[This article is authored by Rohan Gulati, a final year law student at Symbiosis Law School, Hyderabad]

Keywords: Business Negotiations, M&A Negotiations, JV Agreements, Real Estate Disputes, IPR, CDR.

Introduction

Negotiation, a routine method of dispute resolution is a widely recognized practice when it concerns commercial enterprises and their disputes. These disputes range from simple contractual issues to complex high-stake multiparty agreements which might involve the government as well. Due to this, most corporate enterprises prefer negotiation as a form of dispute resolution rather than spending an exuberant amount on tedious litigations. However, on one hand, the advent of the Indian economy after 1991 and the upward graph depicts an essential growth in the commercial markets of the country, whilst on the other, it is hit by several disputes between different business entities

In 1997, Sabeer Bhatia sold the famous Hotmail platform to the IT giant, Microsoft for a lucrative sum of 400 Million Dollars. A sum that is hard to imagine in the 19th century. Although, it can be observed that whilst coming to terms for the consideration, the simple manner of negotiation between the parties was carried out sitting across the table. Taking inspiration from the same, it can be inferred that, negotiations are a vital aspect of any business and most importantly inter-alia, they offer the strategy of “give me some of what I want, and I will give you some of what you want.” Therefore, the present article aims to discuss a few arenas of business in which negotiations might be helpful.

It is pertinent to mention that, negotiations in business can be broadly divided into two different categories. First– “Pre-Dispute Negotiation” which would include the business dealings with various contractors and suppliers upon the agreements and second- “Dispute Stage” which is nothing but the time of dispute between the parties. As per the above-mentioned example, the acquisition of Hotmail by Microsoft belongs to the first category, wherein there was no dispute, only negotiations regarding the consideration amount and other terms were present. In order to clarify the second category, Starbucks and Kraft’s coffee conflict would be the most appropriate examples, which are discussed below.

The above stages give a brief insight into the nature of negotiation. It’s not necessary for the parties to be in a dispute in order to opt for negotiation as a mode of conflict resolution. Undoubtedly, negotiation plays a vital role whilst the parties may be discussing potential business options or agreements. Therefore, negotiation fits in both classes and portrays a diverse form in itself.

Leveraging the Contrast Effect

Some complex business deals take their own time and pace. Therefore, during these negotiations, both parties at the table usually employ the “leveraging of the contrast effect.” To explain the same. Here, while one party offers a consideration to settle the dispute, the respondent might counter-offer a much lower amount, which would urge the complainant to shade down his claim amount and bring it down to a figure, which is acceptable to both of them. This strategy happens to be one of the most common forms of negotiation. The contrast effect is usually employed when there appears to be a situation where both the parties agree to have a little haircut in their amounts and proceed thereafter.

Negotiation in Merger & Acquisitions (“M&A”)

At times, resolving M&A disputes can be as complex as closing these types of deals in the first place. From the real-estate business entities, it can be observed that a deal protection agreement is always negotiated within the terms of the M&A. Deal protection is an aspect wherein the buyer is protected but does not restrict the seller into accepting a better offer than the previous ones. This is one of the key areas which form the root of disputes whilst these deals are negotiated in good/bad faith as the case may be. Usually, these entities would not prefer litigation at all and would prefer to resort to modes that provide confidentiality and flexibility in their procedures. Therefore, negotiation acts as the most appropriate forum for them, wherein the management of the disputing parties can easily sit across the table and attempt to resolve the dispute.

Joint-Venture (“JV”) Agreements

The instant title discusses the situation wherein two corporate entities would be interested in combining their resources and skills for a new project altogether. However, due to the complexity and technicality of these agreements along with the confidentiality clauses, the parties insist on negotiations for various aspects. In fact, there might be instances wherein the parties mutually agree to resolve their disputes, if they arise, through negotiation rather than arbitration or litigation. The underlying reason, as one may trace could be the technicalities involved in the JV, best known to the management of the respective entities.

Real-Estate Disputes

It would be surprising to observe and record a real-estate deal fall through without any objections being raised especially in India. Buyers are extremely selective in their choices which causes difficulties for the seller who runs from pillar to post in order to fulfil these conditions. For instance, if the property is being sold with a restrictive covenant, the disputing parties would never prefer on initiating litigation for the same. They would rather sit across the table and find an amicable solution for it, resulting in nothing but a ‘win-win’ situation. Further, the parties would insist on resolving the dispute in the earliest time frame possible, and negotiation would serve as the best forum.

Negotiation in Intellectual Property Rights (“IPR”)

The disputes pertaining to the captioned field of law often involve serious confidential questions and queries which the companies might be reluctant to disclose to a neutral third party. Therefore, the corporate entities would prefer to opt-in for settling the dispute by sitting across the table and attempting to reach a solution that would not hamper their businesses. Negotiations assist the parties in explaining the complexity of the dispute to each other whilst taking care of the emotions as well. There might be instances wherein the aggrieved party would be able to convince the disputing party by simply stating their emotions and requests. Therefore, principled negotiation offers a way out for the disputing parties to amicably resolve their disputes.

Example 1: Apple-Samsung Dispute

The most appropriate instance of IPR disputes can be observed amongst the pioneers of the IT sector. The dispute pertained to a high-stake Patent infringement in the United States wherein Apple had filed a lawsuit accusing Samsung of copying various features (both software & hardware). However, after various lawsuits being filed across the globe, both the IT giants decided to sit across each other and look for an amicable solution to the same through Negotiation and Mediation later on.

Example 2: Starbucks and Kraft Coffee Conflict

The captioned dispute lasted for more than 3 years when the coffee giant, Starbucks decided to control the coffee market and end its business relationship with Kraft Food enterprise for selling its coffee pods through grocery stores. The parties had made an attempt to resolve the conflict through negotiations whilst Starbucks offered an extremely lucrative offer to Kraft. However, the same was turned down.

Conclusion

The primary objective to gain an insight into commercial negotiations was in order to address the diverse form of negotiation, which not only provides a platform for dispute resolution but also a mode that prevents disputes from being filed in courts. Negotiation essentially belongs to the category of Consensual Dispute Resolution (“CDR”) and portrays a form wherein parties discuss and vent their problems or discuss possible avenues in business deals. Moreover, negotiation unlike litigation provides for confidentiality and eases the process for the disputing parties to reach an amicable settlement as per their convenience. With regard to commercial disputes as mentioned above, business entitles not only involve the element of confidentiality but also the technical points which would be best known to the management themselves. Further, they might also have a sense of emotion attached to them which needs to be considered. Therefore, negotiation strives to serve as a model that assists the parties in the best manner possible and in the most appropriate form.