The “Loser Pays” Clause is the Entrepreneur’s Friend

No Gravatar

“John, we’ve got a potential strategic partner coming in tomorrow and I need to get them a draft NDA tonight!”  My client had a standard form of NDA, 99% of which is identical to the NDAs that you’ve signed at one time or another.  But, in my opinion, in this situation the NDA needed more teeth.

Why?  Because my client was disclosing some sensitive technical information to someone who could at some point become a competitor.  The potential partner was a large firm with extensive resources, and my client is a startup with limited funds.  If the partner wanted to use my client’s information in a way that harmed my client, their calculation would probably go something like this: “If we use this information, do we really think that they would sue us?  Probably not, because they couldn’t afford it!”

So, in addition to my usual recommendation that my client disclose the minimum information necessary to achieve her business purpose (see my prior post on this point), I suggested that she add a “loser pays” or “fee-shifting” clause to the NDA.  In essence it says that, in the event of a lawsuit, the loser pays the winner’s expenses and legal fees.  With this clause, my client would have to incur fees throughout the litigation but, if she won, would get all her legal fees and expenses reimbursed by the other party.  Absent a clause like this, those amounts would most likely not be reimbursed.

I think a loser pays clause is a good idea for any entrepreneur who is entering into contracts (any kind of contract; not just an NDA) but doesn’t have the resources to enforce them.  While you might not want to fund a litigation even if you thought you’d get your money back, the other side doesn’t necessarily know this.  Because a loser pays clause makes your implicit threat to litigate more credible, it may (a) deter the other side from intentionally breaching the contract, and (b) improve your leverage in settlement negotiations if litigation does ensue.  Plus, there’s no downside to negotiating for one (unless you think that you’d likely be on the losing end of a dispute).

The loser pays clause is especially useful where the amounts at issue are small in relation to the potential legal fees.  For example, if winning a suit would bring you $80,000 in damages from the other side, but the cost of litigating it would be $70,000, absent a loser pays clause, you’d have little incentive to pursue your rights, even if you thought you’d win!

Here’s some good language: “If any action or proceeding is commenced to enforce or interpret any of the provisions of this Agreement, the prevailing party in any such action or proceeding shall be entitled to recover its reasonable attorneys’ fees, expert witness fees, costs of suit and expenses, in addition to any other relief to which such prevailing party may be entitled. As used herein, “prevailing party” includes without limitation, a party who dismisses an action for recovery hereunder in exchange for payment of the sums allegedly due, performance of covenants allegedly breached, or consideration substantially equal to the relief sought in the action.”

  • Twitter (http://www NULL.addtoany NULL.com/add_to/twitter?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F24%2Fthe-loser-pays-clause-is-the-entrepreneurs-friend%2F&linkname=The%20%26%238220%3BLoser%20Pays%26%238221%3B%20Clause%20is%20the%20Entrepreneur%26%238217%3Bs%20Friend)
  • Facebook (http://www NULL.addtoany NULL.com/add_to/facebook?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F24%2Fthe-loser-pays-clause-is-the-entrepreneurs-friend%2F&linkname=The%20%26%238220%3BLoser%20Pays%26%238221%3B%20Clause%20is%20the%20Entrepreneur%26%238217%3Bs%20Friend)
  • Digg (http://www NULL.addtoany NULL.com/add_to/digg?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F24%2Fthe-loser-pays-clause-is-the-entrepreneurs-friend%2F&linkname=The%20%26%238220%3BLoser%20Pays%26%238221%3B%20Clause%20is%20the%20Entrepreneur%26%238217%3Bs%20Friend)
  • Delicious (http://www NULL.addtoany NULL.com/add_to/delicious?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F24%2Fthe-loser-pays-clause-is-the-entrepreneurs-friend%2F&linkname=The%20%26%238220%3BLoser%20Pays%26%238221%3B%20Clause%20is%20the%20Entrepreneur%26%238217%3Bs%20Friend)
  • Share/Bookmark (http://www NULL.addtoany NULL.com/share_save?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F24%2Fthe-loser-pays-clause-is-the-entrepreneurs-friend%2F&linkname=The%20%26%238220%3BLoser%20Pays%26%238221%3B%20Clause%20is%20the%20Entrepreneur%26%238217%3Bs%20Friend)

When Someone Asks You to Sign Their NDA

No Gravatar

Any time you’re going to agree to confidentiality and non-use obligations (whether its your form of NDA or theirs), you need to keep in mind the potential for “contamination.”  That is, can you envision likely scenarios where it could appear to the other party that you’ve used or disclosed their information to their detriment, even when you haven’t?  Are you talking with a vendor of a product that you could end up making yourself?  Or with someone who is likely to become a competitor at some point?  The classic case of contamination-avoidance is VCs: the main reason they don’t sign NDAs is that they may be talking to several startups in the same space, and don’t want to be accused of providing one company’s information to another.

