimum Viable Product (“MVP”)—tailored for the legal deposition market.¹⁰

In Fall 2022, iDentiVisuals approached Noteware about licensing its technology to Candor.¹¹ From August to November 2023, iDentiVisuals and Candor negotiated multiple drafts, with the final Term Sheet executed on November 2, 2023.¹²

II. The Term Sheet

The Term Sheet stated that it was a summary of certain key terms of an intellectual property license and joint venture agreement. Notably, the Term Sheet replaced earlier draft language stating that the document was “for discussion purposes only” with language providing that it “creates legal rights and obligations.”¹³ It concluded with the directive that “[i]n a prompt manner, the parties will convert this term sheet into a set of final documents.”¹⁴ No final documents were completed; however, iDentiVisuals subsequently indicated in fundraising materials that the Term Sheet was a binding licensing agreement.¹⁵

The Term Sheet defined the licensee’s subject matter as all of iDentiVisuals’ current and future IP rights relating to evaluation of emotions and behavior using audio and video, including, without limitation, certain enumerated “Technology.”

In exchange for the license, iDentiVisuals would receive an 8% equity interest in Candor, a 2% royalty on net profits, and a $60,000 upfront fee.¹⁶ If iDentiVisuals breached, Candor’s royalty obligation would be voided and it could repurchase iDentiVisuals’ equity for $1.¹⁷ The Term Sheet required iDentiVisuals to provide sufficient materials for Candor to independently test, operate, modify, and adapt the technology, and to place any IP not explicitly provided to Candor with an escrow agent.¹⁸ In case of breach of the license agreement or failure to maintain the escrow, the escrow agent would be “automatically directed . . . to release all escrowed material” to Candor, and all Technology and escrowed material would be “conveyed in fee simple to Licensee.”

Candor invested significant resources building its business around the technology.¹⁹ However, iDentiVisuals never delivered the technology or established the escrow.²⁰ On August 21, 2024, Candor sent a Notice of Breach to iDentiVisuals, exercising contractual remedies, including transfer of the technology and equity repurchase for $1.²¹ iDentiVisuals responded by arguing duress and unconscionability but did not dispute that it had breached the delivery and escrow provisions.²²

III. The Parties’ Contentions

Candor argued that the Term Sheet was a binding contract because it expressly stated it “creates legal rights and obligations,” contained indemnification and choice of law provisions, and the parties’ post-execution conduct evidenced their intent to be bound.²³ Candor further argued that the royalty, equity, and upfront payment was sufficient consideration.²⁴

Candor contended that iDentiVisuals breached by failing to deliver the technology or establish the escrow,²⁵ and that iDentiVisuals effectively conceded breach by not arguing compliance in its response to the Notice of Breach.²⁶

On remedies, Candor (1) pointed to the escrow provisions expressly providing for automatic conveyance of all technology upon breach, (2) argued that Delaware’s “strongly contractarian” approach favors enforcement of bargained-for specific performance remedies, and (3) contended that the technology was unique and difficult to value monetarily as its entire business was built around commercializing the technology, making money damages inadequate.²⁷

iDentiVisuals argued that the Term Sheet was, at most, a Type II agreement obligating the parties to negotiate in good faith toward a final contract.²⁸ In support, iDentiVisuals pointed to the language directing the parties to “convert this term sheet into a set of final documents.”²⁹ iDentiVisuals also argued that the Term Sheet’s preliminary nature was evidenced by it containing drafting errors and lacking essential terms such as time for performance, cure rights, sublicensing, and a clear definition of what the “technology” or “IP” included, or how these undefined “materials” would be escrowed.³⁰ Alternatively, iDentiVisuals argued that even if the Term Sheet is a Type I agreement, it created a joint venture giving rise to fiduciary duties that Candor breached by scheming to claim iDentiVisuals’ IP, disclosing iDentiVisuals’ financial difficulties to Engage, and failing to provide equity as required.³¹

On remedies, iDentiVisuals argued: (i) that specific performance would be disproportionate and punitive; (ii) that the escrow provision was unenforceable because the parties never drafted an escrow agreement; and (iii) that the Term Sheet failed to convey certain IP rights—such as enforcement, copyright, and sublicense rights—without which Candor could not realize meaningful commercial benefit from the technology.

