Drafting

CASE STUDY Types of Agreement

FishNet, AB (A Swedish Company)

FishNet is a small Swedish company that holdspatents on a unique fishing net, EnviroNet,that weighs fish caught by anglers withoutcausing undue distress to the fish. Theymanufacture and distribute EnviroNetthemselves, but their capacity is limited giventheir size. They are currently operating atabout 90% capacity.

EnviroNet Patented Technology

FishNet, AB Questions

In 2001 FishNet started selling EnviroNet onthe Swedish market; in 2003 the Finnish; in2006 the Danish.

FishNet now wish to actively expand theirmarket to optimise the exploitation of thepatented technology. They are unsure of howto structure their expansion.

New Market Supply AgreementCustomer A

Places Order for EnviroNet

FishNetProduce

FishNetSupply

Customer A Receives

What sort of payment terms?

Standard terms? Are

they enforceable?

Product liability? Quality?

Cash flow; market presence; strength of IPR i.e. trademark; production capability; delivery chain; expertise.

Agency Agreement

Risk? Cash flow? Production? Costs?

FishNet

Agent

Customer

Agent appointed by

FishNet

Paid a commission by FishNet

Enters Agreement

with FishNet/ not the agent.

Distribution AgreementDistributor A

Quantities?

Price?/Marketing?Production?

Intellectual Property?

Exclusive? Territorial?

Minimum Quantities?

Lower the price? Who

pays for marketing?

Who produces?

What about know-how?

Trademark? Patents?Licence?

Licence AgreementFishNetLicensor

LicenceeCompany A

Company A Produces

Company A Supplies

What type of licence,

worldwide? limited?

Royalties? One off

payment?

Transfer of technology and know-

how? Quality?

Trademark?

Agreements

Drafting

The ability to write clearly, concisely andprofessionally under time pressure is a coreskill for every lawyer. Every type of writtencommunication needs to be effective,unambiguous and well drafted, especiallyyour written pleading.

Clarity is best

Vague is not always ambiguous. Common terms,reasonable, satisfactory, and immediately arevague but not necessarily ambiguous within thecontext of an agreement.

Plain language can avoid ambiguities. Many peopleoverdraft, for example shall not now, or in thefuture instead of just saying, shall not. Thesolution is unambiguous: Use plain languagewhenever possible.

Good writing and drafting requires?

Preparation and research identify the objective(s)/purpose of thedocument, research the law.

Planning decide on the best structure andnecessary content.

Drafting clearly and concisely set out theinformation/points following your plan

Checking cross-check your document to ensurethat it is correct, unambiguous andmeets the objectives you identified.

Preparation and research

Fact handling - part of your role at thisstage is to ensure that you identifyeverything you need to know.

Separate key facts from background facts; Highlight the key facts, understand what

makes them key.

Planning

Unadvisable to simply make a start Identify your clients objectives and decide

how they can best be met. Plan your strategy

What are your main goals; Secondary goals; Settlements.

Once you know these you will then needto select the most appropriate structure.

DraftingHaving carefully planned the content andstructure of your document, you can confidentlybegin to draft. Your document should be as easyas possible to read and understand.

It is essential that everything you draft is preciseand unambiguous. You should try to be asconcise as you can. Concise documents are easierand quicker to read.

Padding/superfluous words

Cut out unnecessary phrases whichlengthen the sentence while adding nothingto its meaning. For example:

in the circumstances; in this instance; the fact that; of course.

Tautology Tautology or saying the same thing twice using

different words should be avoided. For example: unfilled vacancy; true facts; now current.

Similarly, avoid excessive use of adjectives which donot make the meaning more precise. For example:

grave and fatal error; careful and detailed consideration.

Compound prepositions

Use single prepositions instead ofcompound prepositions. For example:

in accordance with under/by by reason of by/through with reference to about in order to to

Nouns derived from verbs

Use the verb itself rather than a noun derived from it. This helps create a more immediate effect.

make an admission (admit); give consideration to (consider); effect a termination (terminate or end).

Archaic language

Twenty-first century documents should bedrafted using contemporary language. Delete orreplace archaic words and phrases such as:

crave leave; the said; hereinbefore; aforementioned; whereof .

Keep sentences and paragraphs short

In long sentences, the verb, subject andobject may be separated by too manysubclauses. This places a strain on thereaders memory and understanding.Always try to keep the sentence coretogether.

