Corrections or additions?
This article by Kathleen McGinn Spring was prepared for the May
28, 2003 edition of U.S. 1 Newspaper. All rights reserved.
Keeping Strategic Partners Happy
Just imagine the excitement. After years of struggling
to perfect an innovative software package in your garage office —
and draining your savings along the way — a big company agrees
to take on the marketing and distribution of your product. Its
international sales force will demonstrate your software to decision
makers around the globe.
Oh happy days! Your problems are over. Well, maybe not.
at 650 College Road, has seen dream partnerships turn into nightmares.
"What happens if you give exclusive marketing rights to a company,
and it doesn’t perform?" she asks. It happens. All the time. The
more she talks, the more clear it becomes that entering into a
partnership can be very risky business indeed, and that the risk falls
disproportionately on the younger company with the new technology.
Dorfman speaks at a one-day seminar on "Strategic Alliances:
Your Way to Success" on Thursday, June 5, at 8:15 a.m. at
Hall on the Newark campus of Rutgers University. Also speaking are
Associates. The event has a number of sponsors, led by the New Jersey
Small Business Development Centers. Topics on the agenda include
Alliance Framework," "Negotiating the Alliance Agreement
and "What Marriage Counselors Have to Teach Us." Cost: $100.
Dorfman’s topic is "Understanding the Legal Issues."
and experienced, she lays them out in enough detail to deter anyone
from having his cousin, a guy who is really good at finding legal
forms on the Internet, prepare a partnership agreement.
She has been with Hale & Dorr since it opened its Princeton office
at 214 Carnegie Center (www.haledorr.com). She and many other
attorneys joined David Sorin, the head of the office, in leaving
Ingersoll, where she also worked on tech transfer agreements. A
of Barnard, who studied law at Fordham and obtained her J.D. from
the law school of the University of Utah, Dorfman praises Sorin for
giving her a shot at a law firm partnership.
The mother of two grown children, she made what she describes as a
difficult decision and worked part-time from her home, when they were
small. For most attorneys, this is a choice that dooms any chance
of partnership in a law firm, most of which take on recent graduates
in what they call "classes" and groom them for six or seven
years, choosing the best to join the firm and urging the rest to move
on. There are few ways to get back on to the partner track after
a substantial break.
"David Sorin gave me a chance to prove myself, and I’m
In a way, the arrangement sounds much like the tech transfer
on which she works. Many involve a relatively new company with an
exciting new product or process that could well energize a more
company. The established company sees something in the newcomer that
will make its product line better, and will give it an edge in winning
new business. Sorin, a tech law pro, might have seen the same edge
in Dorfman, a bright, passionate woman, who cheerfully admits to
"nights and week-ends, anything it takes." The "strategic
alliance" worked both ways, benefiting each of them. And that,
says Dorfman, is what any good strategic alliance does.
"The deal is opening a door for the young company," she says,
"but each company is getting something out of it. The more
company is finding it is stagnating, or is in a rut. It feels it has
commercially used up its juices. It’s looking for something —
a new direction, a new product, a new way of distinguishing itself.
The young company has the technology or know how or patent; it may
have the software to make something faster or more useful. It works
for each party."
Strategic alliances come in all shapes and sizes. "It runs the
gamut," says Dorfman. "It can be as simple as an Internet
linking agreement or as complex as a joint venture." The former
could involve two companies with complementary products or services
getting together to call customers’ attention each other’s offerings.
The latter could involve forming a whole new company, with its own
offices, employees, policies, and corporate structure.
In between the two extremes fall any number of arrangements. A joint
development agreement is a common form of strategic alliance. It
involves a young company with know how, and perhaps access to patents,
and a more established company, maybe one with manufacturing
and process expertise. There could even be three — or more —
partners involved. One might have the tech patents, one the
facilities, one the sales force, and one the distribution network.
And while a number of the strategic alliance agreements on which
works involve a young company partnering with an established company,
she says it is also common for two mid-range companies with
strengths to join forces. She works on a number of these deals, as
"Maybe one has a great marketing force, and wants products,"
she gives as an example. "And the other has a fabulous product,
but no sales force."
Another form of strategic alliance takes the form of a "preferred
partner network." An example from the consumer world is the
contentious relationship between Nike and the Foot Locker, begun when
the young manufacturer and the young retailer set out to boost one
another’s sales. Giving lots of its hot models to the Foot Locker
put Nike on the map, and propelled the Foot Locker chain to
dominance. Now Nike, unhappy with the Foot Locker’s discount policies,
is cutting down on number of popular models it is selling to the
(A problem an air-tight agreement could have prevented?)
While Dorfman did not comment directly on the Nike/Foot Locker set-to,
she did emphasize that business is anything but static, and that
do need to be reviewed and updated. Thinking of as many contingencies
as possible upfront is the best overall strategy, though. Here are
some key considerations:
are so popular right now is that venture funding has dried up. Many
entrepreneurs, says Dorfman, have gone through their own money, and
have tapped out their entire friends and family network. They badly
need the boost an alliance with a more established company can bring.
In any deal, the more senior company is likely to want equity in
for its cash or services. Don’t give away more equity than is
advises Dorfman. A good way to accomplish this goal is to focus
on exactly what each party needs, and to craft an agreement to deal
only with those needs. If the big company’s needs involve only a small
part of the company’s products or expertise, and through careful
it realizes that this is true, it may be happy with a smaller equity
stake. At the same time, if the payment or service the larger partner
will contribute to the neophyte is enough to get it to the next stage,
perhaps it should not pursue more in the deal.
