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Straight Outta Compton

Who would have thought that the new movie, Straight Outta Compton, in addition to its great story and great music, would also contain some great lessons about contract negotiation? The main lesson being about the dangers of creating a partnership deal that is not fair to all of the participants. According to the movie’s version of events, the leader of the group NWA, Eazy-E, and the manager Jerry Heller, presented the other members with a deal giving them a much smaller share of the profits than Eazy-E was taking. Followers of the school of aggressive negotiation can justify this hard bargain because it was originally Eazy-E’s company and he put up the money to get the band’s first record made, and also because the ethics of that school of negotiation support taking whatever you can get, and letting those on the other side of the table look out for themselves.

The results of driving such a hard bargain in this case were disastrous. The group’s talented lyricist, Ice Cube, refused to sign and left the group. Eventually, the brilliant composer Dr. Dre also left the group. Both these talented musicians went on to have spectacular solo careers, while Eazy-E is shown losing almost everything. Experts on negotiation stress the importance of leaving something on the table, and making the deal fair to other parties, particularly when one has to work with those partners in the future. And particularly when those partners create so much of the value for the group. (For example in Michael Wheeler’s book The Art of Negotiation, discussed in a previous post, the author provides many examples of aggressive negotiators blowing deals by demanding too much, or gaining deals that cost them in the long run.) Because Jerry Heller and Eazy-E failed to observe those rules, they ended up much worse off than if they had treated their partners fairly.

trailer

But just in case anyone thinks that this film about a bunch of tough guys only illustrates the value of “nice guy” negotiating, the movie also contains some examples showing that taking a “tough guy” approach can also be effective. At one point, Ice Cube is shown smashing up his record producer’s office with a baseball bat to convey his displeasure at the size of his royalty payments. It’s not a tactic I can recommend, but it sure seemed to make the guy a lot more pliable the next time they met. Dre’s partner Suge Knight is also shown employing violent tactics to make a deal, methods that lead to some short term success but long term failure. So there is also a place in negotiation for standing up and demanding what you are entitled to. To a large extent, that is what NWA stood for.

Drafting demand letters

One way to think of a demand letter is as an attempt to initiate an out-of-court resolution of a dispute. As such, it might be helpful to keep in mind that negotiated dispute resolution is usually most successful in an atmosphere of mutual willingness to listen to the other side’s concerns, and a spirit of attempting to satisfy both sides’ interests. The problem with most demand letters–maybe because they’re usually drafted by lawyers–is that they do not seek to create that atmosphere. Even though most demand letters invite a negotiated resolution of a dispute, they usually read more as an ultimatum, and many of them seem to leave little room for negotiation.

Most demand letters employ language of threat and intimidation. They tend to set forth an exaggerated description of the recipient’s conduct; they list a multiplicity of available causes of action; and they promise the party being served with severe legal consequences in the event they do not give in to the other party’s demands. It’s a tried-and-true template, one I haven’t abandoned entirely myself, because it still packs a punch. The downside of that aggressive approach, however, is that it can provoke angry denials and counter-charges. Many demand letters serve as the opening salvos in a war of words that will probably end up in court, and only much later return to the negotiating table after a lot of costs and pain have been inflicted by both sides. Many are simply ignored.

Recently I had to respond to a demand letter charging a client with various trademark and false advertising violations. I responded by suggesting that the client was within its rights in some areas but was willing to make certain other changes to its advertising materials in order to resolve the dispute. What I got in reply was a new letter, speaking in the same terms of threats and ultimatums, but demanding only that we do exactly what we had offered to do in response to the original letter! We made the changes, I wrote back thanking the trademark holder’s attorney for his cooperation in successfully resolving the dispute for the benefit of both sides, and that was the end of the matter. The point being that lawyers have a hard time getting ourselves out of the mindset of claims and threats and sanctions, and into a different mindset of cooperative dispute resolution. Another point being that demand letters, even though they purport to seek an out of court resolution of a dispute, still operate in the shadow of the court system.

