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25 July 2017

Ten rules for principled negotiation

Academic technology managers rarely make the first offer and therefore relinquish the opportunity to establish the anchor and ceiling

Author: Lou Berneman, founding partner at Osage University Partners

Our daughter, it seems, emerged from the womb negotiating – our son, not so much. Today, she is still at it – as are her three daughters – and our son has learned when and how to negotiate for what he needs and wants. Becoming a skilled negotiator is achievable, regardless of personality type.

Here are 10 rules my daughter and the good folks at Harvard Law School’s program – Negotiation: Getting to Yes – and others, have taught me about effective principled negotiation.

Rule 1 – prepare and open positively

Like a lot in life, showing up prepared is important. A poorly prepared negotiator can only react. It is okay to see what the other party has to say, but only if you are prepared.

First and foremost in preparing is deciding whether the negotiation is a transaction, that is, a one-time event, such as buying a house or car. If it is a transaction, then principled negotiation guidelines do not apply. This is simply a bargaining event. It is you against them. Go for it. Get the best deal possible.

Or whether it is the basis of a continuing relationship, such as intellectual property (IP) licence collaboration or a consulting agreement. If the negotiation is the basis for a relationship, you should take time to prepare and act accordingly. Many IP licences and collaborations last longer than marriages.

The first step in preparing to negotiate is to learn about the counterparty – credentials, experience in licensing academic discoveries, and others’ experience with them. Are they members of a professional association, such as the Association of University Technology Managers (AUTM), Licensing Executives Society or ASTP-Proton? Have they earned a professional accreditation, such as certified licensing professional (CLP) or registered technology transfer professional (RTTP)?

If the negotiator on the other side has these attributes, then the prospect for a successful negotiation is excellent. If not, be prepared to explain:

  • The essentials of Bayh-Dole Act, the US legislation that deals with IP arising from federally-funded research.
  • Needs and wants in academic-industry licensing.
  • Flexibility on deal terms.
  • No flexibility on terms that might risk the institution’s reputation or endowment, that is, seeking assignment of patent rights, use of name, indemnification and warranties, secrecy and publication restrictions, beyond delay to file patents, and so on.

Be realistic in your financial expectations. Your goal is to get the technology out there to be developed and commercialised for the public good. You have no chance to win if you do not play. Every negotiation takes place in the context of the situation of the parties, circumstances of the negotiation and previous history, experiences, perceptions and biases.

Open positively. Try to enter the negotiation emotionally centred, courteous and amicable. Frankly, that is easier said than done for some people. If you are one of those people – fake it.

Ask and listen – do not tell. There is a reason you have two ears and one mouth. Seek to establish a productive beginning relationship before contentious issues arise, because they will arise. Begin the negotiation addressing terms to which both parties are likely to agree, for example, scope of the licence grant.

Rule 2 – good deals go bad, but bad deals never go good

Think of deals that just felt wrong from the very beginning. Were they successful? My guess is they were not. Thus, it is imperative that you be forthcoming in communicating your needs clearly and openly. Remember – needs, not wants.

Needs are your must-haves and things you cannot give up. Wants are things you would like to get – such as significant financial considerations. And do not be bashful about asking about the counterparty’s needs.

Bad blood resulting from unprincipled negotiation will often negatively impact the relationship. After all the hoopla and the signing, hopefully you will be living with each other for a long time. Be sure each party gets what each party needs. Terminating a deal is often difficult and, too often, only the lawyers win. Make the entire relationship and agreements workable. Do not be pressured to accept unworkable arrangements just to get it signed.

Rule 3 – make the first offer and set the anchor and ceiling

How do you set a value and price expectations? Who makes the first offer? What is the basis for the offer and price? How do you anchor value and price appropriately and make the first offer within a negotiation success range?

In my experience, academic technology managers rarely make the first offer and therefore relinquish the opportunity to establish the anchor and ceiling – the most the licensee will be asked to pay. That is a shame because setting a realistic anchor establishes one end of the negotiation success range. And a realistic anchor – not a high-ball offer – is hard to move. The converse is also true. A low-ball offer from a licensee is counterproductive in a principled negotiation because it damages the negotiator’s credibility and trustworthiness.

If you are comfortable with the technology and the IP, know the comparables, understand at a high level the market opportunity, be willing to share your valuation analytic framework – cost, market and income methodology. Research has shown that making the first offer effectively anchors the negotiation, sets a ceiling and establishes the basis for a successful negotiation outcome.

