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Sometimes its Better Not to Negotiate #2
In the last issue of IP Bits we started to look at strategies that are alternatives to negotiating. Alternative #1 was Making the Other Party Better Informed, and Timing.
Alternative #2: Guide the other party to make meaningful proposals
So often in a negotiation a proposal is made and rejected, not because there is anything wrong with it, nor because it is contrary to the other party’s interests, but just because the other party sometimes feels that it has to get more than what is offered.
This can sometimes stress the negotiation, and impact on other parts of the negotiation. It can also lead to sub-optimal results.
An alternative to making proposals that may be rejected, negotiated and diluted, is not to make the proposal at all, but to guide the other party to making the proposal to you that you would have made.
The other party having made the proposal that you wanted, it has “ownership” of it. When you accept the other party’s proposal, it will feel good about it. Its sense of “ownership” also makes it unlikely it may later want to change it.
When the other party proposes what you would have proposed, and you accept, you get the result that you want, without it being diluted, and without having made any concessions.
So, how do you get the other party to make proposals to you that are meaningful, and exactly what you had wanted?
The answer is easy. Its harder to spot the opportunity to employ the strategy, and hard also to implement it.
You get the other party to make meaningful proposals, the proposals that you want, not by negotiating, but by giving the other party a problem to solve and enlisting it in a problem-solving collaboration.
How do you do that? This is achieved by giving the other party information about the problem you need solved. The more information you give, the better you equip the other party to invent a solution to your problem. It is important not to negotiate. It is also important not to reject the other party’s proposals or suggestions. Instead, express appreciation for those ideas – and give more information.
I recall an occasion when a prospective licensee sought a worldwide license. The licensor did not want to grant a worldwide license. It wanted to give the prospective licensee a license limited to Australia and South-East Asia. This was the region where the licensee already sold its products through its own operations and distributors. This was therefore the region where the licensee had capability. Beyond that region it did not have capability. The licensor was also aware that the licensee had previously tried to find distributors in the US for its products but had not succeeded.
The licensor could have negotiated whether the Territory should be the whole world, or a significantly smaller region. It anticipated the licensee to resist that, and perhaps to resent it. There was also the risk that resentment would impact on other parts of the negotiation. It would be much better for the licensee to itself suggest a Territory limited to the region of its capability.
The discussion went something like this:
Licensor: It would be wonderful to give you a worldwide license. It would be great to see you exporting all over the world to distributors everywhere. Do you already have distributors in the US and Europe?
Licensee: No, not yet. But we will find distributors, and we need the worldwide rights to be able to appoint them when we find them.
Licensor: We really hope you succeed in that. It will take some time. We will need to anticipate the possibility that you might succeed in one region, like the US, but not in another, like Europe.
Licensee: We’re committed to this and we will go all out to find distributors in all regions, including South America.
Licensor: That’s great. We had mistakenly assumed you would only want Australia and South-East Asia so we started working on a list of prospects for a North American license, and we’d be happy to share that list with you.
Licensee: That’s generous of you. Thank you.
Licensor: But we do need to anticipate that even if you try very hard its just not possible. I need to share with you another deal we did a few years ago. The situation was not unlike this one. A worldwide license was granted. The licensee tried so hard but did not get over the line. A European company approached us wanting a license. We referred it to the licensee. They could not make a deal. The European company wanted a license to manufacture and sell. The licensee would only consider granting it a distributorship. We asked the licensee to consider amending the license to reduce the worldwide Territory by excluding Europe so that we could grant a license for Europe. The licensee would not consider it. The university got pretty upset by that. There is still no licensee nor a distributor in Europe. Its going to be thinking about that occasion in relation to this license.
Licensee: So you want to be able to grant a license in other parts of the world. That restricts my rights to Australia and South-East Asia. What if the reverse happens, and I find a distributor to appoint in USA, but the University won’t agree to extend the Territory to cover the USA?
Licensor: That’s a good point. Can you think of any way that would deal with that?
Licensee: What about this? If I start to negotiate a distributorship agreement, or a sub-license with a specific company, and notify you that I’ve done that, then you must suspend actively looking for a licensee in the same region. And the reverse. If you notify me that you’ve started a negotiation for a license and notify me, I’ll stop actively looking for a distributor or licensee in the same region. And we would have to tell each other whether in the end the negotiation failed, or whether an agreement was signed.
Licensor: That’s a good idea. Let’s explore the detail of how to make that work…
the licensor presented a problem – how to ensure that the worldwide market was not neglected
the licensor challenged the licensee to solve the problem
the licensor provided more information – details of the previous transaction from which lessons were learnt.
the licensee offerred a solution.
The “nuts and bolts” of the licensee’s suggestion were explored and agreed.
The license was negotiated with the Territory initially being Australia, New Zealand, and the countries that were ASEAN members as at the date of the license. It contained mechanisms for the Territory to be extended automatically, without the need for another agreement, if the licensee entered into a distributorship agreement or sub-license in specific regions. It also automatically excluded regions from being available to the licensee if the licensor granted a license operating over that region. The mechanisms were quite straightforward and not at all complex. The license also contained the applicable additional financial terms in the event that the Territory was extended in accordance with those automatic mechanisms.
Over the next two years the licensor granted a license to a US company to operate in the Territory of North America and South America. The licensor also granted a license to a UK company in the Territory of Western Europe, Eastern Europe, and the Middle East.
Over the same period, the licensee granted a license to an Indian Company for the Territory of India. It also made a similar agreement with a Chinese company for the Territory of China, Japan, and North and South Korea.