What I’m suggesting is that we might be squandering an opportunity. We ought to try being more creative in framing demand letters in a way that suggests a positive solution to a problem. We ought to consider trying to engage the other side in a conversation to solve a common problem. That usually requires some acknowledgement of the other side’s interests, and that can be done without appearing weak.

We should recognize that to frame a dispute only as a legal claim might be an unduly narrow way of looking at the problem. Discussion of both parties’ other concerns and interests could open up other ways of potentially resolving the dispute.

We might also consider asking the opposing party to agree that the parties have a conflict, instead of inviting the opposing party to disagree with our characterization of the alleged violation. That would start the parties down a path of agreement, even if the only common ground that can be found at the outset is to the proposition that the parties have a dispute that needs resolving.

Another positive way of framing a demand letter is to invite the other side to suggest a means of resolving the conflict, instead of just demanding that they pay up, or stop doing whatever it is they are doing. That way they are invested from the outset with part of the responsibility for solving the problem.

Granted there are some situations where the stakes are such that you must demand that the other side agree to your terms or face the consequences, but you have to recognize when you take that approach, that if they don’t back down immediately, you are just headed for litigation. For a large number of contested disputes it might be more productive to suggest right up front that you are interested in sitting down and resolving the dispute in a way that may satisfy both side’s concerns and interests. The vast majority of contested disputes are going to end up in a negotiated resolution eventually anyway. It only makes sense that they start down that path from the outset.

Rule 1

The reformers who drafted the Federal Rules of Civil Procedure in the 1930’s thought that if we could only get rid of the complexities of ancient pleading practices, and liberalize discovery, cases could be fairly adjudicated on their merits instead of being won or lost on technicalities. Their intent can be gleaned from Rule 1, which provides that the rules “should be construed and administered to secure the just, speedy, and inexpensive determination of every action and proceeding.”

To a large extent, the simplified rules we have been living with for so many years must be judged a success, simply because they have stood the test of time. On the other hand, hardly anyone would say that Rule 1 accurately describes the way civil cases are currently processed. We have encrusted the original simple pamphlet enacted in 1938 with so much commentary and interpretation that the rules are on their way to becoming as arcane as the system they were designed to replace. We no longer administer the rules to remove roadblocks to just, speedy and inexpensive determinations of every action and proceeding. Instead we have created so many new roadblocks–mainly the burden of expensive discovery, but also new opportunities for motions–that the whole premise of the federal rules project must be called in question.

The rules ought to be re-written and streamlined again from top to bottom, which would be an endeavor comparable in scope to the original project. Such a revamping should recognize that the vast majority of cases are never going to be adjudicated on the merits anyway, and should better incorporate alternative forms of dispute resolution into the rules of civil procedure. A simplified set of rules could eliminate steps that are unnecessary for the vast majority of cases that not going to trial anyway, and could also encourage parties to move toward resolution rather than engaging in wasteful adversarial behavior. At the same time, simplifying the rules could make it possible for more cases to go to trial, because the cost of litigation would present less of an obstacle. (My own radical proposal for an overhaul of the federal rules can be found here.)

One commendable effort to reform the rules has been undertaken by the American College of Trial Lawyers and the Institute for the Advancement of the American Legal System. The task force has compiled a set of principles that still exalt the ideals of Rule 1, and that seek to create more flexibility and proportionality in the civil justice system to allow cases to be resolved in more appropriate ways. Some of these ideas are being incrementally adopted in amendments to the Federal Rules.

I’m not sure I will live long enough, however, to see the kind of wholesale reform that I think is needed. There is too much resistance to change in the fearful legal profession. And there is too much partisanship and paralysis in the political system to allow that kind of change. That means that the only practical way now to create the kind of streamlined dispute resolution process that would live up to the ideals of Rule 1 is to do it at least partially outside the purview of the court system. More on how to do that in subsequent posts.

The Art of Negotiation

A long time ago, when I was fairly new at law practice, I represented a plaintiff in a contentious sexual harassment case against a large company. After a series of pre-trial battles, the defendant’s counsel opened the door to the possibility of settlement, throwing out an insultingly low-ball number. I wasn’t sure how to respond.