If you’re concerned about contamination, and are not concerned about protecting YOUR information, you can decline to sign the NDA and request that the other party not disclose any confidential information to you.  If you’re really concerned about contamination, you could ask them to sign a “non-confidentiality” agreement, where they agree that you can use or disclose their information without restriction. IBM does this; if you’ve signed any contracts with IBM or other large companies, you may have seen this kind of language.

Of course, like the case of your asking someone to sign an NDA, context and norms are important (see my prior post), and this may ultimately dictate what you do.

If you’ve decided to sign their NDA, should you have your lawyer review it?  In my career, I’ve reviewed more NDAs than I care to admit and can say, in all honesty, that probably 95% of them say essentially the same thing (and are signable).  So consider this rule of thumb: it’s OK to sign if (a) the other party will be disclosing at least as much confidential information as you are, and (b) the NDA treats both parties equally (i.e. uses terms such as “Recipient” and “Discloser,” instead of the parties’ names).  The other party’s incentive is to protect their information, and in a truly mutual NDA, will be protecting yours as well.  This is not a risk-free strategy but is, for most of my clients, a reasonable way to reduce legal expense.

  • Twitter (http://www NULL.addtoany NULL.com/add_to/twitter?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F10%2Fwhen-someone-asks-you-to-sign-their-nda%2F&linkname=When%20Someone%20Asks%20You%20to%20Sign%20Their%20NDA)
  • Facebook (http://www NULL.addtoany NULL.com/add_to/facebook?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F10%2Fwhen-someone-asks-you-to-sign-their-nda%2F&linkname=When%20Someone%20Asks%20You%20to%20Sign%20Their%20NDA)
  • Digg (http://www NULL.addtoany NULL.com/add_to/digg?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F10%2Fwhen-someone-asks-you-to-sign-their-nda%2F&linkname=When%20Someone%20Asks%20You%20to%20Sign%20Their%20NDA)
  • Delicious (http://www NULL.addtoany NULL.com/add_to/delicious?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F10%2Fwhen-someone-asks-you-to-sign-their-nda%2F&linkname=When%20Someone%20Asks%20You%20to%20Sign%20Their%20NDA)
  • Share/Bookmark (http://www NULL.addtoany NULL.com/share_save?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F10%2Fwhen-someone-asks-you-to-sign-their-nda%2F&linkname=When%20Someone%20Asks%20You%20to%20Sign%20Their%20NDA)

Consider the Context Before Asking for an NDA

No Gravatar

Matt Mireles (http://www NULL.metamorphblog NULL.com/) called my attention to a good Venture Hacks (http://venturehacks NULL.com/articles/ndas-wazoo) thread on NDA use.  Brad Feld (http://www NULL.feld NULL.com/wp/archives/2006/02/why-most-vcs-dont-sign-ndas NULL.html) also has a very good one.  Opinions on NDA use are all over the map, so I thought it might be helpful to summarize (and add to) some of the key points that I’ve seen in the blogosphere:

  • You should ask for an NDA if you want to disclose information that’s truly confidential and a source of competitive advantage.  Conversely, if the information is in the public domain or not competitively sensitive, you don’t need one unless you, for some reason, want to signal to the other party not to mess with you.  While some people say that almost everything is in the public domain (i.e. there are very few new ideas), I don’t think I’d go that far.  Still, you shouldn’t use NDAs indiscriminately.
  • Consider industry/relationship/geographic/cultural norms before asking for an NDA.  In certain circumstances, such a request may poison a potential business relationship by signaling a lack of trust. What’s the norm for your particular situation?  Are you in a space where patents are important (such as semiconductors or medical devices) and therefore NDAs are common?  Or the consumer Internet space, where innovation is rapid and conversations sometimes more informal?  Are you seeking to establish a trust relationship with someone you believe to be trustworthy?  Or is the other party talking with your competitors?  The Venture Hacks (http://venturehacks NULL.com/articles/ndas-wazoo) thread has some good comments on context.
  • If you want to disclose an invention on which you’ll be filing a patent application, you must use an NDA if you don’t want to destroy certain foreign filing rights.  Similarly, if you want to protect the trade secret status of certain information, you must use an NDA (or not disclose the information).
  • VCs rarely sign NDAs, except maybe in the M&A context.  You risk appearing unsophisticated if you ask a VC for an NDA.  Guy Kawasaki (http://blog NULL.guykawasaki NULL.com/2006/01/the_venture_cap NULL.html#axzz0hbwc049R) on this point: “Before you even start addressing the hard stuff, never ask a venture capitalist to sign a non-disclosure agreement (NDA). They never do…If you even ask them to sign one, you might as well tattoo “I’m clueless!” on your forehead.” Mark Suster (http://www NULL.bothsidesofthetable NULL.com/2009/07/26/on-ndas-and-confidentiality/) has good advice re: disclosing information to VCs: “When you write your Powerpoint deck write it with the assumption that people you don’t want to read it will get a hold of it. It probably won’t get in the wrong hands but keep your information high-level enough that you wouldn’t feel compromised if it did.  The detailed information can be delivered verbally and/or in follow up documents once you know that they VC firm you’re talking with is more serious.”
  • Twitter (http://www NULL.addtoany NULL.com/add_to/twitter?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F08%2Fconsider-the-context-before-asking-for-an-nda%2F&linkname=Consider%20the%20Context%20Before%20Asking%20for%20an%20NDA)
  • Facebook (http://www NULL.addtoany NULL.com/add_to/facebook?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F08%2Fconsider-the-context-before-asking-for-an-nda%2F&linkname=Consider%20the%20Context%20Before%20Asking%20for%20an%20NDA)
  • Digg (http://www NULL.addtoany NULL.com/add_to/digg?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F08%2Fconsider-the-context-before-asking-for-an-nda%2F&linkname=Consider%20the%20Context%20Before%20Asking%20for%20an%20NDA)
  • Delicious (http://www NULL.addtoany NULL.com/add_to/delicious?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F08%2Fconsider-the-context-before-asking-for-an-nda%2F&linkname=Consider%20the%20Context%20Before%20Asking%20for%20an%20NDA)
  • Share/Bookmark (http://www NULL.addtoany NULL.com/share_save?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F08%2Fconsider-the-context-before-asking-for-an-nda%2F&linkname=Consider%20the%20Context%20Before%20Asking%20for%20an%20NDA)

What an NDA Is (and Is Not) Good For

No Gravatar

I often get the question: “Isn’t disclosing my confidential information OK as long as I use an NDA?”  My answer is always: “An NDA doesn’t really protect you.  You should probably use one, but you should only disclose confidential information to people on a need-to-know basis.”  For my other bottom line recommendations re: NDA use, see the end of this post.  For a full discussion, read on.

If you’re going to be disclosing confidential information, using an NDA has many benefits:

  • NDA use protects the trade secret status of the information.  The law requires that you take reasonable measures to maintain the confidentiality of trade secrets.  NDA use is one of those measures.
  • If you want to disclose an invention on which you’ll be filing a patent application, failing to use an NDA prior to filing will destroy patent rights in certain foreign jurisdictions.
  • The NDA will give you legal rights that you can assert in court if the recipient discloses or improperly uses your confidential information.
  • The NDA puts the recipient on notice that you’re serious about protecting your confidential information.

While these are very real benefits, the fact remains that, if you want to enforce the rights your NDA gives you, it will cost you significant time and money.  If you’re a startup with limited resources, a recipient of your confidential information may (rightfully) believe that he or she can disclose or improperly use your information with impunity, since there’s no way you would sue them.  So your real protection is to be very careful about what, and to whom, you disclose.

The other limitation of NDAs is that they usually require that, in the case of oral disclosures, you send the recipient a followup letter stating that your disclosures contained confidential information that are subject to the NDA.  In my experience, the latter requirement is seldom met because people don’t know it exists or they simply forget to do it.

NDAs also require that any written disclosures bear an “[XYZ Company] Confidential” legend.  People usually meet this requirement, but often jeopardize the trade secret status of their information by putting a legend on ALL of their written disclosures, even if they contain publicly available information.

