Technology Transfer:

Negotiations

Technology Transfer Negotiations

 

In this era of systemic innovation, strategic partnerships became flesh and blood of competitive business development. Even product sales operations are not about buying or selling something a bit cheaper anymore, these are strategic decisions nowadays (see value chain). Transfer of technology is one of the most sophisticated business operations requiring matching of prospective buyers and sellers by many parameters. Building up lasting partnership relationships for the mutual benefit is extremely important in this type of business. Thus technology transfer negotiations should not be seen as simple bargaining about the cost and terms, but rather a process of successful business development by two strategic partners.

Negotiating Transfer of Technology

Partially adapted from the "Training Manual on Technology Transfer", by United Nations Industrial Development Organization (UNIDO)

Introduction    Planning Stage    Negotiating Team    Preparing for Negotiations    Contract Drafts    Organizational Aspects    Role and Objectives    Conduct during Negotiations    Typical Negotiating Techniques and Tactics    Conclusion

 

 Negotiation DOs and DON'Ts

 Wise Agreement

Arriving at a satisfactory business relationship requires two things:

  • the preparation of a balanced and comprehensive agreement between parties, and

  • civil negotiations that aim to achieve mutually beneficial results for all of the parties involved.

Being well-informed, building an effective negotiating team and communicating well with members of the other team will affect the success of the negotiations. Various steps to be taken at a given stages of the negotiation process are recommended. Effective, cooperative negotiations make for mutually beneficial relations and the long-term satisfaction of the parties to the agreement.

Introduction

A technology transfer agreement that results in a satisfactory long-term relationship between two or more parties is one in which the parties recognize that the agreement must provide benefits for each. Once this principle is accepted by negotiators, the process moves more smoothly. It can be enhanced in two ways:

  1. by preparing a proposed agreement between the parties to serve as the basis of negotiation that is balanced with respect to their mutual and conflicting interests as well as comprehensive, and

  2. by conducting negotiations to arrive at a mutually acceptable final text that gives each party the appropriate rights and obligations.

The manner in which negotiations are conducted will also help ensure a successful end result. Negotiations should

  1. obtain and master all the relevant information needed to correctly present their interests and options,

  2. develop the internal communications that will mould each party into an effective team, and

  3. utilize approaches and techniques that facilitate communication between the parties and develop mutual confidence and trust.

 

This guide will discuss the various steps that need to be taken at each stage of the negotiating process. It will elucidate the elements that maximize the chances of success, not necessarily in terms of what provisions are incorporated into the contract but by how successfully the project ultimately evolves, and by how the relationship between the parties becomes cooperative rather than adversarial. The cumulative effect of those elements constitutes what is generally referred to as the dynamics of the negotiation process.

Certain points stressed here should be kept in mind throughout the planning and execution stages of negotiations:

  • When making international agreements, it is essential that the culture of the other party's country be studied carefully to assure that your own party's understanding of the other's arguments and interests are clear and that yours are clear to them. It is just as important to learn their customs to avoid embarrassments or insults.

  • For any kind of agreement, national or international, learn all you can about the other party(s): its style, preferences, performance, financial condition, ethics, expectations from the deal etc. Separate assumptions from facts. This will help in formulating your own objectives and negotiating strategy.

 Yin-Yang of Influencing People

Planning Stage

Objectives    Proposal Analysis    Preliminary Relationship Structure    Planning Stage Suggestions

If negotiations are to culminate in a successful agreement, certain prerequisites must be met before negotiations get under way.

Objectives

Well before an agreement is drafted, each party needs to determine its objectives for concluding a deal. This is an elementary but necessary rule of successful negotiation. Parties often do begin negotiations without being clear about the nature and scope of the contractual relationship they wish to establish. This may lead to ambiguity, misunderstanding and, even, distrust and bad faith between the parties as the negotiations proceed. Each party should enter a negotiation with well conceived and adequately supported goals so the process moves ahead in an orderly manner.

