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Negotiation: When What You Hold Can Make the Other Guy Fold

A couple of years ago I had one of my greatest thrills as an attorney.

My client owns several patents covering ways to improve the efficiency of certain types of lasers. We had succeeded in licensing a large company for one field of use. We were trying to sign up another company for a second field of use.

All business and legal issues had been resolved when, at the last minute, the licensee’s General Counsel demanded that my client convey, in addition to the patent license, certain broadly-defined rights to my client’s know-how. We refused, explaining that know-how never was part of the discussion, and if my client ever was interested in conveying know-how, it would come at a price. The parties then reached final agreement without the know-how provision.

Trying to Change the Deal

We expected to receive a signed agreement from the licensee shortly thereafter. When it did not arrive, we contacted the licensee. The GC said that he still wanted the know-how, so he would give us a choice: Either the licensee would wait to sign the agreement until it obtained the know-how elsewhere, or my client would have to accept a provision allowing the licensee to terminate the agreement at any time if the licensee could not obtain the know-how.

I advised my client to reject the licensee’s conditions. In response, I sent the GC a short e-mail: “[My client’s] offer to proceed on the agreed-upon terms will expire this Friday, May 18, at 5:00 pm Pacific Time.” The GC was not happy. On May 17, he replied “Now…you have issued an ultimatum requiring us to bear the risk that…we must still pay the fees under the License Agreement (for a license we would be unable to use). I hope you can understand…we do not feel this is a reasonable request, and it is a difficult one for us to accept.”

Calling His Bluff

At the same time, the licensee’s business executive asked whether we could have an all-hands telephone conference the next day (May 18) before 5:00 p.m. I said no. I realized that the deadline was working in our favor: The licensee was in no position to back out of this deal, having already committed significant resources to a project that would require the license.

On May 18, at 4:52 p.m. – eight minutes before the deadline – the G.C. sent the following e-mail: “Attached is an executed copy of the License Agreement in the PDF form provided by Dana….Once we have received the countersigned Agreement, we will process the Initial Payment….”

My client was as delighted as I was. I was pleased to offer the right counsel, but to me the correct response was obvious. An in-depth understanding of the transaction told me that our position was reasonable from the business and legal perspectives, while the licensee’s position was overblown from the legal perspective and untenable from the business perspective.

Here are some thoughts that you might find helpful in any negotiations, especially if the stakes are high:

  • Make sure that your legal and business strategies are consistent with one another.
  • Know which points are so important that without them you will walk away from the deal.
  • Know when the other party is so committed from the business perspective that you can bring the transaction to a close by saying “take it or leave it.”

Dana H. Shultz, Attorney at Law? +1 510 547-0545? dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.

Contracts, Negotiation