At that point in my career, I thought I knew how to litigate, but nobody had ever taught me how to negotiate. I had never received any training in negotiation strategy in law school, and very little at my law firm. The subject simply wasn’t taught at the time. So I honestly didn’t know the best number to come back with in order to lead the process to a good result for my client. For some reason I confessed my weakness to the other side, saying something that indicated I wasn’t sure what to do next. My adversary’s response was to ask me whether there was anyone else at my firm who was more skilled at negotiation who could get back to him with a response to his offer.

Suddenly I understood two things. First, there was nobody else at my firm who could do this better than I could. This was my case, and I knew it better than anyone. Second, I realized from defense counsel’s somewhat desperate request for somebody to negotiate with, that the other side was extremely anxious to make a deal. Their aggressive litigation strategy had failed to make us go away, and now they were looking at the high costs and high risks of proceeding to trial. I knew they would pay more than they were offering, even though I wasn’t sure how much I could talk them up.

Once I figured out how to process what the other side was telling me, I had the confidence to handle the negotiations, And I was able to engage in the kind of give-and-take necessary to get the deal done. After that, I never again thought of myself as someone who didn’t know how to negotiate.

This story came back to me as I was reading a book called The Art of Negotiation, by Michael Wheeler, a professor at Harvard Business School, who is also part of Harvard’s well-known Program on Negotiation. I picked up the book after I had a chance to hear Wheeler talk at UCLA about his theories of negotiation. The book is filled with entertaining stories about buying houses and cars, and closing business deals. Wheeler teaches classes on negotiation, so he obviously believes students can learn about negotiation in a classroom. But he also understands that negotiation is more of an art than a science. His theme is about the importance of improvisation in negotiation: responding to the cues and information given by the other side It’s about the attention, presence of mind, and creativity needed to succeed in negotiation.

In other words, the secrets of negotiation lie not so much in knowing how to parry and thrust against the other side’s maneuvers to score the most points. In fact, Wheeler repeatedly emphasizes that pushing for the best possible deal is not necessarily to a negotiator’s advantage. Sometimes an overly aggressive approach will cause the other side to walk away, and sometimes getting more than your fair share will end up costing you in the end.

Instead, being a good negotiator is more about being in tune with the needs and desires of the other side, the way that good jazz musicians or theatrical improvisers respond to what they hear from their counterparts. It’s about having a plan and then throwing that plan out the window as soon as you encounter the unpredictable response of the other side. And it’s about learning how to treat our adversary as a partner in a project that requires more collaboration than competition.

Patent litigation

Recently I attended a program on patent reform featuring representatives from both sides in the “patent troll” debate. Though there was disagreement on the nature and extent of the problem, most of the panelists seemed receptive to proposed solutions such as making it harder to get patents issued, imposing stricter pleading requirements, regulating demand letter practices, or allowing fee-shifting to discourage meritless litigation.

I wondered, however, whether increasing the size of the hurdles on the litigation track might in some cases only give parties new issues to litigate over. If the cost of litigation is what gives patent “trolls” leverage to demand settlements, then the solution might instead lie in reducing the cost of litigation. Maybe by streamlining procedures, restricting discovery, reducing motion practice, and limiting opportunities for other litigation activities that drive up costs, we could reduce the leverage of those who demand payment to avoid the high cost of litigation.

One of the panelists worked for a substantial tech company that has spent a lot defending itself against so-called “trolls.” Even though he complained about the high cost of litigation, he seemed to take pride in his company’s willingness to take a stand in these cases. I asked why, if we were interested in reducing the cost of litigation, would we want to create new issues to argue about in lawsuits. Instead perhaps we should consider taking some steps that would actually make litigation less expensive. Several members of the panel dismissed the idea. arguing that discovery, motions, and other litigation tools are necessary to smoke out and fight meritless lawsuits.

To my mind that suggests that those who are complaining about the size of the hole we have dug ourselves into are also involved in digging that hole deeper.