During the negotiation it’s also important to pay attention to the process. First, it is important to remember that driving for the very best deal possible can be fatal. You can win the war and lose the battle. P&G found this out when they were negotiating for technologies from small entities. Because of their size they could drive a very good deal, but unfortunately one that was not profitable enough for the small entity to stay in business and transfer the technology that P&G needed. Another element to pay attention to is to beware of the average. Most technology is unique for the intended application of that technology. Make sure when looking at deal terms and comparable royalty rates, don’t focus just on the average, but the range that is been successfully used, when considering starting points for good deal. Additionally communications are important. Within your own team make sure you know what you want. If you really don’t know what you want you can’t expect the other side to create a deal that’s good for you. Conversely with the other side make sure you really know what they want. Guessing always leads to bad solutions. Finally you do not want surprises during negotiations or afterwards. You want to understand the assumptions. Ask questions and probe issues.
As said before negotiations are an opportunity to learn how to work together. Negotiations are preview of how you will work together after the deal is signed. It’s important to understand and appreciate your partner’s style and culture. During a negotiation share concerns and frustrations: make it a safe environment to be candid about issues.
Successful deals capture the business needs of both parties. The form of the deal has to reflect how the parties really will function together. Remember that specific structures can mean different things to different parties. For example joint venture can mean either sharing economic risk and benefit or sharing operational control. These are quite different so it’s important to make sure both parties understand what they mean and are competent to participate in the form selected. Again remember that a business structure can take many legal forms, joint venture for example can be either a new corporate entity, partnership, or contract. These different forms require quite different competencies from the parties.
Member that at some point the deal will be done it will turn into an alliance management problem. As such make sure it’s possible to keep continuity between the negotiation and management teams. The alliance management team must understand the key performance terms. Key are regular and frequent communications between the teams and parties. Being open, focused and sharing information on issues (both good and bad) as they arise is essential for win-win relationships. It’s important to be responsive. It’s much easier to work out problems when they arise and are still small.
Also during negotiations it’s important to contemplate what might happen if things don’t work out as planned. Most collaborations are not intended to last forever. It’s important to put in place sensible dispute resolution depending upon they culture and geographies of the parties. Consequences of termination should always be clear with respect to the intellectual property, payments, and products.
Quantitative and qualitative analysis of appropriate royalty licensing terms will be proposed and modified throughout the negotiation process. This review will require fundamental analysis such as discounted cash flow, scenario probability studies, and reviewing comparable licensing agreements. License terms should be consistent with the organization’s overall business strategy.
There are number of good commercial sources for obtaining royalty rate information (see references). It is strongly recommended they be used for any negotiation. The price for such information is modest compared to the impact it can have on facilitating a win-win negotiation.