Topic 18

Negotiations Skills and Case Studies

WIPO-KIPO-KIPA IP Panorama Business School Investment Summit
9 October 2008
Geneva

OPTEON
Philip Mendes

Level 3, 33 Queen St
Brisbane QLD, Australia
Ph + 61 7 3211 9033
Fax + 61 7 3211 9025
philip@opteon.com.au

Negotiation: A Counter-Intuitive Process

Something of a provocative title
Title comes from remarks made by participants at some of my
negotiation workshops
thats the opposite of what I do
I know I should do that, but I find myself doing exactly the
opposite
Its counter-intuitive
What are people saying ?
They recognise the prudence of a particular strategy
But they find it difficult to implement it
Their natural inclination is to do the opposite of what they recognise
is the prudent strategy

Intuitive Counter-Intuitive
What are
some of the intuitive things we do in a negotiation
the counter-intuitive thing we might consider as an alternative ?
Automatic gear

Shift into manual

Focus on Positions

Focus on interests

Dive into the negotiation

Defer the negotiation to a time of our own

choosing, gather information first

When our proposals are rejected,

justify and defend them

Ask why our proposal doesnt work, and

gather information

When a proposal is made to us that

is unacceptable, rejection

Instead of rejecting, ask why their proposal

is important, and gather information

Fisher & Urys Getting to Yes

Main theme:
Focus on interests instead of
positions
Position is a proposal
Likely to be rejected
Interest is the why of the proposal
what is sought to be achieved
There may be multiple ways
of achieving that interest
This perspective in a negotiation
is counter-intuitive

Focus on interests instead of positions

Bargaining over positions
Negotiators lock themselves in
The more we clarify and defend our position, the more committed we
become, and the more we lock ourselves in
The more we convince the other party of the impossibility of changing our
position, the harder it becomes to do so
As more attention is paid to positions, the less attention is given to the
underlying needs of the parties
We start with a higher position to increase our chances of a favourable
outcome, which stresses the negotiation
Makes the negotiation inefficient
Stresses relationships which also makes the negotiation more difficult

Focus on interests instead of positions

Bargaining over positions
Becomes a contest of will
Positions results in negotiators yielding, leaving one with a win and
the other with a loss
Negotiations become a series of wins and losses
One side or both sides have a giving in feeling
The negotiation becomes a series of giving in points
May result in anger and resentment
Bargaining over positions is bad enough where there are 2 parties in a
negotiation
Significantly worse when there are multiple parties 3, 4, 510 parties
in a negotiation, each competing to put their own position

Focus on interests instead of positions

Whats the alternative ?
The parties may perceive that their relationship is a conflict of positions
Natural therefore for the parties in their negotiation to state and restate
positions
Positions lead to conflict and impasse
We want to avoid conflict and impasse
Interests are the motivator
Positions is how they are expressed
Challenge is to look beyond the position, recognise the interest, and explore
how it can be addressed

Focus on interests instead of positions

Position

Position is the pathway

Pathway 1
Pathway 2

Interest

Pathway 3
Pathway 4
Pathway n

Focus on interests instead of positions

A position
identifies
only one
pathway
forward
An interest
usually
identifies
several
pathways
forward
Pathway in
common is
the
solution

Solution

Acceptable to one party

Pathway 1
Pathway 2
Pathway 3
Pathway 4

Acceptable to other party

Pathway n

Focus on interests instead of positions

Be hard on interests, and soft on positions
Be committed to our interests being met
But be soft on our position on how to meet that interest
Our interest is the motivator
Not necessarily the pathway to achieve it,
may be unwise to be committed to a specific pathway
Be hard in negotiating our interest
But be flexible on how that interest can be achieved
Chances are that during the negotiation,
We may identify more pathways
The other party may identify more pathways
any of which may be acceptable, or even better

Focus on interests instead of positions

How do we identify interests ?
Use the language of ascertaining their interests
Can you explain how
that achieves what you
need

Can you help me

understand why thats
important to you

Let me see if I
understand. You
want that
because (you
state in your
words)

I dont understand
how that will work,
can you explain it to
me

Focus on interests instead of positions

How do we identify interests ?
Use the language of communicating our interests
What we need to
achieve is (your
interest not your
position)

Whats
important to
us is(your
interest
not your
position)

Were open to
doing this in any
number of ways
that achieves
(your interest
not your
position)

Can you think of any

ways, without downside
for you, in which we can
(your interest not
your position)

Focus on interests instead of positions

Proposal

Licensor / Seller of Product

Licensee / Distributor

Licensee / Distributor must

achieve minimum worldwide
sales targets of 300K per year or termination

No.

