The science of negotiation and litigation

Intellectual Property lawyers are fortunate to have the opportunity to negotiate both contentious and non-contentious agreements; on the one hand we may need to negotiate and conclude co-existence agreements to enable clients to resolve disputes; on the other we may also be asked to negotiate and conclude licence agreements. In doing so we may gain some insight into the push and pull of negotiations, and yet for most there remains the nagging doubt that perhaps more could have been obtained or achieved. The purpose of this article is to introduce a number of techniques and areas of study which practitioners might use to improve the quality of the agreements it concludes for its clients. It does not provide a best answer to all settlement discussions, nor does it pretend to introduce information which is entirely new; indeed, some of the comments within the article may seem common sense to practitioners based upon their experience of settlement discussions. What one might hope to achieve is a more abstract conception of the science of negotiation which explains why some of those steps, which might have become natural through experience, are the right ones to take. It may also shed light on when they are not the right steps.

The initial part of this article will focus on the area of Game Theory, whilst the second part will introduce Confrontation Analysis and the concepts of principled and positional bargaining.

Games in Litigation

The area of game theory seeks to explain why people make the decisions they do. It seeks to explain rational decisions by way of a variety of techniques and allows parties (or players as they are known within game theory) to establish the best answer to their current conflicts. The theory assumes a number of things, principally that parties act rationally to obtain the greatest outcome for their own interests (their payoff) and that each party knows the potential decisions and payoffs of the other side.

Within the area of game theory there are a number of archetypal games. This article will introduce the 2 best known games.

1. The Prisoner’s dilemma.

The Prisoner’s Dilemma is perhaps the best known of all the archetypal games. The story goes that 2 people are arrested and questioned separately. If neither one admits then they will both be imprisoned for 2 years. If one admits and “rats” out the other then the “rat” will walk free and the other will get 10 years. If both admit and “rat” out one another then each will get a sentence of 5 years. Their “payoffs” can be represented as follows

Whilst collectively each would be better off to deny, both being imprisoned for 2 years, each has the temptation to rebel and admit. If you know that rationally the other person is likely to rebel and that your “payoff” as a result would be -10 then your rational decision is to also admit. Despite the fact that both stand to be worse off by admitting, it is their rational outcome. Classically this game is played as a simultaneous game, where both make their decision at the same time in ignorance of the other. In this particular game, however, there is little benefit in moving sequentially and the other knowing its move; the first person knows that if they deny then the other is likely to improve their position by admitting since that would lower their negative pay-off. As a result, it is likely that the first mover will admit, and of course in that situation the second will rationally choose to admit as well.

2. Chicken

This game simulates (as the name would suggest) the game of chicken. Two players head towards each other in cars and have the choice to go straight ahead or to swerve. If both swerve there is a minor payoff. If one swerves then there is a major payoff to the person who went straight ahead and a small loss to the other (loss of pride perhaps). If both go straight ahead then both have a big loss. The decision table can be represented as follows:

Each player wishes to be triumphant but must balance that with the risk that their bravado will not successfully lead the other to swerve. This game is arguably the archetype which often reflects litigation: “swerve” can be replaced with withdraw application or stop use for one player, and take

no action for the other. Ahead would be to continue using/not withdraw application for party one and bring formal action for the other. It should be noted that this is a crude approximation and that litigation consists of a number of games, each of which affecting the other. The games represented above are generally based upon a single play – in the case of the “chicken” game, for example, if the game was to be repeated then the players would be best served to alternate swerving from game to game.

Signalling and Screening

Chicken reveals a very interesting set of behaviours which help parties reach the outcome they want – signalling and screening. Signalling is the behaviour of making moves which signal that the player will take a subsequent move. Screening is the behaviour of requiring a party to take certain moves before believing that they will fulfil their stated move. One can take the example of a letter from the owner of earlier rights to the applicant of a later mark: the owner of the earlier right threatens to bring proceedings to oppose the registration of the later application and states that will reject any outcome other than the full withdrawal of the application; the applicant states that they believe that there is no likelihood of confusion and that they have no intention of withdrawing.

At this stage the owner of the earlier right may signal that their stated next move (to oppose the application and prosecute the opposition to a decision) is truly their intention by filing the opposition. By doing so they are making a small commitment which is congruent with their threat. The applicant, in reverse, may mentally require the Opponent to take certain steps to show the truth in their stated objections.

Asymmetrical Information

A further way in which the game can be set is through assymetries of information. In considering the likely way in which a game will be played, the parties are required to understand their payoffs and those of the other side. Game theory requires more, however. In order for behaviour to be rational, each party must know that the other understands their payoffs, for if the other side does not then it may not make the anticipated move and your own next step may be sub-optimal. If one looks at the game tables above then if player A in chicken were to publically state that it would rather crash than swerve then player B would need to consider whether the payoffs should be reconfigured. If player B then saw player A throw the steering wheel out of the car it would see a clear signal that player A had not misstated its payoffs.

