Don't Crush that Cross-License: Negotiate a Business Deal
(left: my first 2-wheeler on which my grandfather, the sign-painter, inscribed my name)
Exploring Different but Compatible Interests
Lax and Sebenius suggest that many negotiators "simply assume their interests to be the opposite of yours -- rather than different and potentially compatible."
You cannot, however, simply instruct the parties to search for different but compatible interests. The mediator needs to listen long and carefully for the needs and concerns that are driving the parties' legal positions.
But First, a Little Reactive Devaluation*
You'll recall that the parties to my hypothetical patent infringement action had already made lists of extremely valuable non-economic benefits that they might exchange with one another to resolve the dispute. They soon pushed those bargaining chips aside, however, quickly reverting to purely monetary issues.
Why do litigants abandon business opportunities more valuable than their total monetary demand? "Reactive devaluation." **
Money seems objective and certain while the value of intangibles is imprecise and risky.
Non-quantifiable benefits are greeted with the suspicion one reserves for the street vendor hawking Louis Vuitton handbags. This apprehension is probably expressed by litigators more often than any other professionals -- "if he wants it, it can't possibly be good for me."
** I learned everything I know about the social psychology of conflict from University of Missouri Law School Professor Richard Reuben. This is one of his best and most comprehensive Power Point Presentations. Take a look when you have a moment. Learning social psychology is is like hitting the "reveal codes" key in WordPerfect or seeing the matrix: your entire conflict-life is mapped, graphed and revealed. Thanks again Richard!
Back to Different but Compatible Issues
As we continued discussing royalty percentages each party was striving to achieve, both parties began to state their reasons for wanting them to be low (the defendant) or high (the plaintiff). Late in the afternoon, both parties handed me the key to resolution.
"We can't pay royalties that high," said the Mosley team. "Our profits are razor thin already. We've only been selling this model of bicycle for a year. It's a start-up product. If we paid the royalty the De La Hoyas are seeking, we'd be out of this niche in six months. We might be able to pay a larger percentage in a few years, but not now."
When I returned to the De La Hoyas' caucus, they were in full reactive mode. I told them about the razor thin profit and warned them about cutting a deal that is "too rich," i.e., one that will cause their licensee to fail, depriving them of the anticipated income stream from quarterly royalty payments.
"They're lying," said the negotiator. "We know what they're up to. They're waiting for this patent litigation to be over. Then they'll uncork the stopper. They've been holding back. They'll be making tens of millions and we'll get the crumbs. No way."
I excused myself to check with the other side.
"What are your expansion plans?" I asked. "Are you getting ready to flood the market with your bikes?"
The Mosley negotiator laughed. "They think I've got some nefarious plan to out maneuver them, right?"
I didn't respond but continued looking at him quizzically.
"This will never be one of our major products. We don't expect to do more than $X in business in any given year. Ever."
"Ever?" I repeated.
"Ever," he responded emphatically.
The Parties' Perceptions about What the Other Was Holding in Its Hands Drove the Dispute to Resolution.
"Well," I responded to the Mosley negotiator, "then you wouldn't mind a stepped deal where royalties increase in the later years. By that time, you'll have secured your piece of the market and won't need so much capital. Right? "
I repaired again to the De La Hoyas' caucus.
"You think that the Mosleys are basically holding a winning Lotto ticket that they're going to cash in sometime in the next three or four years?" I asked.
"That's exactly what we think" the De La Hoya negotiator responded. "And we want to share in that wealth."
"How long do you think it will take them to develop the market you think they're planning to create?"
"Three or four years. Three, probably. Maybe four," he said, deep in thought now.
The Compatible Solution Based on Differing Views
"Since you want to be part of the windfall," I said to the De La Hoyas, and they need the capital to create it, how about taking a lower percentage royalty for the next three or four years and an increased royalty between years four and fifteen?"
I paused. "Allowing the Mosleys to accumulate capital to invest in increasing the market will benefit you in the later years as the Mosley market grows, no?"
The De La Hoya negotiator remained silent, making calculations and re-calculations on the legal pad before him.
"They'd never agree to that," he finally said.
"Let me see what I can do," I responded.
Back in the Mosley room, I suggested that the De La Hoyas might be willing to take a smaller percentage of Mosley's sales in the early years to assure that they had sufficient capital to grow their own business, benefitting both parties, particularly in the later years.
"When you're rolling in dough in year four or five," I said to the Mosley negotiator, "the De La Hoyas will want a bigger piece of the action."
And so the parties settled and lived happily (?) ever after . . . .
As Lax and Sebenius conclude in "Getting the Best Deal"
solving the other party's problem is very much part of solving your own. Having done a deal diagram and having assessed the full set of interests and Batnas, your strategy is to shape how they see their basic problem such that, for their reasons, they choose what you want.
The goal is to create and claim sustainable value.
Superb deal makers instinctively understand Francois de Callières, an 18th century commentator, when he described a negotiation master as possessing
the supreme art of making every man offer him as a gift that which it was his chief design to secure.
The bicycle patent case didn't settle immediately after this conversation, but the rest of the negotiation was largely about details. And once those details were resolved, the parties were sufficiently satisfied with the result that they were ready to enter into an on-going post-litigation business relationship.
And settlement rarely gets any better than that.