A technology transfer relationship often begins when one party submits an outline or preliminary proposal to another, offering rights to intellectual property or expressing interest in purchasing such rights. It may take a meeting or two to help define the market value of the technology or to decide how to structure the future relationship, especially if the technology is being transferred for the first time. Once these details have been worked out, one of the parties, usually the initiator of the proposed relationship, submits a written proposal to the other as the starting point for subsequent negotiations.

It is assumed that before writing such a proposal, the submitting party will have defined its goals and interests. The party receiving the proposal then needs to study it thoroughly.

Proposal analysis

The first step to be taken after receipt of a proposal is to appoint a technical group to analyse it, list all of the questions it raises and identify and request any additional information that is required from the party submitting the proposal. There should be no reluctance to do this; in fact, most parties who have submitted a proposal welcome questions and requests for information, for it indicates to them that the proposal is being taken seriously. It gives them a better idea of what is of particular interest to the other party, as well as any shortcomings of their proposal.

Information on the subject-matter of the proposal should also be sought from independent sources. Such information might relate, for example, to the nature and effectiveness of the technology being proposed, the market for the proposed product, the quality and production cost of the product, the potential sources of financing.

All the information received from the party submitting the proposal and from independent sources should then be reviewed thoroughly by the technical group. To the extent that the new information raises additional questions, these should again be posed to the proposing party or to the independent sources, until the technical group is satisfied that it has all the information it needs to formulate the preliminary structure of the relationship.

Preliminary structure for the relationship

Once the required information has been collected and analysed and it is determined that the proposal should be pursued, a preliminary structure (and, perhaps, alternative structures) for the relationship should be formulated and evaluated in terms of how it will meet needs and objectives. If a patent licence is being offered, the technical team should determine if pertinent know-how, trade marks, and/or copyrights should be included and should have some idea of the amount of training and on-going technical assistance required. In other situations, the agreement structure may require a technical services, engineering services or management services agreement. At times, a joint venture may be preferred or required relationship.

Planning stage suggestions

These are some suggestions for the planning stage:

  • Determine alternatives to completing the agreement. Even one alternative improves your negotiating strategy. The authors of Getting to Yes, from Harvard Negotiating Project, call this BATNA, Best Alternative to a Negotiated Agreement.

  • Consider the long-term benefits of the agreement. Don't be overly concerned with the short-term implications.

  • Look for areas of agreement between the parties, not areas of conflict.

  • Plan the major issues as independent units, not in sequence. This will avoid confusion if the issues are brought up out of your sequence.

  • Set ranges for your objectives, not specific points.

The Negotiating Team

Composition    The team leader    Team members    Team discipline

Once a preliminary agreement structure has been agreed upon, a negotiating team should be selected.

 Winning Team: 7 Elements

Composition

Two teams need to be assembled, the planning team and the negotiating team. The team that does the planning for the negotiation should consist of, at a minimum, the chief negotiator, a technical expert, a financial expert and a legal expert. If it is a complex deal, engineering, manufacturing and marketing personnel might also need to be involved. At times an outside consultant will be beneficial. It is the planning team's responsibility to set all the parameters for the proposed agreement so that the negotiating team has the information it needs to properly present its side to the other party.

The actual negotiating team for technology transfer agreements should be kept as small as possible. A simple patent or patent and know-how licence may only require one person from each party, the licensing executive for each. As the complexity of the type of agreement being sought increases, the team is expanded. Many complex technology transfer agreements are handled by the licensing executive and an intellectual property attorney. This, of course, does not preclude discussions between negotiating sessions with technical, financial, manufacturing or marketing experts. In situations where, for example, a large production line, a turnkey plant or a joint venture is being considered, the negotiations may require the presence of technical, financial and other experts. As the negotiations proceed and once they are completed, the drafts of the agreement are nearly always prepared by an attorney skilled in technology transfer agreements.