In the context of trade mark proceedings, particularly in the pre-litigation stage, each party has the opportunity to establish to the other what its payoffs are, and those factors which are of lesser importance. It is likely that this will be around their willingness (and ability) to bring or defend proceedings and the ability to accept or discontinue use.

A player that looks beyond the stated payoffs and establishes the likely real pay-offs is likely to be in a better position regarding the next step to take. It is, of course, possible to plan for different scenarios and to establish with probabilities which is the optimum next step (and perhaps to

communicate to the other side that this is the step they will take if that will lead the other side to take the best next step themselves).

A party must also establish whether this is a single game or part of a set of games – the choices which a party may take are likely to be affected by whether their behaviour will affect future games. One example of this might be the moves made prior to and during negotiations for co-existence between two brand owners. Each wishes to have a settlement which is not only appropriate but followed, and so a larger immediate payoff obtain by questionable behaviour may not represent the best overall pay-off. Game Theory does not always take into account the behavioural norms of the parties, or rather may often be used in a basic manner which hides the extraneous values which affect the real payoffs of the parties. One way in which this has been reconciled is through the use of Confrontation Analysis.

Confrontation Analysis

One of the criticisms of Game Theory has been that it lacks an appreciation of the broader emotions which can be engaged within a negotiation or conflict situation. As a result, drama theory (now more commonly known as Confrontation Analysis) emerged as a way of reconciling the behaviour of players with the often different strategies which would be suggested by “pure” game theory. It also allows for a broader range of views and strategies to be considered, a broader range of players to be considered and reveals a little more about the likely dilemmas facing the parties. These dilemmas largely fall into dilemmas in persuading the other side to take a course of action or persuading a party that, faced with likely action X from the other side they will do Y. You will note that this sounds much like the game of chicken mentioned above, a situation which is common in intellectual property disputes and which is not fully explored by game theory.

The principle is that it is possible to set out move sets for the parties and to establish what each party is likely to want and what, based upon the status quo, is likely to occur. By reviewing the move table one can see where the issues arise and the key can sometimes be to enter new move sets which change the balance of the game (an example being in the case of an opposition taking certain intermediary steps which demonstrate the intention to take further action). As the move sets are fluid, it is sometimes beneficial to assign player roles to different people within the strategy team and to play out the “game” as what is called an Immersive Soap, and to use numbered preferences in a similar way to Game Theory to show how the changes in move sets might affect pay-offs (or rather “preferences”). Interested parties can learn more from the website www.dilemmasgalore.com, which is a user forum set up by a number of the leading experts in this field to explore the use and development of Confrontation Analysis.

Principled and Positional Bargaining

Within this entire sphere sits the question of how to craft the opening gambit to the other side if the proposed outcome is a settlement. If the outcome is zero-sum or constant sum – i.e. one party can only gain at the expense of the other party in the allocation of a fixed resource – then where the “pie” is proposed to be cut can be an important message. A mistaken assertion can lead to rejection of the process as a whole. Where the outcome is fluid – i.e. it is possible for the parties to negotiate not only the allocation of the pie, but change the size of the pie – there is also a further question of who raises these additional elements (and when).

One can contrast positional bargaining, where one party sets a fixed offer for no apparent only to have haggling, against principled bargaining. The latter proposes that a deal be struck on the basis of objective principles, and is known by many due to the book Getting to Yes by Fisher and Ury. As you might imagine, this often leads to 2 sets of negotiations – the negotiations over the “rule set” and then the playing out of the negotiations. Effectively choosing the board game you wish to play, and then playing out according to those rules.

In deciding between the 2 potential approaches one perhaps returns to the quandary set by Game Theory: whilst positional bargaining offers the potential for greater gains over a single iteration of the game, where it is used in a repeated game (such as where the parties are in a larger relationship with one another) it may lead the other side to take “revenge” in the future. This is often the case, with the original “losing” party in a negotiation often finding a loophole or piece of loose drafting in the contract and seeking to exploit it. Principled negotiation may lead to a lower initial payoff, but may lead the parties to be far less likely to seek revenge within their future dealings with their negotiation partner.

Conclusion

Is it possible to deal with the rogue behaviour of a party? Not always, but a combination of Game Theory and Confrontation Analysis may help establish a strategy to move closer to resolution and asking whether principled or positional bargaining will work best in a situation may also lead to a better outcome for you. Whilst the emotional element of conflict and negotiation may suggest that it is an art, it is perhaps best thought of as an art on top of a science – understand the underlying behaviours and the art of communicating in this context becomes simpler.