Focus on interests instead of positions

Licensor / Seller of Product

Licensee / Distributor

Proposal

Licensee / Distributor must

achieve minimum worldwide
sales targets of 300K per year or termination

No.

Interests and
Needs

Needs to ensure achieve a

minimum financial return

Needs sales targets to be realistic

and achievable so as not risk loss
of rights.

Needs to be able to appoint

alternative licensee / distributor
if not achieved

Focus on interests instead of positions

Licensor / Seller of Product

Licensee / Distributor

Proposal

Licensee / Distributor must

achieve minimum worldwide
sales targets of 300K per year or termination

No.

Interests and
Needs

Needs to ensure achieve a

minimum financial return

Needs sales targets to be realistic

and achievable so as not risk loss
of rights.

Needs to be able to appoint

alternative licensee / distributor
if not achieved

Ways to
Same as position minimum sales targets of 300K / year
Achieve them Sales targets holiday Year 1, followed by 300K / year each year
Sales target holiday first 6 months, followed by ramped up
minimum sales each year
Enter into a sub-distributorship agreement in a critical segment
of the market

Focus on interests instead of positions

Intuitive step in a negotiation:
To make proposal of what we want
Counter-intuitive step in a negotiation:
To explain what we need to achieve from the relationship the why of the
proposal
Starts a dialogue about
the interests of the parties
what they respectively need to achieve
That dialogue likely to identify or suggest proposals that can be made that
are responsive to the respective needs of the parties
are therefore more likely to be accepted

Diving into a negotiation

Intuitive approach to a negotiation is to make proposals
Our proposals
To us are self evidently fair and reasonable
We make the proposal, and sit back and expect the I agree
response
We are then taken aback when the I agree response doesnt come
We expect proposals to be made in a negotiation
Making proposals is what a negotiation is all about

How can they

possibly disagree
with this ?

Diving into a negotiation

First step
start haggling
royalty terms, milestone payments, upfront payments
or a price of products
But may that be premature ?
Do both parties share a common understanding / expectation
Can expectations be influenced
By establishing rapport?
By talking about the pathway forward ?
By talking comparable deals ?
Similarities in other deals
Other deals that may influence the financial terms ?

Diving into a negotiation

By diving into a negotiation prematurely we may be denying ourselves the
opportunity to
Prepare thoroughly
Establish rapport
Inform the other party about things that may influence their expectations in
our favor
Gather information about the other party that may
Influence the proposals we make to the other party
Influence our expectations
So that they are higher than otherwise
So that they may be more realistic
Consider deferring the negotiation until after
information gathering (what we can learn from the other party)
Information sharing (what we can inform the other party)

Diving into a negotiation

Instead of diving in establish rapport
What is rapport?
A feeling of being in sync or on the same wave length
Rapport, or the absence of rapport is a main determinant of whether people
develop a trusting relationship
Trust one another to share or not share information
Trust one another to be frank and open or less frank and open in a
discussion
Trust one another in what the other says, or whether they feel that it may
be bluff
People who have done deals together before, who have
established rapport
established some trust and confidence in each other
do a better and faster deal than otherwise

Diving into a negotiation

Establish rapport
Rapport facilitates communication
When people know each other they can more quickly
Communicate information
Identify options for solutions
Converge on a solution or an outcome
Establishing rapport involves getting to know the other partys individuals
Not from a dishonest perspective, nor to take advantage of the other party
From the perspective that getting to know the other individuals in a
negotiation will be beneficial to both sides in a negotiation
There is mutual benefit in getting to know each other

Diving into a negotiation

Establish rapport
Liking
People like those who like them
If we are liked by someone, they will
listen to us
register what we say
want to explore ways to help us achieve our needs and interests
be receptive to accommodating our needs and interests
Antipathy the opposite of liking
Results in the opposite behaviour
Other person will not
listen to us
register what we say
want to explore ways to help us achieve our needs and interests
be receptive to accommodating our needs and interests

