This past year I've negoitiated licensing deals, partnerships, patent infringement settlements and buyouts. Some have been intense and acrimonious with expletives and threats flying at me and my partners. Others have been easy and friendly. In all of them I followed sage advice I received from my Uncle Jesse nearly 25 years ago: know what you need before you start, know what "yes" will be and try to get a little more.
The biggest danger in a negotiation comes from worrying about what the other guy is getting, worrying that his slice of the pie is too big. If you do that, the odds are good you'll blow a great deal and possibly much worse.
Here's an example from this past summer. My company, call it Mike-Co, licensed patents to ABC-Co. The products made by ABC with Mike's patents were very successful, successful enough to be knocked off by XYZ-Co, a Fortune 100 corporation. With permission from Mike, ABC sued XYZ for patent infringement. After two years of legal wrangling back and forth, one week before the trial was set to begin, ABC and XYZ reached a settlement in principle. The judge was informed of the settlement and was happy because it meant that he could avoid time spent on a trial and move onto the next case. All that needed to be done was for a formal settlement agreement to be drawn up and signed by ABC and XYZ and Mike-Co. Mike had to sign the settlement because Mike owned the patents.
Up until this point Mike wasn't informed of anything. Now that the deal was essentially done, ABC wanted Mike to just go with the flow. And Mike would have gone with the flow except for one thing. The deal ABC had agreed to seemed to give XYZ the right to knock off the patents legally. Mike's royalties would go to zero. ABC didn't see things this way. But to Mike it was crystal clear. Signing the formal settlement as written would be signing its own death warrant. Mike wasn't going to do that no matter what. The phone calls and emails went something like this:
ABC to me: Are you a ____ng idiot? We already agreed to this and we're not going to renegotiate it. If you don't sign it as is, you'll be explaining to a Federal Judge why this deal isn't happening, you'll be facing XYZ Co on your own. It'll cost you millions of dollars and you'll lose.
Me to ABC: We aren't objecting to the tentative settlement, we're objecting to the details of the FORMAL settlement (75% true). I have no problem explaining to a judge what's happened here (100% true). We'll find a way to proceed on our own (100% true but only 25% likely).
ABC: You know we have no problem suing people and that we love to fight.We'll sue you.
Me: You'll do what you'll do.
And so it went for 5 days straight. We stuck to our guns. On the day before the settlement had to be presented to the judge, both ABC and XYZ agreed to do what Mike insisted on. And Mike got everything it needed... and a little more.
*The Mike-Co/ABC licensing deal specified that ABC would pay for patent litigation. Patent litigation can take years and easily cost upwards of three million dollars for each side, even on something simple like Mike-Co's patents. XYZ assumed that ABC couldn't afford the cost of carrying out the litigation. But ABC had a good case and found a good law firm to take it on contingency. Both sides dug in and the case moved forward. As a patent case moves forward there are different hurdles to be jumped before the actual trial starts. Each hurdle presents an opportunity to negotiate a settlement. In fact the judge usually mandates that a settlement discussion takes place at every hurdle - Along the way the judge makes decisions and voices opinions that may change how each side thinks about its odds of winning at trial.
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