Importance of Negotiation

May 20, 2024 Darin M. Klemchuk

Over my legal career, I have participated in hundreds of mediations and thousands of settlement agreements. The outcomes achieved demonstrate the importance of negotiation, particularly pre-negotiation preparation and a clear assessment of a “walk away” position during the negotiation. The following are some practical tips on achieving a successful negotiation whether it is a legal (mediation and settlement agreements) or a business deal.

Importance of Negotiation in Law and Business

Negotiation is important because it presents an opportunity to achieve a better result for a party. In a win-win deal, both parties are better off as a result of the negotiated outcome. Too often, litigation is viewed as an “all or nothing” arrangement or “zero sum game” where if one party gains, the other loses.

One example is patent troll litigation or viewed from the other side, patent enforcement litigation. The patent plaintiff must risk the patents asserted and the possibility of no recovery, out of pocket costs, sanctions awards, and attorney’s fees if the case goes to trial. The patent defendant is at risk of spending over $1M in attorney’s fees defending the case, costs, potential enhanced damages and attorney’s fees award, and a disruptive injunction. These cases are routinely settled pre-trial for a payment far less than defense costs with the patents remaining intact. Regardless of our opinion of this kind of litigation, it clearly demonstrates the value of negotiations in solving business disputes. The following discuss specific tips and strategies for achieving more effective negotiations.

Elements of Negotiation

Psychological Anchoring

A successful negotiation should begin with “psychological anchoring,” which is where each of the parties attempts to establish a perception of their view of the deal. Often, that takes the form of the initial offer, whether in a demand letter, letter of intent, or opening demand in mediation. In my opinion, waiting until the opening demand in mediation is too late. A better mediation preparation practice would be to establish the anchoring well before mediation. In addition to saving time, this allows the parties to prepare their other negotiation elements in advance thereby enhancing the chances of success or signaling that a negotiation at that time will not be effective. This often happens in litigation where insufficient discovery has been conducted such that key information is lacking that is needed to resolve the dispute.

Walk Away Number

The Walk Away Number — sometimes referred to as the “Best Alternative to a Negotiated Agreement” or “BATNA” — is the pre-determined safety valve for a negotiation. Put another way, if a resolution cannot be reached that matches or is better than the BATNA, you “walk away” from the deal. This should be not only determined but also committed to before the negotiation begins.

Based on feedback from several clients, I am astounded at how few lawyers co-create a BATNA with clients before a mediation. This is hard work. A good BATNA requires in-depth analysis of each parties’ position, risk assessment, potential outcomes, and a fair amount of “gut feel” intuition about how things could unfold if a settlement is not reached. Regardless of how the BATNA is reached, it should be a firm commitment in advance of the negotiation. If there is no BATNA set or a lawyer-client team aren’t committed to one, a mediation or negotiation starts to become a slippery affair headed towards a deal “where no one is happy” as mediators often describe as a successful mediation result. In my experience, clients with weaker psychological willpower and even weaker or no BATNA commitment tend to be at risk of taking a worse deal, despite the legal advice provided. They can behave like a boat in a storm being blown around as the winds change.

A word of caution on BATNAs. Even if the lawyer and client have committed to a specific BATNA pre-negotiation, there is a risk that a third-party, such as a supervisor not participating in the negotiation, may interject an alternative opinion on settlement and BATNA. This can interject unexpected chaos into the negotiation, so I recommend that all parties with decision-making authority agree in advance on the BATNA. This approach will not eliminate the situation where there are two decision makers, who become unaligned during the negotiation process. A lawyer in this situation finds himself/herself in a dual negotiation — between the client representatives and between the “client” and the opposing party. Best to always keep in mind who the “client” is in these situations to ensure ethical considerations are met.

Concessions Basket

Put simply, the “Concessions Basket” is the pre-determined list of concessions a party can give up to get a deal better than the BATNA. My strategy is to reverse engineer success by setting a target resolution better than the BATNA. From there, an Opening Offer and Concessions Basket are created to achieve the desired result.

In my experience, the Concessions Basket is where most deals get made. This is because a concession offered by one party may be of much higher value to the other party. Concessions also get parties away from positions and headed toward mutually beneficial agreements. I find that the Opening Offer and BATNA elements tend to be the more straight forward negotiation elements. The Concessions Basket is also where each party can get very creative.

During a well-run mediation, a strong mediator can uncover hidden or unknown interests of the parties. These interests can possibly be met through items in the Concessions Basket. For these reasons, I strongly recommend putting serious considerations to the other party’s interests and concessions that can be made aligned with these interests to achieve the desired result. This should be done in advance of the negotiation.

Inner Dialog Management

As Mike Tyson famously said, “everyone has a plan until they get punched in the mouth.”

The negotiation elements discussed above and their strategy tend to be intellectual endeavors that collide with reality in real-time negotiations. Parties and their lawyers also need to take into account the “whole person” of each of the participants — physical, mental, emotional, intuitional, and spiritual. As with deposition preparation, I counsel clients about the importance of their individual stress response and how to manage it during mediation.

A good mediator can create strong perceptions of fear, doubt, and uncertainty if a mediated settlement agreement is not reached. This can provoke emotional responses from the participants that provide clues to the mediator of how to reach an agreement. In other situations, representatives get so angry they want to walk away from the mediation or settle on unattractive terms “just to get it over with.” While lawyers are not trained psychologists, I believe it pays to develop EQ skills to be able to recognize these signs and provide their client a break before the wheels come off.