IV. The Court’s Current Thoughts

At the May 1, 2026 post-trial arguments, Vice Chancellor Zurn took the case under advisement, but signaled that the Court was inclined to find the Term Sheet a binding Type I agreement and that iDentiVisuals breached by failing to deliver the escrow.³²

On remedies, the Court suggested that specific performance may be appropriate, stating that it is “not just an available remedy, but . . . the only one that I can really think of as I sit here today.”³³ The Court nevertheless encouraged both parties to pursue settlement discussions over the next three to four months, noting that “maybe both sides want something short of specific performance.”³⁴

V. Key Takeaways

• The Court’s inclination toward enforceability is consistent with established Delaware law. Delaware courts determine whether parties intended to be bound by examining objective manifestations—expressed words and deeds at the time of execution—rather than subjective intent after the fact. In the context of term sheets and other preliminary agreements, the fact that parties intended to execute a formal document is not dispositive; the question is whether they positively agreed that no binding contract would exist until the formal document was executed. Here, the Term Sheet explicitly stated it “creates legal rights and obligations” and nowhere does it condition its effectiveness on execution of a final agreement. The remaining question is whether all essential terms were agreed to—and the Court appeared to find no material term lacking despite the document being characterized as a “summary.”
• Companies should exercise caution before contracting to deliver undeveloped AI technology. Given the fast-moving development cycles in AI, companies should be hesitant to promise delivery of technology still in the concept phase. Here, iDentiVisuals did not yet have a finished product and was dependent on Engage to develop the MVP—ultimately preventing it from fulfilling its delivery obligation to Candor.
• Specific performance is a legitimate remedy that Delaware courts will enforce when prerequisites are met. This case underscores Delaware’s willingness to grant specific performance in a variety of contractual settings—here, a technology term sheet—where a party demonstrates that a valid contract exists, the party is ready, willing, and able to perform, and the balance of equities favors the remedy.³⁵ Vice Chancellor Zurn indicated that specific performance was not merely available but may be the only workable remedy in this instance. Parties entering into IP licensing and technology development agreements should carefully consider whether specific performance would be tolerable before agreeing to provisions—such as automatic escrow release—that could expose them to forfeiture of their entire IP portfolio. To mitigate this risk, remedy provisions should be drafted to affirmatively address concerns related to specific performance.

Footnotes

1. Candor Compass LLC’s Pretrial Brief at 1–3, Candor Compass LLC v. iDentiVisuals SRL et al., No. 2024-1179-MTZ (Oct. 30, 2025) (“Candor’s Pretrial Brief”).

2. Id. at 1.

3. Defendants / Counterclaim-Plaintiffs’ Pre-Trial Brief at 3, Candor Compass LLC v. iDentiVisuals SRL et al., No. 2024-1179-MTZ (Oct. 30, 2025) (“iDentiVisuals’ Pretrial Brief”).

4. Cox Commc’n, Inc. v. T-Mobile US, Inc., 273 A.3d 752, 761 (Del. 2022).

5. Post-Trial Oral Arg. Tr. at 70:13–14, 70:24, 71:1–5.

6. iDentiVisuals’ Pretrial Brief at 7.

7. Id. at 8–9.

8. Candor’s Pretrial Brief at 8–9.

9. Id. at 9.

10. iDentiVisuals’ Pretrial Brief at 11–12; Candor’s Pretrial Brief at 22.

11. Candor’s Pretrial Brief at 12.

12. Id. at 12–19.

13. Id. at 15.

14. iDentiVisuals’ Pretrial Brief at 13.

15. Candor’s Pretrial Brief at 20.

16. Id. at 41.

17. Id. at 33.

18. Id. at 29, 33.

19. Id. at 25–27.

20. Id. at 29.

21. Candor’s Pretrial Brief at 33–34.

22. Id. at 34.

23. Id. at 38–39.

24. Id. at 41.

25. Id. at 29.

26. Id. at 43.

27. Id. at 50–52.

28. iDentiVisuals’ Pretrial Brief at 24–27.

29. Id. at 25.

30. Id. at 13–16, 26–27.

31. Id. at 33–34.

32. Post-Trial Oral Arg. Tr. at 70:13–14, 70:24, 71:1–2.

33. Id. at 71:2–5.

34. Id. at 72:6–11.

35. See Fortis Advisors, LLC v. Krafton, Inc., 354 A.3d 906 (Del. Ch. 2026).

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