So here are my recommendations:

  1. At the outset, ask yourself: “What’s the information about my business that I wouldn’t want a competitor or others outside my company to know?  And what are the inventions for which I may file patent applications?”  This is your “confidential information.”
  2. Disclose your confidential information only on a need-to-know basis, and use an NDA.  If it’s in the other party’s interest to disclose or use the information in a way that will harm your business, you should assume that they might do so, even if they sign an NDA.
  3. Mark your written disclosures of confidential information with a confidentiality legend, but DON’T use a legend for information that’s publicly available or that you don’t consider confidential.
  4. Follow up all oral disclosures with a letter stating that you consider the disclosure to be confidential information subject to the NDA.  Most NDAs require that this letter be sent within 30 days.
  5. Calendar the expiration date of your NDAs, and renew them (or sign new ones) if there will be further disclosures after that date.
  • Twitter (http://www NULL.addtoany NULL.com/add_to/twitter?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F05%2Fwhat-an-nda-is-and-is-not-good-for%2F&linkname=What%20an%20NDA%20Is%20%28and%20Is%20Not%29%20Good%20For)
  • Facebook (http://www NULL.addtoany NULL.com/add_to/facebook?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F05%2Fwhat-an-nda-is-and-is-not-good-for%2F&linkname=What%20an%20NDA%20Is%20%28and%20Is%20Not%29%20Good%20For)
  • Digg (http://www NULL.addtoany NULL.com/add_to/digg?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F05%2Fwhat-an-nda-is-and-is-not-good-for%2F&linkname=What%20an%20NDA%20Is%20%28and%20Is%20Not%29%20Good%20For)
  • Delicious (http://www NULL.addtoany NULL.com/add_to/delicious?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F05%2Fwhat-an-nda-is-and-is-not-good-for%2F&linkname=What%20an%20NDA%20Is%20%28and%20Is%20Not%29%20Good%20For)
  • Share/Bookmark (http://www NULL.addtoany NULL.com/share_save?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F05%2Fwhat-an-nda-is-and-is-not-good-for%2F&linkname=What%20an%20NDA%20Is%20%28and%20Is%20Not%29%20Good%20For)

Nuggets of Wisdom from the Stanford GSB Entrepreneurship Conference

No Gravatar

Last week, I attended the 2010 Conference on Entrepreneurship (http://www NULL.stanford NULL.edu/group/econference/index NULL.html) held at the Stanford Graduate School of Business.  Here are a few nuggets of wisdom I found particularly valuable and/or interesting:

  • What’s the best way to conduct a search without using a search firm?  Andy Price of Schweichler Price & Partners (http://www NULL.schweichler NULL.com/) emphatically recommended getting a LinkedIn Business Account (http://www NULL.linkedin NULL.com/business) and doing key word searches using company names and desired skill sets.
  • How much should you seek to raise in your seed round?  Bob Zipp of Amicus Capital (http://www NULL.amicuscapital NULL.com/): “In your seed round, you should raise the amount of money necessary to achieve the milestones that you want to be able to show to the next round’s potential investors. When you’re raising your next round, what do you want to be able to say in your PowerPoint?  How much money will it take to get there?”
  • When granting options to Advisory Board members, what kind of vesting schedule should be imposed?  Anu Shukla of Offerpal Media (http://www NULL.offerpalmedia NULL.com/): “Make vesting contingent upon some deliverable, like setting up a key meeting or making a key introduction.”
  • When Todd Sacerdoti of BrightRoll (http://www NULL.brightroll NULL.com/) was seeking angel funding, he and his partner categorized each potential investor as one of four types: VCs playing in the seed capital space, professional angels, operational angels, and angels with just money. The panelists regarded taking VC money as a double-edged sword: if the VC wants to participate in the next round, that greatly enhances your ability to attract new investors, but if the VC declines to participate, that’s almost the kiss of death.  Re: professional angels, Aydin Senkut of Felicis Ventures (http://www NULL.felicisvc NULL.com/) saw them as adding value through “pattern recognition,” among other things.  The value of operational angels is self-evident, while the value of angels with just money is simply the money they’re investing.
  • Twitter (http://www NULL.addtoany NULL.com/add_to/twitter?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F02%2Fnuggets-of-wisdom-from-the-gsb-conference-on-entrepreneurship%2F&linkname=Nuggets%20of%20Wisdom%20from%20the%20Stanford%20GSB%20Entrepreneurship%20Conference)
  • Facebook (http://www NULL.addtoany NULL.com/add_to/facebook?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F02%2Fnuggets-of-wisdom-from-the-gsb-conference-on-entrepreneurship%2F&linkname=Nuggets%20of%20Wisdom%20from%20the%20Stanford%20GSB%20Entrepreneurship%20Conference)
  • Digg (http://www NULL.addtoany NULL.com/add_to/digg?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F02%2Fnuggets-of-wisdom-from-the-gsb-conference-on-entrepreneurship%2F&linkname=Nuggets%20of%20Wisdom%20from%20the%20Stanford%20GSB%20Entrepreneurship%20Conference)
  • Delicious (http://www NULL.addtoany NULL.com/add_to/delicious?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F02%2Fnuggets-of-wisdom-from-the-gsb-conference-on-entrepreneurship%2F&linkname=Nuggets%20of%20Wisdom%20from%20the%20Stanford%20GSB%20Entrepreneurship%20Conference)
  • Share/Bookmark (http://www NULL.addtoany NULL.com/share_save?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F03%2F02%2Fnuggets-of-wisdom-from-the-gsb-conference-on-entrepreneurship%2F&linkname=Nuggets%20of%20Wisdom%20from%20the%20Stanford%20GSB%20Entrepreneurship%20Conference)

