IP

NEGOTIATIONS
© Dr. Vikas Bhati
Introduction
◦ Negotiation/Arguments.

◦ Involves setting the expectation for all parties. In commercial transactions it results in some form of
document which may often be a contract. A well- written document culminating from negotiations
will reflect those expectations.

◦ Negotiations does not cease with the signing of the document. Continues during the course of
relationship.
Essential Principles
◦ 4 (by Fisher and Ury)
- Separating people from the problem; (go hard on the problem, soft on the people)
- Focus on interest of the parties rather than their positions;
- Generating options; and
- Insist that the result is based on an objective standard.
Three steps to apply the principles
1. Analysis (one with best info is best placed to secure a favourable outcome)

2. Planning (BATNA)

3. Discussion (communication method, individual involved and subtilities)

Negotiating team
◦ One person is a rarity, team development involves consideration of following characterstics:
a. Personalities
b. Skills
c. Decision makers
d. Note takers
◦ Need of a balance against the other negotiating team.eg. IP negotiations.
◦ Allegations of AMBUSH.
◦ Culture, values and nationalities are also relevant.
◦ Presence of appropriate tools.
Managing the negotiation
◦ Ensure confidentiality obligations prior to any sensitive commercial negotiation
◦ Step 1 setting of agenda developed and distributed before commencement.
◦ Issue list or register which would be reflected in agenda.
◦ Principles agreed should be documented and confirmed by all parties
◦ A party should be given responsibility for drafting the key documents that are to reflect the
negotiations such as contracts or heads of agreement. (does it gives an upper hand?)
◦ Clearly understand the issues which it is prepared to trade off and to use those prudently (BATNA)
◦ Critically analyse what is being said as support for either an interest or proposition. (useful tactic is
to apply plane common sense and logic. Asking why and how or retorting with a question how an
alternative option does not meet with the objectives of the party to cut through the position to
determine the true interest of the parties.)
Document Management
◦ Often overlooked.
◦ All changes to the key document should be tracked with each negotiating session and document be
stated for each version with version number.
◦ Critically the reason for changes should be recorded either in the document itself or on a collateral
document.
◦ Important when the parties to original negotiations are no longer involved or it is in the dim distant
past
◦ Help parties assess whether the proposed changes are consistent with the risk profile of the original
contract and may also help determine whether the drafting contains a mistake that does not reflect
the accurately reflect the intentions of the parties.
Certain legal issues
◦ Obligation to act with with good faith
◦ Without prejudice
◦ Contra preferentum rule
◦ Best endeavors clause.
Obligation to act with good faith
◦ General principle is that an agreement to agree it is not enforceable (lack of certainty or
consideration).
◦ Parties are accepting a risk that an outstanding issues may not be agreed and any resulting loss or
inconvenience is borne by them as it falls upon them.
◦ The general principle can be overcome if issues of certainty and consideration are met.
◦ Difficult for court to determine whether the parties were acting in bad faith or they were merely
seeking to secure a result that is in their best commercial interest (such obligation would prevent the
party from refusing to negotiate for no other reason than that it has changed its mind).
◦ The consequences of breaching that duty are even harder to determine.
◦ If there are topics that the parties are contractually bound to negotiate in good faith then there
should be a sunset date otherwise there is a risk that the parties will be perpetually obliged to
negotiate.
◦ Third person can be there to set the terms if they cannot agree (obvious commercial drawbacks and
parties are reluctant to give power to determine their own rights and obligations.)
 contd…
◦ It usually confined to technical issues that can be objectively determined (even here the parties
should have an abilityto submit their own views nad have an out if the decision 0f 3 rd party is
manifestly unreasonable.)
◦ Parallel negotiation no prohibition but it is fair to inform the other party about them. This however
requires consideration of any confidentiality obligations owned by the parties to other persons. If this
is an impediment then the agreement to negotiate in good faith state that the obligation to disclose
parallel negotiations would be subject to existing 3 rd party confidentiality obligations.
Without Prejudice
◦ Not uncommen to use this phrase in the mistaken belief that it somehow preserves their position
and cannot be used against them.
◦ The term can be legitimately used when making an admission of liability during the course of
negotiatiating a dispute between the parties. If the negotiation is purely commercial and not as part
of dispute resolution then the statement will be admissible in court. Consequently, it may be better
not to make any statement rather than preface that statement as being ‘without prejudice’
Contra Proferentum Rule
◦ An exclusion or limitation of liability clause will be construed strictly against the party who was
responsible for inserting the clause in the contract. (a clause which sought to exclude liability for
breach of warranties was considered not to apply to a breach of condition)
◦ The rule only applies where there is ambiguity in the interpretation of clause.
◦ It is common for the parties to expressly exclude the rule in the contract itself when or if the
contract is to be interpreted.
Best Endeavours Clause
◦ Sometimes a party does not have the power (approving government approval or licence in order for
actions to be undertaken) or not have the bargaining strength to persuade a party to take on
absolute obligation. In these situation the parties will often resort to a party using their best
endeavours to perform the obligation.
◦ Best/ Reasonable endeavours (latter is perceived a weaker standard) but reasonable endeavours
caluse have been found to be enforceable and may impose a high standard of obligation depending
on the nature of the contract.
◦ It means that the part under the obligation is to apply itself conscientiously to th etask of fulfilling
the obligation with the vigour that would be expected if it were prudently attempting to secure its
own interest.
◦ The party must take all steps within its power which are capable of producing the desired results
although this is tempered by the fact that the party need to act only reasonably and consider what
could have been foreseen rather than what could have been done with hindsight.
example
◦ A license for a patent was granted to a licensee to “use its best endeavours in and towards the
design, fabrication, installation and selling of the patented article which was an electricity pole
throughtoutt the licensed territory and to energetically promote and develop the greatest possible
market for the patented article.”
◦ The licensee submitted a tender to supply electricity poles. The pricing had been based on the
patented article although the tender itself did not specify that the patented article would be
supplied. The potential buyer had doubts about the patented article. The licensee ofeered an
alternative product which the client accepted. The licensor claimed that the licensee had failed to
fulfil its best endeavour obligations. The court agreed with the licensor.
Transfield Pty Ltd. V Arlo International Ltd (1980) 144 CLR 83.
◦ A license was granted in relation to a patent for a shade house. The license required the licencee to
use its best endeavours to promote the product worldwide. The licensor terminated it for brach of
this obligation. The court held in favour of licensor and referred to following factors:
- The licensee did not invest a large amount of time, effort or funds in the long-term exploitation of
patent;
- The licensee did not have the financial ability to exploit the patent worldwide;
- The license was exclusive and for a long perid of time which meant that the licensor was totally
reliant on the licensee to achieve the profit from the patent.
(Andoy Pty Ltd. V S & M Cannon Pty Ltd (1990) 17 IPR 533)
Practical Approach
◦ Before the parties agree to insert a best endeavours clause they should consider, and preferably set
out, their expectations as to what actions each party should undertake in order to fulfil that
standard. For example, in relation to a patented product the parties may wish to consider factors
such as:
- The amount of funds to be spent in exploiting the technology;
- The clients that should be targeted;
- The tarde shows and other fairs at which the product should be marketed;
- The ability to sell competing products or for the party to develop its own competing products;
- The number of customers it expects to deal with;
- Performance sales measures’
- Restrictions on denigrating the product.
◦ Thanks