XVI. Negotiations

Perhaps the biggest myth about negotiations is that they are some sort of contest, with a winner and a loser. Actually, a successful negotiation is one in which each party succeeds in getting most of what he/she wanted. In other words, it is a win-win situation. The reason is simple: A negotiation is generally the beginning of a working relationship. If one of the parties feels cheated, it is not a good relationship, and there will likely be trouble in carrying out the negotiated agreement.

In fact, part of the preparation for, or beginning of, a successful negotiation involves finding out what is important to your counterpart, and seeing whether you can figure out how to give it to him/her without sacrificing what is important to you. One might then look at a negotiation as a sort of huddle of the two parties to work out an agreement that is best for both sides and therefore best for the project. Naturally, in the case of a license, the licensor wants the largest royalty he can get, while the licensee wants the smallest. Their job together, then, is to find an arrangement that will give satisfactory royalties to the licensor, while not killing sales by overburdening the licensee, thereby inflating the price of the product, to the detriment of both parties.

It is always worthwhile to prepare for a negotiation by figuring out what you would like to get and what you would settle for. You should also have a believable set of figures to show to substantiate that your desires are reasonable. Logical reasoning works much better in negotiations than hard bargaining, especially if you show that you understand your counterpart and his/her problems and preferences.

There is a strong tendency on the part of inventors to think that their invention is worth much more money than anyone is willing to pay. I recall my first negotiation with a potential licensee for my invention, in which I asked for a straight royalty of 10% on a consumer product with a very large market potential. This is an unreasonably high figure, and I finally settled on a sliding scale going from an initial 8% to a final 2% as the volume of sales increased.

In attempting to accomplish TT for the government, remember that VERY few patented inventions every make ANY money (my patent attorney estimates one in a hundred), and extremely rare is the big winner. In the rehabilitation field, the odds are even poorer. Therefore, the goal of negotiations with industry is NOT to make the VA or the Center rich from the proceeds, but rather to insure that the product does in fact get commercialized successfully, thereby becoming available to the people who need them. In these negotiations, therefore, it is much more important to link up with a responsible company that will carry through on its promises, and to write an agreement that will produce a friendly, effective team for accomplishing that goal, than it is to maximize the royalty received on every unit sold.

Nevertheless, the royalties are important in the sense that:

1. they appear to place a real value on the product;
2. they produce an incentive for performance if minimum royalties are specified, and
3. they furnish much needed financial resources to augment the TT effort in ways that are difficult by other means.