Victoria has just posted some information that I think will be of great use to any entrepreneur or start up that is seeking to sell their patent(s) to a larger entity. Except for very rare circumstances, these IP owners will be at a significant disadvantage in comparison to the company to which it seeks to sell. This post, entitled “More on Bargaining from a Position of Weakness” should be the first step before any small IP owner approaches the possible purchaser to help them understand how to succeed in the typically highly uneven bargaining process.
Specifically, people or companies with IP to sell today are hoping to succeed in a market where there are a whole lot more sellers than there are buyers.
(More on this here.) These IP owners are invariably negotiating from a position of weakness, which makes the advice set out in the Victoria Pynchon’s blog post not only relevant, but also critical for anyone seeking to play in the patent monetization market. There is much more in Victoria’s post, but the key takeaways are below. (She says it is not exhaustive, but it appears at the very least to be comprehensive enough to provide a great basic strategy for planning the negotiation process.)
PREPARATION
- assess everything you have of value to exchange with your negotiation partner
- assess everything your negotiation partner has of value to exchange with you
- assess everything you need or desire (minimum requirements to maximum benefit)
- assess everything your bargaining partner likely needs or desires
ASK DIAGNOSTIC QUESTIONS OF YOUR BARGAINING PARTNER
- what are their objectives
- how does your deal fit into those objectives
- what are their priorities
- when do they need to have the deal done
- are there any third parties who might add value to the deal
- what predictions about the future are they relying upon in setting their goals and priorities (business will go up/down; economy will improve/worsen)
- what metrics are they using to place a value on what you both have to trade
CREATE AND CLAIM AS MUCH VALUE AS POSSIBLE
- if the value you give to the deal is worth more in the hands of your bargaining partner than in your own hands, use the deal value rather than the trade value as the metric to measure the benefit you are providing
- when trading items of low value to you but higher value to your negotiation partner, use the higher value to anchor your offer
- when you are more optimistic about the post-deal future than your bargaining partner, consider building contingencies into the contract, i.e., if sales increase (as you expect them to) the value of the deal for you increases; if sales decrease (as your bargaining partner expects them to) offer to build contingency into the contract that will increase the value of the deal to your bargaining partner
NAME CONCESSIONS AND DEMAND RECIPROCITY
- when you make a concession, your bargaining partner should naturally feel the pull to reciprocate
- don’t rely on your bargaining partner’s natural tendencies
- when you make a concession, explain how valuable it is to your bargaining partner and how difficult it is to give up for you
- tell your bargaining partner that you expect proportional concessions from them
CONSIDER WHETHER YOUR WEAKNESSES MIGHT BE CHARACTERIZED AS STRENGTHS
If you’re the smaller player, you may be in a better position to make novel offers; and you may also be more nimble, less burdened by bureaucratic red tape, and, better able to take risks. You may also:
- pose a threat to a larger player, something your “deal” could lessen or eliminate
- present an opportunity to a larger player that it may wish to take advantage of while you are still small