"I spend a lot of time talking to clients about goals," says
Dorfman. "I tell them to not go overboard or get overly ambitious.
Let’s accomplish immediate goals."
ends, the young company has to be left with what it needs to survive.
Be very careful in giving away exclusive rights to core technology,
says Dorfman. Technology may be your company’s main asset, and perhaps
its only marketable asset. Consider putting only part of it in play
in the deal, or only for a limited time, or maybe only in a restricted
geographic area. "You have to be able to survive if the alliance
doesn’t work out," she says. If you’ve given away rights to core
technology, it will be difficult to do so.
Likewise, make sure that key clients and key employees are not being
given away. You will need them when the term of the alliance is over.
have a marketing company take your software to the world. If the
is complex, you need to specify how the sales force will be trained,
and who will train them. You need to put in writing the results the
marketing effort must achieve — in each market. If your software
isn’t moving as well as you were led to believe it would on the West
Coast or in Malaysia, you need to retain the right to give those
to another marketing firm.
"If you’ve given an exclusive license (and the other party doesn’t
perform), you would be in a very bad position," says Dorfman.
"How do you get out of that? Have you expressed the minimum level
through. This recently happened to one of Dorfman’s clients. After
all of the agreements were written, the bigger partner, a financial
services institution, backed out. All was not lost, though. The terms
of the strategic alliance specified that fees would be paid if the
deal was terminated. "They would have liked to have the
but they were happy to have the fees," she says of her client’s
50/50 deals. You manufacture, I distribute. Or I invent, you market.
A potential pitfall, says Dorfman, is decision gridlock. A common
occurrence, the deleterious effects of two minds pulling in different
directions, can be mitigated by prior planning.
Write in dispute resolution mechanisms upfront, when everyone’s happy,
and there are no disputes on the horizon, urges Dorfman. Sometimes
putting a steering committee or a management committee in place is
enough to avert problems. Other times an outside party will have to
intervene. Specify in the strategic alliance agreements who the party
should be. An arbitrator? An international trade group? Also specify
a timeframe for resolving issues. Many times, says Dorfman, the more
established company has the resources to outwait the young company,
and will not hesitate to do so.
her area of practice, to be wet blankets. "All the time,"
she says, "I see such optimism." The deals she turns into
formal agreements often represent the big break for a young company.
It is her job to make sure that the longed-for deal will indeed boost
— and not blast — its hopes. "People are not aware of
what will happen when the deal goes away," she says. At least
they’re not when they walk into her office. When they walk out, a
little of the euphoria is gone, but the dream is more secure.
Mediation of a case, rather than taking it to court,
might seem like a good idea when first presented. Think of all the
legal fees that will be saved. Think of all the hassles that can be
avoided. So you tell your lawyer to mediate, not litigate. But then
what happens when you don’t like the result? What happened in the
landmark Lerner v. Laufer case was that the client sued the lawyer
for doing what she told him to do.
The community of mediators was rightfully worried about this case,
even though a lower court had decided in the attorney’s favor. The
case of Lerner v. Laufer, decided in appellate court on April 8,
that parties in mediation embark on a process that differs
This ruling is among the topics for the Alternate Dispute Resolution
(ADR) conference, "Coast to Coast Conflict Resolution,"
scheduled for Friday, June 13, at 8:30 a.m. at the Sheraton at
Woodbridge Place in Iselin.
Institute for Conflict Resolution and professor at Pepperdine
University School of Law, is the keynote speaker. Judge
Feinberg, will make a special presentation. Cost: $225 for non
members. Call the New Jersey Institute for Continuing Legal Education
at 732-214-8500 (www.njicle.com).
By design, the roles of clients and lawyers are not the same in
mediation as they would be in a fully adversarial encounter, says
Isaacs chaired the dispute
resolution section of the state bar association and served on the
New Jersey Supreme Court’s Complementary Dispute Resolution Committee
and teaches a course in conflict resolution at Rider. He has his law
office on Ewing Street at Princeton Professional Park and is past
president of the New Jersey Association of Professional Mediators.
With over 250 members, NJAPM is the largest statewide mediation
and the only New Jersey mediation organization with a structured
process. Members come from a variety of licensed professional
including law, psychology, social work, engineering, architecture,
business, and accounting (800-981-4800, www.njapm.org).
As a amicus curiae (friend of the court), Isaacs argued Lerner v.
Laufer on behalf of NJAPM. "The judges understood how important
this case was to public policy," says Isaacs. "They
acknowledged that mediation is now an accepted process in the
of civil and family disputes and is here to stay. It is one of the
first cases to establish a standard of practice for attorneys, where
the parties first use a neutral-third party (a mediator) to structure
and monitor the process of decision-making between the parties."
Laufer represented Lynne Lerner in her divorce in 1994, following
mediation with a New York mediator. At that time, Laufer had
that he undertake discovery. When Lerner declined his recommendation
and requested that he just review the mediation agreement, he warned
her in writing that he couldn’t guarantee that the settlement was
in her best interest. In 1999, Lerner filed a malpractice suit,
that Laufer violated rules of professional conduct requiring
The judges had to decide whether, and to what extent, an attorney
may limit the scope of his representation of a matrimonial client
in reviewing a mediated property settlement agreement. Lerner was
represented by Hilton Stein, and then by Andrew Rubin, while the
Laufer, was represented by Marianne Espinosa Murphy.
In November, 2001, the state Superior Court dismissed the claim,
that there was no standard that required a lawyer to launch a
matrimonial case after a client had agreed the work should be
to a review of the mediation agreement. The appeals court confirmed
the decision upholding mediation and its values of self-determination
and dismissed the legal malpractice action.
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