Spelling and grammarI am writing with reference to your enquiry concerning the useof the entrance area and hallway at the gallery for the purpose ofdisplaying informational materials and presenting visualdisplays on the subject of recycling. In the circumstances thecentral question will be whether the internal content origins andvisual qualities of the material hereinbefore mentioned are to befelt to be appropriate after due consideration has be given by theGallery Board, such permissions are at the sole dicretion of theboard. The Boards decision concerning any such request will bemade after it has met in session on the first Thursday of eachcalendar month and notification will be sent within 14 days ofthe said meeting.

I am writing with reference to your enquiry concerning the useof the entrance area and hallway at the gallery for the purpose ofdisplaying informational materials and presenting visualdisplays on the subject of recycling. In the circumstances thecentral question will be whether the internal content origins andvisual qualities of the material hereinbefore mentioned are to befelt to be appropriate after due consideration has be given by theGallery Board, such permissions are at the sole dicretion of theboard. The Boards decision concerning any such request will bemade after it has met in session on the first Thursday of eachcalendar month and notification will be sent within 14 days ofthe said meeting.

I am writing about your request to use the entrance area andhallway at the Gallery for a display about recycling. Permissionto mount a display is given by the Gallery Board (the Board)which meets on the first Thursday of each month. The Board willdecide whether the quality and content of the material isappropriate. The Board will let you know its decision within 2weeks of and including the date of the meeting.

The original paragraph was 120 words. The paragraph above whichcontains the same information is only 76 words. It is also easier toread and understand.

PEEP Starting Your Agreement

Protect

Enter

Exit

Profit

Starting to DraftParties Make sure they are clearly identified, what about subsidiaries?

Recitals Understated importance, this goes to purpose, relationship and intent andoften certainty of object. This sets the tone for the interpretation of theremainder of the agreement.

Definitions Important but often overused and with little thought to the consequences.

Entry Licence fee? Upfront costs? Registrations? Regulatory costs?

Exit Trial period? Repurchase of stock? Reimbursement of overpayments?Confidentiality? Termination costs? Specialist costs? Term? Renewal?

Profit Margins? Low entry costs, low exit costs, Sunk costs? Marketing? Avoidingpayments in advance? Buy backs? Betterments? 2nd Generation.

Protect IP, Litigation Costs, Confidentiality, Arbitration? (Privacy), Termination,Bankruptcy, Property and Title, Territory?

Boilerplates

Using precedents & boilerplates A precedent agreement is like a template that has

already been drafted and covers many of theissues that may arise in the particular agreement;

Advantages and disadvantages;

Should be used with caution;

Should not be read in isolation, must be appliedto your facts.

BoilerplatesCommon boilerplate clauses include:

Applicable law

Jurisdiction

Confidentiality

Insolvency

Force majeure

Termination

Insolvency Why is it important?

This Agreement may be terminated only:

(b) By the Company if: there is an unacceptable change in the controlor management of the Distributor; if the Distributor ceases tofunction as a going concern or makes an assignment for thebenefit of creditors; if a petition in bankruptcy is filed by or againstthe Distributor, resulting in an adjudication of bankruptcy; or, if theDistributor fails to pay its debts as they become due and provideddue notice has been given by the Company to the Distributor andthe Distributor has not cured such breach within thirty (30) daysthereof;

Is this sufficient?

Force majeure Why is it important?

Force Majeure

Neither Party to this Agreement shall be liable for any failure or delay inperforming their obligations where such failure or delay results from any causethat is beyond the reasonable control of that Party. Such causes include, but arenot limited to: power failure, Internet Service Provider failure, industrial action,civil unrest, fire, flood, storms, earthquakes, acts of terrorism, acts of war,governmental action or any other event that is beyond the control of the Party inquestion.

In the event that any event of force majeure continue to render performance ofeither Partys obligations impossible for a period in excess of 6 months the Partiesshall agree to bring this Agreement to an end as soon as possible thereafter bynegotiating a settlement.

Problems with this?

Each Party agrees to maintain secret andconfidential all Technical Information obtainedfrom the other both pursuant to this Agreementand prior to and in contemplation of it and allother information that it may acquire from theother in the course of this Agreement, to respectthe other's proprietary rights therein, to use thesame exclusively for the purposes of thisAgreement, and to disclose the same only tothose of its employees and sub-licenseespursuant to this Agreement (if any) to whom andto the extent that such disclosure is reasonablynecessary for the purpose of this Agreement.

Is this sufficient? Do you have concerns with it?

