Preparing to negotiate

Preparing to negotiate

1. A key to any deal is for each party to have an understanding of what they want from the deal. Thus, effective negotiation begins with effective preparation. Effective preparation includes assembling the right team, preparing a heads of agreement, defining guidelines for the process, negotiating honestly, and drafting the contract.

   • The Team
     • It will be formed by a Business Development Executive; a scientific / technical expert; a decision maker; and a license lawyer. Scientific and legal roles can be filled by multiple team members. The business development executive is often the leader of the team and is responsible for keeping the negotiation process moving and for ensuring that other team members comply with the assigned tasks.
   • Initial Team Meeting
     • It is important that the deal team meet and reach an understanding of the business motivation for the deal and the responsibilities and role of each team member during the process
   • The Term Sheet
     • is helpful for parties to exchange a term sheet prior to the initial negotiation meeting. The term sheet typically covers the major issues in a potential deal in outline form, including: the licensed product or process; licensed territory; license fee and royalty; technical information and training required to develop and manufacture, sell and service the licensed product, and who will be responsible for same; sales and service support; degree of exclusivity, and duration of the license.
   • Deadlines
     • Establishing preset deadlines for each of the major steps in the negotiation process is important because it forces the other party to reveal its true intentions and interests in the licensing agreement.
   • The groundwork for open dialog
     • In any negotiation, a nondisclosure agreement can provide security for both parties to maximize information transfer. Some key terms include license and scope, enforcement rights, the financial arrangement, additional patent prosecution and maintenance costs, ownership of improvements, liability, indemnification, and warranties and representations.
   • Drafting the contract
     • Commentators have suggested that the party drafting the contract is always in the more favorable position because that party will be in a position to ensure inclusion of desirable provisions and places the other party in the position of defending every request to modify the drafted agreement.
   • The negotiation
     • The terms of a licensing contract reflect the allocation of risk between the parties of the potential future development and marketability of the patented technology. A licensor that has taken a molecule through one or more phases of a clinical trial, or has the financial resources to do so, will likely be in position to negotiate narrow licensing agreements that incentivize development and marketing of the technology and that enable additional licensing agreements with other licensees of different strengths that can compete in other markets. A licensor without these resources, financial or otherwise, will often be in a weaker bargaining position.
   • Valuation approaches
     • A business school/MBA approach to valuation often uses one of three methods: the cost method, the market method, and the income method.