Diving into a negotiation

Establish rapport: Northwestern & Duke Universities experiment

146 students involved in negotiation experiment

Negotiation for the purchase of a car

Students were paired

Half the students had an initial getting to know you phone call
Remaining half the students did not have that phone call
All other communications, in both groups, were by email

In the phone call, students developed a rapport with each other

Talked about themselves, their universities, their interests and hobbies,
sport etc
They got to know one another
In their emails they kept up that same dialogue remarking about a recent
football or basketball match as well as doing their deal
Ie, they continued their rapport

Diving into a negotiation

Results:
In rapport group:
Majority felt that they could
trust the other person
Majority felt satisfied with their
deal
Majority felt that they had done
a good deal
Majority would do another deal
with that person
A small number felt ripped off

Results:
In non-rapport group:
Majority felt that they could not
trust the other person
Majority felt dissatisfied with their
deal
Majority felt that they had done a
bad deal
Majority would not do another
deal with that person
A large number felt ripped off

The group which did not have that rapport opportunity were 4 times more
likely to have their negotiation fail

Diving into a negotiation

Use the first meetings of a negotiation to ask lots of questions
Use the first few meetings as information gathering opportunities
Find out
more about the other party
their interests and needs
the extent to which they know or appreciate our interests and needs
The more questions we ask
the more information we gather about the other party
the more we understand their position and their objectives
equips us to make proposals of our choosing that are more likely to be
accepted

Diving into a negotiation

Use the first meetings of a negotiation to ask lots of questions
With each question we ask we will be better informed
How does that help us?
We now have a better means of navigating how to achieve our own needs
and interests, having regard to our better understanding of the other partys
needs and interests
We can now formulate proposals
that are more likely to blend in with the other partys objectives
that are therefore more likely to be accepted
The more we know about how to help the other party, the better equipped we
are to make proposals that achieve our own needs and interests as well as theirs

Diving into a negotiation

Use the first meetings of a negotiation to ask lots of questions
Open ended questions are questions that require more than a Yes or No
They are questions that oblige the respondent to volunteer information

What do you want

to achieve out of
our relationship ?

How would you

feel about us
looking at it from
this perspective

What do you hope

to achieve out of
todays meeting

How would it
work if we were to
consider?

Can you help me

understand why
that is important to
you?

What would be
your thinking on
this?

Diving into a negotiation

Use the first meetings of a negotiation to ask lots of questions
Open ended questions
are not proposals, nor positions
are hypothetical what ifs
facilitate exploring interests and needs
Help to set a climate or mood of cooperation and collaboration in the
negotiation
Help to elicit responses that make us better informed
To evaluate the other party
To appreciate its interests
To formulae proposals that work for us, and which are responsive to the
other partys needs and interests and therefore more likely to be accepted
by them

Diving into a negotiation

Case study
Proposed license of a novel more efficient delivery system for a drug already
on the market, and off patent
Second phone call with the interested licensee
First point made by the interested licensee
What are the royalties and other terms you expect?
Licensees perspective:
that we were a desperate licensor
Commitment on financial terms at such an early stage likely to be when
licensors resistance was lowest, and when it was most likely that licensor
would proposed modest package of financial terms, which the licensor
could then negotiate down
Licensors perspective
Value of the IP dependent on exactly what the clinical pathway would be

Diving into a negotiation

The management team requires that I assemble a briefing document before
it can sign off on financial terms that I can afterwards suggest for
consideration.
Can you help me with that briefing document by helping me understand:
1.Scope of further R&D work to be undertaken
2.Work Plan of for that R&D (toxicology, animal studies etc)
3.Timeframes for the above
4.Anticipated clinical pathway (are phase I, II, and III trials all required,
or might regulators be relaxed and allow phase I or II to be short trials, or
even jump straight to phase III)
5.Your proposed marketing strategy and market roll out
6.Will you be partnering outside Europe ?
7.Your assessment of the market.

Diving into a negotiation

Educate instead of negotiate

Sometimes the negotiation is not a negotiation at all
Instead its an education
The other party may not be aware of
The landscape within which we operate
Forces that impact upon our expectations
The other party may be
inexperienced
unfamiliar with normal models for the deal that we are about to do
Need to educate more than negotiate
Results in understanding, rather than a negotiation
Not doing that means that we and them are each working from different
reference points
That impedes the negotiation

Diving into a negotiation

Educate instead of negotiate
Who needs to be educated ?
Not just the individuals at the negotiating table
Consider other stakeholders who need to be educated as well
Who are the decision makers who need to be educated
What do we educate them about ?
The technology?
The landscape of the technology ?
The landscape of the deal ?
The environment for doing the specific type of deal being negotiated
Benchmarked transactions ?