Negotiating

One-third of what is said is not heard

One-third is heard but not understood

One-third is understood but may not be

accepted

The Skills of Negotiating by Bill Scott

Who am I?

Understanding who you are as a negotiator is key.

Allows you to understand your weaknesses; Keeps you on guard and provides the option of

guiding the negotiation to your strong side; Understanding who you are makes it easier to identify

key traits in the other side; Knowing who they are allows you to potentially

control the negotiation.

Negotiation Styles

Low co-operative High

High

ASSERATIVE

Not all about the winning!

Negotiation Styles

Avoiding

Accommodating

CompromisingCompeting

Collaborating

Avoiding

The avoiding style is low both on assertivenessand co-operativeness. It often takes the formof avoid the issue and maybe it will go away,the circumstances will change, the other sidewill eventually give in.

How do you counteract this strategy? Ideas?

Accommodating

A person adopting an accommodating style iskeen to accept the other sides proposals andreach agreement. It is sometimes a stylewhich results from the negotiatorspersonality.

What difficulties could you foresee with a party who is willing to agree to anything?

Compromising

It is vital that negotiators should have thecapacity to compromise; otherwise, dealswould never be made and disputes wouldnever be settled. The important question for anegotiator is how and when to compromise.

Do you see a difference betweenaccommodating and compromising?

There is no such thing as a free lunch.

Competing

Competitors are uncooperative and highlyassertive often bordering on aggressive.

When do you think this will be effective? What difficulties do you think could arise

using this style?

Collaboration

Often referred to as problem solving orprincipled negotiation. It encompasses highlyassertive and highly cooperative behaviour. It isoften the ideal negotiating style because it givesyou the best of both worlds. Assertiveness andcooperativeness are not mutually exclusive.Assertiveness is not the same as aggression.

Problems? Advantages?

Beware! All is not what it seems!

The job of the negotiator

The job could be different: Negotiating a settlement v commercial

agreement; Objectives could be multifaceted; dont think

short term only; Consider suitable alternatives, before starting the

negotiation; May be other ways to achieve the big picture.

Have an imagination!

Example Scenario FishNet AB is approached by BigFish Ltd, a large

company specialising in fishnets who want to buyFishNet.

FishNet are keen to sell and to use the purchasemonies to start up a new research and developmentcompany.

The owners of FishNet ideally want SEK220 million butare prepared to accept SEK180 million. They want thetransaction to proceed quickly, and as they have otherinvestment projects presumably they will need themoney quickly.

What are the objectives for FishNet?

Possible Objectives

Question Objective Alternatives?

How much money would they like?

Maximum selling price Does this have to be all paid upfront?

How much money do they need?

Minimum amount required up front or soon

Could this be the upfront with the remainder to

follow?

When do they need the money?

Deadline for completing the transaction

Does everything have to bein agreement?

What project do they need the money for?

This will provide possible solutions as to the

objective

Will the answer here mean that cash may not be necessary?

How to do it

The Negotiation Forum

Negotiations can be carried out in a number ofways, for example, via correspondence, conferencecalls or face to face meetings or a combination ofthem all. You should always think about the clientsneeds when choosing the forum.For example, you might start by usingcorrespondence, but that could later becomeunnecessarily rigid and time consuming. It may bemore expedient to dedicate a set block f time tohave a meeting to finalise the negotiation.

Meetings and Face to Face

Why choose this as a forum?

Preparing for a Negotiation In some fields of law, there is a tradition that meetings will take

place at the offices of the seller or claimant. Not usually the casewhen negotiating commercial agreements.

OPTIONS Having the meeting at your own premises gives you the feeling of

control. You have full access to your papers and to the officessecretarial, catering and other facilities. Also, you do not have tosuffer the time, cost and general inconvenience of having to travel.

Attending a meeting at the other sides offices might therefore be adisadvantage. However, the travelling time can sometimes enableyou to arrive fresher and more fully prepared. Also, enabling theother side to feel at ease in their own offices might induce them tobe more collaborative.

A third possibility is to agree a neutral venue.

Meetings

Meetings have the following features: They are immediate. They give greater commitment to explore the

case thoroughly. Body language and silences are readily

apparent and capable of use. They are more fluid and give greater

possibilities of fine movements, nuances, andthe trading of concessions.

Prior Points to Consider

Regardless of venue there are essential pointsof knowledge that you should have, share orrequire before attending the negotiation, suchas:

Time and length of the meeting; Attendees at the meeting; The purpose of the meeting; The agenda for the meeting.