The team leader

 9 Roles of a Team Leader

The chief negotiator's role is a special one. He or she should command the respect of the other players and be articulate and patient. A company or a government makes a mistake whet it assigns this role as a matter of course to the senior official involved in the project. Instead, the person best able to deal with the particular negotiation should be named the chief negotiator. An understanding of the culture of the other party's country, the language in which the negotiations are to be held and the culture of the company itself are decided advantages for a chief negotiator.

 

The chief negotiator must have the character and strength to be able to control a meeting and win the respect of his own and the other party's representatives. He must have self-confidence, be able to lead and have the support of superiors. He must also be a person who thoroughly understands the subject, who is a broad-minded enough to listen to opinions different from his own and who appreciates arguments and is not offended when someone contradicts him. He must be vain, but, rather, sure of himself and not easily influenced by flattery. As well, he must have experience in the business being negotiated and, above all, must be able to make decisions when they are needed.

Team members

The technical expert should know the technology and must understand the technical advantages and disadvantages of what is being offered. He must have a knowledge of alternative technologies to those in the proposal and their cost. If at all possible, he should be drawn from the technical group in the planning team that analysed the original proposal.

The financial expert should be familiar with various types of financial arrangements, including potential sources and terms of both domestic and international financing. He should also be able to calculate the long-term impact of changes in interest rates, repayment periods and principal amounts of the financing being discussed, as well as the long-term financial returns and cash flows from the transaction as it is modified during the course of negotiation.

The legal expert should have experience in drafting contracts and should be knowledgeable about the terms and conditions of technology transfer agreements. If the subject matter is a project for developing country, a knowledge of technical, engineering or management service agreements may also be needed.

The legal expert's role needs to be delineated. Some companies feel such experts should take a back seat in the actual negotiating sessions as they are often sought to be too dogmatic in their approach. Others feel the opposite way, reasoning that agreements are legal documents and should be attended to by legal staff. However, whether the legal expert plays a primary or secondary role, his main duty is to structure the agreement and its specific provisions so that they reflect what the parties have agreed to orally. He must also watch for terms and conditions unfavourable to his side and must be able to detect subtle provisions that might escape the eye of the business licensing executive.

Should no suitably qualified experts be available locally, it would be worthwhile recruiting them from outside the company as consultants. The cost of a knowledgeable expert can be recognized many times over by his impact on the cost of a transaction to the acquiring party. If such an expert is retained, he should participate in both the preparation for the negotiations and the negotiations themselves.

Team discipline

A negotiating team should speak with one voice. Usually the lead negotiator is the main person. Other members should speak only when the principal spokesperson invites them to do so, which should be frequently as possible to maintain team alertness and spirit. The leader should try to engage all the members of the team while maintaining his authority over the team as a whole. Experienced negotiators make a point of looking for any disagreement between the members of an opposing negotiating team and exploiting it to their advantage. Obviously, open disagreements between team members must be avoided, as should disagreements conveyed by facial expressions and body language.

INSPIRED TEAM (Ten3 Mini-course, business self-education, slides for training, PowerPoint presentation)

Preparing for Negotiations

Once the negotiating team has been appointed, it should start preparing for formal negotiations with the other party. This requires focusing on its own and the other party's key information, objectives and issues. Doing this before the start of formal negotiations compels the team to reflect in-depth on each issue and prevents it from later being caught by surprise or being forced to improvise positions.

Contract Drafts

The point at which they enter the process

If a licensor already has one or more licensees for a given technology, the earlier license agreement could be presented when the licensor is seeking another licensee. Usually, such a licensor has a proven technology, and existing contracts, and there will seldom be any major changes to the terms and conditions of another licence for the same technology.

Preparing the first draft

The party that prepares the first draft of a contract is commonly thought to have an advantage. That is probably true, as the first draft sets the agenda for the negotiations and places the onus on the opposing party for arguing for and justifying any substantive changes. However, the advantage is generally short-lived, because in the end both parties must be satisfied with the provisions of the agreement for a deal to be struck.