One of the best stress management strategies is observing inner dialog while maintaining a steady breathing rhythm (such as 5 seconds in, pause, 5 seconds out). This type of breathing pattern used by the military resets the nervous system and brings down stress. Lower stress leads to clearer thinking. Combining the breathing with observation of internal thoughts allows you to interrupt negative or fear-based thought patterns and replace them with positive ones. These two skills alone pretty much guarantee better results in high-stakes situations.

Negotiation Terms

Any discussion of the importance of negotiation would not be complete without a brief discussion of negotiation terms. Rather discuss specific terms, I am sharing below a few special negotiation situations as well as the big picture of the psychology of resolving inter-personal conflicts.

The Irrational Player

While not a particularly good Texas Hold ’Em player, I have won a few tournaments despite lacking odds calculating skills or patience. The keys to those wins were a combination of being able to read others and employing an erratic betting strategy. Put another way, I broke the rules, taunted other players, and established the “irrational player” strategy, which eventually and with much luck, lead to winning the pot at the end of the night.

Occasionally, we encounter the “irrational player” in the business or legal context. This may be the litigant that who would prefer to “burn it all down” over reaching a reasonable, even an unreasonable settlement. Another example is the litigant or counsel that has ever evolving additional settlement terms making closure impossible. Some people are truly unbalanced and will always want “more” regardless of the settlement terms. You may find yourself representing or being adverse to a narcissist or sociopath.

Regardless of which version of the Irrational Player that shows up, I have found there are two strategies that work best in dealing with them during a negotiation or a dispute: (1) settle as early as possible to minimize legal fees, risk, and hassle, or (2) decide equally early, to go long and aggressively pursue claims knowing that the case is likely to go all the way to a trial, appeal, and possibly more. I’ve observed countless “rational” clients attempt an intellectual and reason-based approach to dealing with the Irrational Player only to pay much more later. Best to get real about the opponent as early as possible and decide to pay the tax or commit to total warfare.

Psychology of Conflict Resolution

In the early 2000s, having a “joint opening statement” was in vogue in the Dallas mediation community. Each mediation would start with everyone in a large conference room where the mediator would provide an overview of the mediation process and then give the lawyers an opportunity to present their case to the other side. This provided a unique opportunity in the life of a lawsuit where counsel could speak directly to the opposing party in an environment shielded by confidentiality. I usually would start by complimenting opposing counsel, pointing out “that if anyone could win this case, he/she could do it, but they are going to lose because…”, and then proceed to describe all the ways we were going to demolish them.

While this structure was helpful in getting organized relatively early in a case, I rarely found these sessions to be effective. Most of the time they were counterproductive because the presentations tended to rile up each side and half the day was spent getting everyone back to even. The norm has since shifted in Dallas to not having a joint session or if one is held, it is limited to the mediator speaking. During my mediator training in 2020 with Mediation Dynamics, they took a contrary position encouraging the parties (not lawyers) to speak to each other at mediation. Their script to resolution follows five steps:

An opening statement by each side (not lawyers)
Ventilation of emotions of each party and affirmation by the mediator and possibly others
Past – a discussion of what happened
Present – a discussion of what each party wants to happen
Future – a discussion and plan on how to get what each party wants in the future

I have never followed this process, particularly the first step, in a mediation where I was representing a client. But I have used this process numerous times while managing employees and resolving interpersonal disputes. It works. In fact, virtually every time I have used this 5-step method it has worked even with the most emotionally charged conflicts. The key to success is creating and holding space for the first two elements. This approach can be useful for mediations even if the mediator does not follow the process.

Mediation as a Step in the Resolution Strategy

While most court ADR orders require the parties to participate in “good faith” with representatives with “full decision-making authority,” many mediations, like any business negotiations, do not resolve the dispute. I don’t consider this a failure because the mediation process can provide valuable information as to each side’s positions. For example, a mediation will quickly uncover if any of the parties are adopting the “irrational player” strategy. Others may approach with a strategy of driving a hard bargain that if not met, creates a perception (believable or not) as to their litigation strategy. Others may make an outrageous offer and refuse to make any concession leading to an impasse before lunch. In all of these situations valuable information is learned. Over 90% of the time cases are resolved before trial, whether at mediation or informally. Ultimately, all dispute resolutions involve what happened, what a party wants to happen, and how to get there.

Key Negotiation Takeaways:

The following are key considerations next time you have a conflict or deal to negotiate:

Pre-negotiation preparation can increase effectiveness tremendously.
Anchoring with an opening position, developing a BATNA and goals for negotiation terms, and creating a basket of concessions are all useful tools.
Managing inner dialog during negotiations leads to better results.
If you encounter the “irrational player,” you need to make an early decision on the response strategy.
For interpersonal conflicts, consider getting the individuals to “get it off their chest,” affirm those emotions without judgment, ask for what happened, discuss what each individual wants, and finally, brainstorm how each can get what they want.

For more information about business litigation and professional services, see the Klemchuk PLLC Industry Focused Legal Solutions pages.

Klemchuk PLLC is a leading IP law firm based in Dallas, Texas, focusing on litigation, anti-counterfeiting, trademarks, patents, and business law. Our experienced attorneys assist clients in safeguarding innovation and expanding market share through strategic investments in intellectual property.

This article is provided for informational purposes only and does not constitute legal advice. For guidance on specific legal matters under federal, state, or local laws, please consult with our IP Lawyers.