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Negotiating Transfer of Technology

by United Nations Industrial Development Organization (UNIDO)

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

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.

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.

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.

All too often, a negotiating team is appointed just as formal negotiations are about to begin, so the team goes to the table without adequate opportunity to study the proposed transaction and back-up information in depth or to have an input into the positions that the chief negotiator will present during the negotiations. Obviously, last-minute appointment of the negotiating team is an unwise practice that should be avoided.

The team leader