Rule 4 – negotiate key non-financial terms first

Non-financial terms are based on your needs and therefore should be negotiated before the financials. Financial terms, on the other hand, are your wants. You can be reasonably flexible on financial terms once you have achieved your non-financial needs. Key non-financial terms to be negotiated first include:

Scope of rights granted

  • Exclusivity
  • Field of use
  • Territory
  • Right to sublicense
  • Rights to improvements
  • Right to assign
  • Term

Right to manage licensed patents

  • Prepare
  • File
  • Prosecute
  • Maintain
  • Enforce

Risk management provisions

  • Representations
  • Warranties
  • Disclaimer
  • Indemnification
  • Insurance

Publication rights and restrictions

Diligence commitments

Information and audit rights

Sponsored research funding and other inventor wants

Use of name

Rule 5 – get paid every way possible, but be reasonable on price

After the parties have agreed to these essential non-financial terms, turn your attention to financials as they are customary and standard in the technology sector. For example, do not expect royalties on non-patented software. Expect royalties and sublicence revenue-sharing for IP and technologies leading to healthcare products – therapeutics, vaccines, diagnostics and devices – and never accept equity-only in healthcare-related licences.

Do not put all your eggs in one basket. Get paid every way reasonable. But remember, it is a relationship, so do not try to squeeze out every possible consideration. Likewise, licensees are often too smart for their own good. Fiercely negotiating price but forgetting about good will, good faith and fair dealing as well as forgetting that in all likelihood the licence will need to be renegotiated at least once is shortsighted.

Rule 6 – a concession easily granted is no little value

Ideally, you have considered areas of concessions and compromise in your preparation. While not necessarily tit-for-tat, concessions by one party should be acknowledged and rewarded in different areas by the other party. Compromise is a two-way street. Often, you will need to remind counterparties that concessions and compromises need to be reciprocal. Ask counterparties to explain and justify requests for concessions and compromises.

Rule 7 – do not negotiate against yourself

Do not – ever. Inexperienced negotiators – in both transaction and relationship situations – will too often respond to a refusal by moderating a request. Do not. Insist that the counterparty explain the objection, provide justification and make a counteroffer. Say and do nothing until a reasonable counteroffer has been made.

Rule 8 – silence is golden, patience and persistence pay

Research has shown that the first person to speak after a period of silence following discussion of a challenging issue loses. Good negotiators learn how to accept and be comfortable with silence – it is a powerful negotiation tactic.

Too many negotiators are insufficiently persistent. If there is good basis for an ask – financial or non-financial – by all means make it. If custom, practice or valuation methodology support your ask, be persistent. Explain, repeatedly if necessary, your assumptions and analytic framework. Persistence is an attitude of determination. Likewise, patience is a virtue in a negotiation. Be dogged in a rightful pursuit.

Rule 9 – always be closing and do not forget to celebrate

Sales 101 – always be closing. Throughout the negotiation, summarise and confirm areas of agreement as each is achieved. If you are so fortunate to have a summariser as part of the negotiating team, that is this person’s role. Ideally, end negotiations on an affirmative note and take the time to celebrate the beginning of a relationship.

Rule 10 – implement

Many tech transfer offices have a post-signing, recording or implementation protocol. Follow up as appropriate to obtain the necessary signatures and summarise the agreements and each party’s obligations. Advise key stakeholders and determine who and what are required to implement. Maintain contacts and relationships and plan for at least an annual review and highly probably future renegotiation or amendment. Experience indicates that virtually all performing academic-industry licenses are amended, often multiple times.

In summary, the keys to principled negotiation are:

  • Prepare as thoroughly as possible.
  • Open with a positive message.
  • Negotiate in a principled manner.
  • Close in an affirmative manner.
  • Implement effectively.

If you are a natural negotiator, think about these rules and use them. If you are not a natural and confrontation is difficult for you, think about principled negotiation as a process – learn the steps, implement them and you will see how natural they will begin to feel.

Today, my daughter is the mother of three of my five granddaughters. She is getting her share and more from her born-and-bred negotiators. Those three little girls are giving their mother a taste of her own medicine, constantly negotiating. It is too soon to characterise my son’s two daughters. They are both under two years old. But the older one, she is a pistol, and whether she is a born or bred negotiator, she is just too cute and gets her way.

The points noted in this article are part of a larger talk on negotiations provided by Louis Berneman to Osage University Partners’ academic partners. This is an edited version of an article that first appeared on Medium. It has been republished with permission from the author.

Copyright Mawsonia Limited 2010. Please don´t cut articles from or the PDF and redistribute by email or post to the web without written permission.

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