Marriage Tips (My Sister’s Take on “Negotiating a Transaction”)

No Gravatar

See Items 1, 3 and 4 from “Negotiating a Transaction.”  And add some extra doses of humor, compassion and empathy.  (Thanks to my therapist sister Lisa for this insight. When she read my “Negotiating a Transaction” post, she said “Sounds just like what you should do in a marriage!”)

  • Twitter (http://www NULL.addtoany NULL.com/add_to/twitter?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F02%2F25%2Fmaking-a-marriage-work%2F&linkname=Marriage%20Tips%20%28My%20Sister%26%238217%3Bs%20Take%20on%20%26%238220%3BNegotiating%20a%20Transaction%26%238221%3B%29)
  • Facebook (http://www NULL.addtoany NULL.com/add_to/facebook?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F02%2F25%2Fmaking-a-marriage-work%2F&linkname=Marriage%20Tips%20%28My%20Sister%26%238217%3Bs%20Take%20on%20%26%238220%3BNegotiating%20a%20Transaction%26%238221%3B%29)
  • Digg (http://www NULL.addtoany NULL.com/add_to/digg?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F02%2F25%2Fmaking-a-marriage-work%2F&linkname=Marriage%20Tips%20%28My%20Sister%26%238217%3Bs%20Take%20on%20%26%238220%3BNegotiating%20a%20Transaction%26%238221%3B%29)
  • Delicious (http://www NULL.addtoany NULL.com/add_to/delicious?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F02%2F25%2Fmaking-a-marriage-work%2F&linkname=Marriage%20Tips%20%28My%20Sister%26%238217%3Bs%20Take%20on%20%26%238220%3BNegotiating%20a%20Transaction%26%238221%3B%29)
  • Share/Bookmark (http://www NULL.addtoany NULL.com/share_save?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F02%2F25%2Fmaking-a-marriage-work%2F&linkname=Marriage%20Tips%20%28My%20Sister%26%238217%3Bs%20Take%20on%20%26%238220%3BNegotiating%20a%20Transaction%26%238221%3B%29)

Negotiating a Transaction

No Gravatar

Transactions have a conceptual similarity with compliance, in that they both involve your company’s relationship with another party.  In a transaction, the party is a private entity; in compliance, the other party is the government.  A transaction is ultimately memorialized in a contract, which establishes “private ordering” or the rules governing the parties’ relationship.  Compliance, on the other hand, involves existing rules (in the form of laws or regulations) enacted by the government.

For large or complex transactions, the parties should first negotiate the key terms of the deal, which will be reflected in a term sheet or letter of intent.  The purpose of a term sheet is to ensure there is a “meeting of the minds” before the parties invest a lot of resources in drafting a contract.  Additionally, while a term sheet is typically not legally binding, it makes it harder for a party to renege on a key part of the deal at the last minute.

Here are some concepts I’ve found helpful in negotiating transactions (thanks to Richard Pascale—formerly of Stanford Business School—and Fisher and Ury’s classic “Getting to Yes (http://en NULL.wikipedia NULL.org/wiki/Getting_to_YES)”):

