Don't Cut that Patent in Half: Negotiate a Business Deal
As promised, we bring you Step Three from the Lax and Sebenius article, the "Art of Getting the Best Deal.
Bringing the Deciders and Assessing Party Interests (a Brief Review)
Yesterday we stressed the importance of identifying the "deciders" and those who might get in the way of the deciders' decision (the known unknowns and the unknown unknowns).
Today, we apply those principles, along with the third Batna step, to a hypothetical patent infringement mediation.
Because litigators are trained to organize party interests around legal theories and business people to organize their own thinking around commercial interests, your mediator should be facile with both. At some point, the mediator should assist the parties and their counsel in shifting their attention from litigation "interests" (costs, merits) to business and marketing interests.
Because there are thousands of ways to make a deal and only a handful of legal remedies to resolve a dispute.
MARKETING MOMENT: Hiring a mediator
fluent in the language of party interests and knowledgeable about the industry in which the parties are working will greatly assist everyone in crafting a business solution to a legal problem.
The Patent Infringement Dispute
The patent infringement action being mediated was relatively simple. All of the disputants claimed that their products infringed one another's utility patents in the fabrication of high-end mountain bikes.
The first mediation day consisted primarily of shuttle negotiations and pure distributive bargaining. We settled the two simplest claims by mid-afternoon, thus clearing the decks for De La Hoya/ Mosley square off.
Feelings were running high between the two remaining contenders. Not only was each side accusing the other of maliciously wilful infringement, the attorney for the De La Hoya group repeatedly predicted complete victory for his championship team.
The Cool-Down/Bonding/Entrepreneurial Joint Session
Before the parties can begin to identify their business interests with clear heads, it's important for the mediator to give them the opportunity to cool down, take a deep breath, and, stop villifying one another. Though the mediator can "channel" party intentions in separate caucus, it is almost always best to let the parties have face to face discussions about resolving their mutual dilemma.
Before the Mosley and De La Hoya litigation teams left for the day, I therefore suggested a joint session in which they could briefly explore potential cross-licensing and other marketing opportunities that would put both in a better position than they had been in prior to the litigation.
Though reluctant to do so, once the parties sat down across the table from one another, their natural tendency to find commonalities trumped their adversarial mind set. After discussing mutual prior negative patent litigation experiences, the litigants left the first session smiling, patting one another on the back and calling each other "bro."
Step Three A : the Theory of Assessing your Batnas
Once again, I'll let Lax and Sebenius supply the theory:
Our Harvard colleagues Roger Fisher and Bill Ury coined the acronym Batna, or "best alternative to negotiated agreement" to describe the course of action you would take if the proposed deal were not possible.
Your Batna may involve anything from walking away, to approaching another supplier, to bombing Serbia. The value of your Batna . . . sets the threshold of the full set of your interests that any acceptable agreement must exceed. Not only should you assess your own Batna, you should carefully analyse that of the other side.
Consider improving your Batna; be careful not to worsen it. Not only do Batnas define the minimum conditions for a deal but also enhance the ability to "walk away", a factor often associated with negotiating influence. The better your Batna appears both to you and to the other party, the more credible your threat to walk away. Instead of further refining your tactics at the table, you should sometimes act away from the table to improve your Batna.
Step Three B: the Practice of Assessing Your Batnas
As requested, the parties came to the second session with proposed business plans. In the interim, however, hostility had once again arisen. The De La Hoyas refused to be in the same room with the Mosleys. Their attorney once again predicted "complete victory" (said he, "I'm never wrong.")
Predictably, the De La Hoya negotiating position had hardened. They were little inclined to abandon their (frankly unworkable) asserted bottom line.
Though litigation and trial (oh the cost! oh the uncertainties!) constitute one possible Batna, it is the Batna of fear; not the Batna of opportunity.
Fear, you might recall from your college psych class, triggers the brain's flight and fight responses, draining blood from the higher cognitive functions to the amygdala -- the brain's "reptilian" center.
I avoid attempting to scare the parties into settling a case. When parties settle litigation because they are afraid of trial, they tend to be unhappy and fractious. When they strike a business deal that satisfies more of their commercial interests than a trial victory could, they tend to be happy.
Lawyers want happy clients and clients want effective lawyers.
Here, the positive Batnas were plentiful.
One party had a more extensive distribution network than the other (and the weaker legal position). The other party, with the stronger chance of prevailing at trial, had regulatory contacts from which the other could greatly benefit.
Both parties faced continued illegal competition from a foreign market that "reverse engineered" the patented fabrication process. The parties' separate and shared markets were being undermined by the illegal competition and the reputational damage done by inferior infringing products.
The party with the smaller distribution network needed capital to expand into a larger one. The other possessed that capital. One party suggested funnelling capital to its opponent in royalty payments at a relatively high level in the early years, tapering off in the later years.
As we were nearing the completion (in separate caucuses) of the lists of benefits each party might provide to the other, the De La Hoyas once again dug in their heels and reverted to discussing the merits of suit.
"Reality Testing" Legal Theories and Factual Assertions
I didn't want to be dragged back into the seemingly endless reasons why the De La Hoyas would prevail at trial. The mediator may be able to diminish the clients' expectations of probable success on the merits (usually in collusion with their counsel). But sparring with an advocate over factual issues and legal theories is not likely to get anyone anywhere. The mediator, you'll recall, has been familiar with the facts and law pertinent to the case for several hours. Counsel has been thinking about it for years.
Therefore, I tend not to argue with counsel who are confident of their case analysis. Even if I score a point, another will replace it. Arguing legal positions is like playing Whack-a-Mole. Hammer one down and another pops up somewhere else, usually increasing the parties' confidence of their ability to prevail.
So in response to counsel's assertion that his clients were "certain to win," I simply looked the De La Hoya negotiator in the eye and said, "breathe in, you win, breathe out, you lose, breathe in you win, breathe out . . . . . . . . "
Everyone laughed, breaking the tension and eliminating the grip that legal positions were having on the De La Hoyas.
"So true, so true," said the negotiator, obviously thinking back on his own history of "wins" and "losses."
We were ready to move on to step four -- solving the joint problem.