Diving into a negotiation

Educate instead of negotiate
Ozgene makes transgenic mice for drug target validation
Customers are large pharmaceutical companies, research institutes in US, Europe
and Japan
Customer provides gene sequence for human gene of interest
We knockout the gene (that is, delete it from the mouse genome) (as well as knockin
in specific locations, or randomly)
Standard T&Cs contained clause that customer indemnifies Ozgene against any
claims arising from the generation of the mouse strain and the delivery of transgenic
services to customer infringing third party IP rights
Some customers request deletion, or that the clause be reversed, that Ozgene provide
that indemnity to the customer
We needed to educate our customers
Board adopted a policy that explained why Ozgene couldnt provide indemnity, and
why we needed the indemnity from the customer
In a nutshell only customer could know whether the requested gene of interest
(there are 40,000+ human genes) infringed third party IP rights
Board Policy would be provided to customer
Customer would invariably not press the request

Diving into a negotiation

Intuitive step in a negotiation:
To dive into the negotiation
Counter-intuitive step in a negotiation:
To defer the negotiation to a time of our choosing
Why would we want to do that ?
What do we do in the meantime ?
Establish rapport
Inform the other party about things that may influence their expectations in
our favor
Increase the likelihood that their proposals will be acceptable to us
Gather information about the other party that may
Influence the proposals we make to the other party
Increase the likelihood that our proposals will be acceptable to the other
party
Educate the other party about our interests and needs

Defending our rejected proposals

We believe our proposals are fair
We are taken aback when our fair and reasonable proposal is rejected

Our automatic gear reaction

How can they

possibly disagree
with this ?
They must not have

We
understood Ill have
Justify
to repeat it
Present supporting data and arguments
We entrench our position
The more we entrench our position
The more difficult it is for us to step back from it we dont want to
appear weak

Defending our rejected proposals

Intuitive step in a negotiation:
To defend and justify our rejected proposals
Counter-intuitive step in a negotiation:
To ask for criticism of our proposals

Can you help me

understand why
that doesnt work
for you?

What do we achieve?
We get the other party to tell us what their needs and interests are
We provide information about us to the other party that we choose to give
Increase the likelihood that their proposals will be acceptable to us
Gather information about the other party that may
Influence the proposals we make to the other party
Increase the likelihood that our proposals will be acceptable to the
other party

Avoid rejecting their proposals

When a proposal is made to us that doesnt work for us, we reject it,
and make a counter proposal.
That wont work. I
suggest that

That starts a haggle

Proposal
Rejection and counter proposal
Rejection and counter proposal
Rejection and counter proposal
Rejection and counter proposal
Theres more to a negotiation than a carpet bazaar haggle

Avoid rejecting their proposals

Intuitive step in a negotiation:
To reject a proposal and doesnt work for us, and make a counter proposal
Counter-intuitive step in a negotiation:
To share information on why it doesnt work

Let me share with

you my thinking on
that

What do we achieve?
We provide information about us to the other party that we choose to give
Increase the likelihood that their proposals will be acceptable to us
We start a dialogue
In so doing we gather information about the other party that may
Influence the proposals we make to the other party
Increase the likelihood that our proposals will be acceptable to the
other party

Intuition Counter-intuition

Weve covered 4 things with this intuition / counter-intuition theme

1. Focusing on needs instead of position
2. Deferring a meeting to a time of our choosing
Establish rapport
Ask questions and gather information
Educate instead of negotiate
3. Not defending our rejected proposals (with the risk of entrenching
ourselves)
4. Not rejecting the other partys proposals to us (with the risk of a carpet
bazaar haggle)

The objective of doing that is:

Information
Information that we gather about the other party
Information about us that we choose to share with the other party

Information sharing and gathering

Information is said to be the currency of a
negotiation
Without information
That we might gather about the other party
That we might choose to share with the other
party about ourselves
we risk our proposals being aimless, possibly
landing anywhere
With information
That we might gather about the other party
That we might choose to share with the other
party about ourselves
we have an increased likelihood our proposals will
hit the bulls eye