Every Legal Term is a Business Term: Keeping Business Perspective in Negotiations

January 28, 2015

Settlement ADRWhen brought on as the legal member of a business negotiation team, it’s natural that we view the process through a legal filter. But sometimes attorneys get lost in the purely legal dimensions of the negotiation process and lose sight of the fact that we are ultimately there to provide business value for our clients. Good lawyers keep a strong business perspective in mind along with terms dealing with risk, liabilities and indemnities. In fact, any term in a contract that does not have a business reason should be assessed against the business implications for all concerned.

This came to light during a recent scenario with a major business customer who was seeking an outsourcing provider for their core technology infrastructure. Much of the development that would have taken place under the outsourcing deal was based on a vendor’s technology.

The attorneys for the customer and the vendor had assisted their business clients through this complex transaction by first developing a term sheet, then a Letter of Intent (LOI) that would lead to a final contract.

As discussions progressed through the term sheet and LOI, one of the sticky issues that remained dealt with the ownership of intellectual property developed in the context of implementing the solution. In the customer’s view, they should own any and all work performed for them as a work for hire. This position was repeated many times by the customer’s lawyers. The business people were concerned that any work in the context of the outsourcing initiative could reveal their proprietary processes in future work the vendor may do for the customer’s competitors.

The vendor maintained that the customer was not only getting the benefit of the vendor’s accrued experience having done similar work for other customers, but that the vendor’s business would be jeopardized by the IP transfer. The vendor’s lawyer asked his client’s CEO: “What would be the impact to your business of giving IP ownership to the customer?”

“I don’t care about things we built that are unique to the architecture of the client’s business. I do care about things I can use going forward that are an extension of my technology. I am in the technology business. That’s my toolbox. If a plumber sells his toolbox, he’s out of work.”

“Why don’t you tell that to your counterpart?” suggested the vendor’s attorney as a way to break the impasse. The lawyer saw that a business-to-business conversation might deliver a breakthrough. During the meeting, the vendor sat face to face with the customer, promising that while he needed to keep his “toolbox,” he would never reveal anything about his customer’s business architecture, infrastructure or business processes. The two sides reached agreement in 30 minutes. This extremely sharp attorney understood the business impact for both sides and saw that lawyers’ arguments alone weren’t going to solve the issue.

The lesson is this: All legal issues are business issues. Behind the fears about ownership were drivers related to risk, exposure and competitive position. Looking at these through the lens of business value delivers clarity to “legal” issues. And if there is no business rationale for a legal term in an agreement, chances are it won’t help your client—or help you provide business value.