  1. Listening: At the outset, you should listen more than you talk.  Gather as much information about the other party’s needs, strengths and weaknesses as you can.  Let the other party talk.  Make empathic inquiries.
  2. Leverage: From your listening, you’ll get a better sense of who has more leverage, and for whom it would it be easier to walk away.  In an ideal word, you’ll have a backup deal available if this one doesn’t work out.  This will increase your leverage and your implicit threat to walk if you don’t get what you want.
  3. Underlying Needs: Get clarity re: the underlying needs of both parties (these may be different than their stated positions).
  4. “Free Ice in Winter”: At the outset, try to agree on as many “win-wins” as possible.  These are ways for each party to meet the other’s underlying needs at very low cost.  What’s important to you, but not important to the other party, and vice-versa?  Early win-wins establish a cooperative tone which should help with the tougher negotiations to come.
  5. “High Aspirations Within the Range of Reason”: For what you want to achieve, set a goal that’s aggressive but reasonable.  Fuzzy or small goals create suboptimal results, while unreasonable demands decrease your credibility.
  6. “Reservation Price”: The flip side of your “high aspirations” is your “reservation price” or your walkaway.  At the outset, should have a clear sense of the least favorable result that you can still accept.

Once you’ve negotiated the key transaction terms, you’ll embody them in a non-binding term sheet that both parties sign, and then begin the negotiation of the contract.

  • Twitter (http://www NULL.addtoany NULL.com/add_to/twitter?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F02%2F21%2Fnegotiating-a-transaction%2F&linkname=Negotiating%20a%20Transaction)
  • Facebook (http://www NULL.addtoany NULL.com/add_to/facebook?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F02%2F21%2Fnegotiating-a-transaction%2F&linkname=Negotiating%20a%20Transaction)
  • Digg (http://www NULL.addtoany NULL.com/add_to/digg?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F02%2F21%2Fnegotiating-a-transaction%2F&linkname=Negotiating%20a%20Transaction)
  • Delicious (http://www NULL.addtoany NULL.com/add_to/delicious?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F02%2F21%2Fnegotiating-a-transaction%2F&linkname=Negotiating%20a%20Transaction)
  • Share/Bookmark (http://www NULL.addtoany NULL.com/share_save?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F02%2F21%2Fnegotiating-a-transaction%2F&linkname=Negotiating%20a%20Transaction)

A Way to Think About What Lawyers Do

No Gravatar

The other day, I went to my neighborhood bank to open a business account.  When I told the account manager that I was an attorney, he suddenly became incredibly deferential.  Given that my three-year old daughter is often somewhat less than deferential to me, I initially appreciated this respect.  But then got to wondering: why do some people think being a lawyer is such a big deal?  I think it has to do with the perception that we’re in command of this arcane body of knowledge that others don’t have.  While there may be a smidgen of truth to this, I really think that most law is common sense (except, perhaps, for the Rule Against Perpetuities (http://en NULL.wikipedia NULL.org/wiki/Rule_against_perpetuities)).

To better access this common sense, it helps to have a conceptual understanding of what business lawyers do.  I think that, at the most basic level, all business law matters fall into one of the following buckets:

  1. Transactions
  2. Compliance
  3. Dispute Resolution
  4. Intellectual Property Protection
  5. Corporate Governance

Issues within a particular category have similar characteristics, so the strategies for dealing with them are similar as well.  So the first step to thinking clearly about a “legal” issue is to categorize it.  Is it a compliance issue?  A transaction?  A dispute?  Your strategy will flow from your categorization.

  • Twitter (http://www NULL.addtoany NULL.com/add_to/twitter?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F02%2F14%2Fa-way-to-think-about-what-lawyers-do%2F&linkname=A%20Way%20to%20Think%20About%20What%20Lawyers%20Do)
  • Facebook (http://www NULL.addtoany NULL.com/add_to/facebook?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F02%2F14%2Fa-way-to-think-about-what-lawyers-do%2F&linkname=A%20Way%20to%20Think%20About%20What%20Lawyers%20Do)
  • Digg (http://www NULL.addtoany NULL.com/add_to/digg?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F02%2F14%2Fa-way-to-think-about-what-lawyers-do%2F&linkname=A%20Way%20to%20Think%20About%20What%20Lawyers%20Do)
  • Delicious (http://www NULL.addtoany NULL.com/add_to/delicious?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F02%2F14%2Fa-way-to-think-about-what-lawyers-do%2F&linkname=A%20Way%20to%20Think%20About%20What%20Lawyers%20Do)
  • Share/Bookmark (http://www NULL.addtoany NULL.com/share_save?linkurl=http%3A%2F%2Fwww NULL.lawforentrepreneurs NULL.com%2F2010%2F02%2F14%2Fa-way-to-think-about-what-lawyers-do%2F&linkname=A%20Way%20to%20Think%20About%20What%20Lawyers%20Do)