The negotiating team sets the parameters of the agreement in the planning sessions, sometimes even before any preliminary meetings. The parameters can then be refined as inputs from such meetings are received. When the required and desirable provisions have been selected and the draft has been reviewed and internally approved, it should be sent to the prospect in sufficient time for that party to review it before a first negotiation date is set.

Organizational Aspects of Negotiations

In arranging negotiating sessions, a number of organizational aspects need to be considered. While these at first seem of secondary importance they none the less have significant impact. Some of the more important organizational aspects of negotiations are discussed below.

Physical arrangements

The physical and psychological state of the negotiators during negotiating sessions frequently affects the dynamics of the negotiation process and can in turn be affected by the physical arrangements outside and inside the negotiating room.

Meeting length and frequency

It is not unusual for daily negotiating sessions to last 10 hours at a time. Sometimes they go longer, but that is not advisable. Fatigue is bound to set in and affect judgment. As in the case of physical arrangements, the length and frequency of meetings can affect the state of mind of the negotiators and either speed up or delay arriving at agreement. As a general rule, 8-hour sessions are recommended, with several breaks for review to release the tension negotiation usually creates.

Informal meetings

Informal meetings, such as lunch or dinner with members of the opposing negotiating teams, are highly recommended. In such settings members of the respective teams get to know one another better and have the chance to develop personal relationships that will facilitate communication and understanding between them. Business should not be discussed at such meetings: they should be kept informal. Team discipline must preclude "side discussions" of issues by team members other that the chief negotiator in informal meetings.

Language differences

Negotiations are often carried on in English. Although the proceedings are sometimes translated into the negotiating teams native languages by interpreters, ordinary members of the two negotiating teams need to be sufficiently fluent in English to communicate adequately for purposes of carrying on negotiations.

Role and Objectives of Negotiations

While specific objectives may differ from project to project, the role of negotiations is to provide a forum and a process that will accomplish three results.

  1. A mutually satisfactory structure. In the course of preparing for detailed negotiations, the negotiating team presumably formulated a preliminary structure for the proposed transaction. The role of negotiations is to convert this preliminary structure into a structure that satisfies the interests of the both parties.

     

  2. An executed agreement. The negotiating team will have prepared a draft of the contract documents that contains terms and conditions that it believes are required or desirable to govern the implementation of the transaction. The role of negotiations is to reach agreement with the other party on both the text and scope of the terms and conditions that should be contained in the final contractual documents.

  3. A long-term relationship. The role of negotiations is to provide a process by which agreement can be reached on terms and conditions that are the basis for a lasting, mutually beneficial relationship. Negotiations should create an agreement free of the seeds of future conflict. They should not leave a wake of anger, mistrust or bitterness as that would undermine the future relationship.

Conduct During Negotiations

Negotiators have different views on how negotiations should be conducted: whether as an adversarial process, with each side defending its interests until a mutually acceptable position is forged, or as a process in which the mutuality of interests is the paramount focus... More

Typical Negotiating Techniques and Tactics

It is often difficult to distinguish between negotiating techniques and negotiating tactics. One way is to think of negotiating techniques as positive methods designed to resolve issues fairly and negotiating tactics. One way is to think of negotiating techniques as positive methods designed to resolve issues fairly and negotiating tactics as clever negative maneuvres to create false impressions and obtain agreement through deceit.

Conclusion

The goal of enlightened negotiation should be to achieve an agreement that is equitable. The process should recognize the interests of the parties and provide for optimizing the benefits as measured by objective standards. Enlightened negotiating leads to a long-term relationship in which both parties focus on maximizing their mutual return, not one in which each party tries to maximize its own return at the expense of that of the other party.

Adherents of positional bargaining - while they enjoy some obvious advantages in dominating a negotiation tend to put excessive demands, restrictions, provisions and royalties into the agreement. Even though the terms and conditions may be accepted by the other party because it urgently needs the particular technology, experience has shown that agreements under such conditions can also lead to discouragement and underperformance. In the long run, fairness will result in the best return for each party.