The Process

Ground Rules

Party A Opening

Party B Opening

Positioning & Discussion

Bargaining

Closing

The Stages

Opening the meeting The opening phase of a negotiation is

important for two reasons. First, it creates theclimate for the negotiation. Patterns, stylesand pecking order establish themselves earlyand are difficult then to change.

Secondly, energy and concentration are highat the outset of the negotiations but later maydeteriorate.

Ground Rules

The host of the meeting should, after effectingany necessary introductions, confirm theground rules for the meeting, for example: the purpose of the meeting; whether or not it is without prejudice and/or

subject to contract; the likely length of the meeting; the agenda; and who will make the first opening statement.

Opening

Proper, well prepared opening statements are agreat help to most negotiation meetings. They: help to reinforce the climate established at the outset

of the meeting; provide structure and order; help everyone to settle down; remind everyone of the background, the areas of

agreement; help to avoid unintentional false assumptions from

hindering the communication process.

DO consider saying how long your statement will take

if it is likely to be more than two or threeminutes;

present your case concisely and confidently; use collaborative tone, posture and gestures

(unless you have decided to adopt a competitivestyle);

observe carefully the other sides verbal and non-verbal reactions;

remember the one-third rule

Positioning and Discussion During this phase: Demonstrate that you have heard and

understood what the other side has said even if you do notagree with them.

Now you should test the other sides statements with amixture of appropriate open and closed questions.Specifically look to test:

any assumptions you think they might be making; their underlying interests or needs; whether or not there may be other ways of meeting those

interests. Do not ask two questions at once. Give them time to

answer do not be tempted to fill a silence too quickly.

Bargaining Bargaining by its definition involves the trading of

concessions. Compromise is key. Beware of strategies: For example, a competitive

negotiator might refuse to concede anything to you forsome time, and then concede only small amounts,slowly and at irregular intervals, and of diminishingamounts.

When you are offered a concession, it is a question ofjudgement whether you express appreciation for it, oremphasise the lack of cost to them, or both.

When making a concession, emphasise the cost to youof it and try to give a reason for it.

Closing

The timing of the close of a negotiation willdepend on how much more you think you canachieve?

Compare the expected achievements againstthe cost to the client in terms of time, moneyand stress.

Will further negotiation be productive? Remember negotiating expands to fill the

time allotted to it.

Closing II

confirm what has been agreed; prepare an immediate agreed written

summary or term sheet; ensuring that details are clarified in order to

avoid later disputes; and preparing a list of actions to be taken by both

sides. Decide on the agenda points to be carried

over if there is to be a follow up session.

Final Thoughts & Dirty Tricks Surprise Attacks: Sudden changes in tactics or

demands, intimidation, withdrawal of offers oremotional outbursts.

Good Guy, Bad Guy: The aim of the tactic is tocapitalise on the relief felt at evading the badguy.

Feinting: Attaching great importance to oneparticular item, then conceding it in order tosoften you up for another item in which therehas been little interest but which is, in fact, amain point.

Preparation is ongoing.

Good Luck

You must never try to make all the moneythats in a deal. Let the other fellow make somemoney too, because if you have a reputation foralways making all the money, you wont havemany deals. J. Paul Getty

DraftingSlide Number 2FishNet, AB (A Swedish Company)EnviroNet Patented TechnologyFishNet, AB QuestionsNew Market Supply AgreementAgency AgreementDistribution AgreementLicence AgreementAgreementsDraftingClarity is bestGood writing and drafting requires?Preparation and research PlanningDraftingPadding/superfluous words Tautology Compound prepositionsNouns derived from verbs Archaic language Keep sentences and paragraphs short Spelling and grammarSlide Number 24Slide Number 25PEEP Starting Your AgreementStarting to DraftUsing precedents & boilerplatesBoilerplatesInsolvencyForce majeureSlide Number 32NegotiatingWho am I?Negotiation Styles Negotiation StylesAvoidingAccommodating CompromisingCompeting CollaborationBeware! All is not what it seems!The job of the negotiatorExample ScenarioPossible ObjectivesHow to do itThe Negotiation ForumMeetings and Face to FacePreparing for a NegotiationMeetingsPrior Points to ConsiderThe ProcessThe StagesGround RulesOpening DOPositioning and DiscussionBargainingClosingClosing IIFinal Thoughts & Dirty TricksPreparation is ongoing.Good Luck