Several days ago, a Quora question and answer caught may attention. The question asked about things some lawyers do that break, rather than make, deals. I was intrigued by the response “[s]ending over very aggressive opening terms as a negotiating ploy”.
That is a situation I have faced only rarely – most of the time, my clients’ counterparties are pretty reasonable. When excessively unreasonable terms do appear, however, there is a simple response: I refuse to negotiate. Instead, I reply along the line of the following:
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Several years ago, a friend lamented that he was not very good at negotiating on behalf of his professional-services business. He felt that clients were better at “bluffing” and other negotiating techniques than he was, so he often was paid less than he should have been. I told him the single most important thing he needed to know if he wanted to negotiate successfully:
You have to be willing to walk away.
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I think the economy – and business confidence – are improving. The reason: During the past week, two of my clients received unsolicited acquisition overtures from well-known Bay Area companies.
I’ll readily admit that this does not represent a statistically valid sampling of local businesses. Nevertheless, I find this development meaningful because the last time a client was acquired was years ago.
At the moment, I’m coaching these clients on negotiation tactics. Then, because I started working with each company after it was formed, we’ll make sure that corporate records are complete and up-to-date. (See What Must We Do if We’re Going to Be Acquired?)
I’m sad that I will lost valued clients, but I’m pleased that I will have a role in their successful exits – and that these transactions appear to be a sign that the business climate is improving.
Photo credit: Paula Navarro via stock.xchng
Dana H. Shultz, Attorney at Law +1 510 547-0545 dana [at] danashultz [dot] com
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
http://danashultz.com/blog/2010/12/20/what-must-we-do-if-were-going-to-be-acquired/
If your small technology company provides products or processes that might interest the U.S. government, you should know about the Small Business Innovation Research (SBIR) program.
The objective of SBIR is to provide qualified small businesses with opportunities to propose innovative ideas that meet the specific research and development needs of the federal government.
Eleven federal departments participate. These include, for example, the Departments of Defense (including the various armed forces), Education and Transportation.
While there is some variation among departments, SBIR generally is a three-phase process:
- Phase I – Technology feasibility is determined and contracts are valued up to $100,000, lasting from six to nine months.
- Phase II (awarded to successful Phase I contract winners) – The necessary R&D is accomplished to produce a well-defined product/process. These awards typically span 2 years to accomplish the primary research effort and are valued up to $750,000.
- Phase III – Commercialization of a Phase II project result using private sector or federal agency (non-SBIR) funding.
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A start-up entrepreneur recently told me about the agreement he signed with the developer of his website. The agreement has what I consider, from the entrepreneur’s perspective, a most pernicious provision: Ownership of the website, and its intellectual property rights, does not pass from the developer to his client until the fee is paid in full.
I understand why developers like this type of provision: It gives them extra leverage to ensure that they are paid.
In my opinion, however, this type of provision is inappropriate, from the perspective of the developer’s client, for several reasons:
- If development extends over a long time, the client is deprived of ownership rights throughout that entire period.
- Sometimes a client has a legitimate dispute that justifies a reduction in payment – but the provision in question does not allow for this possibility.
- There are other, less-disruptive means that can protect the developer, such as the granting of a security interest.
So here is my advice to anyone who receives a website development, or other professional services, agreement with a “you don’t own it until you pay” provision:
- Negotiate that provision away, making sure that you own the deliverables, and all intellectual property rights in those deliverables, as soon as they are created.
- If the service provider will not agree to this change, find another provider.
Photo credit: Sufi Nawaz via stock.xchng
This blog does not provide legal advice and does not create an attorney-client relationship. If you need legal advice, please contact a lawyer directly.
A couple of years ago I had one of my greatest thrills as an attorney.
My client owns several patents covering ways to improve the efficiency of certain types of lasers. We had succeeded in licensing a large company for one field of use. We were trying to sign up another company for a second field of use.
All business and legal issues had been resolved when, at the last minute, the licensee’s General Counsel demanded that my client convey, in addition to the patent license, certain broadly-defined rights to my client’s know-how. We refused, explaining that know-how never was part of the discussion, and if my client ever was interested in conveying know-how, it would come at a price. The parties then reached final agreement without the know-how provision.
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When I prepare to negotiate an agreement for a client, I start by researching the other party so I can gain insights that might help me represent my client more effectively. The obvious starting point is the website for the other party, where I can quickly understand its business and see who its executives are. But I also look for legal information that typically is available only elsewhere.
Every state has a searchable database of the businesses that have registered with that state, either because the business was formed there or because it was formed elsewhere and registered to do business in the state. Each state includes in its database, at a minimum, information about the corporations and limited liability companies. Most states include information about other types of business entities, too.
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Dana Shultz is a business-savvy lawyer located in Northern California's San Francisco Bay Area (in the East Bay, near Oakland) who has in-depth knowledge of law, business, technology, and the needs of startup and early-stage companies.