Mediation or Litigation – What to do if your licensees do not play ball

Ben Muis originally created this article for Licensing.biz. To see the published article click here or read the unedited and full version below.

So your licensee or distributor is not doing what he is supposed to. Now what do you do?

If you are in this scenario it is entirely possible that we are talking about issues in an international relationship and that this might also be something that is affecting your brand or market quite significantly. Even though the jurisdiction of an agreement might be in your country, going to court is not always the most logical first step.

If your business is like most, the value involved could be quite significant to you. And, like many others, you might not have people in place who actually have the objectivity or the right experience to solve or negotiate the kind of disputes that you find yourself dealing with.

Litigation can be very effective, but you will often find that going to court is like closing a door. The other party might actually think that they are right or even that you have done something which should give them more freedom within your brand or market than you are willing to give them. By going to court the relationship can easily go sour and become more confrontational. The costs associated with building a new relationship to replace the existing one are not usually that attractive to either your immediate revenue or market position.

This is where mediation comes in.

A mediator will take careful stock of the situation and the commercial options available. If there are no reasonable commercial options or if the situation is such that a clear and immediate result can be obtained through litigation he would normally advise you to go down the legal route immediately.

For most businesses and in most circumstances it is better if there is a commercial resolution which not only solves, but improves the situation for both parties. A good mediator might actually get you to a point where your most problematic licensee or distributor becomes your best one. This is particularly the case if the dispute is quite emotional. If they care about something enough to stand their ground and if you can turn this emotion into a positive force for your brand or product the effects can be quite surprising.

Mediation is unique in this. A mediator can take into account how the parties feel. Mediation can be less black and white than a legal dispute and can result in solutions which are mutually beneficial, rather than punishing.

One great side effect of mediation can be that the overall cost of reaching a result are usually lower than those of litigation. Another is that when resolutions have been agreed the parties are more likely to comply with that resolution. This appetite for compliance is in sharp contrast to that normally shown where there is a court order as usually at least one of the parties did not agree to the outcome.

If mediation does not get the result you are entitled to, you should be in a better position to terminate the relationship in a controlled way or indeed to litigate. You will be able to show that you have done everything possible to resolve the dispute and potentially have insight and information to share with your legal representative that you would not have had prior to mediation.

Mediation can be an alternative to litigation. Litigation is not usually an alternative to mediation, but rather the next step if mediation does not produce as a minimum the results you are entitled to.

It is true that mediation is usually more cost effective and can obtain results that are better for both parties. The absence of a court case also avoids unwanted distractions to you and your team and the lessons learned from the process can be a great asset to all involved. In my experience negotiation and mediation are the first steps towards solving commercial disputes, especially if you want a positive and profitable outcome.

Some tips on the mediation in disputes with licensees and distributors

Make sure that you have reviewed your agreement against the situation that you are dealing with. Do not assume that you are right until you are sure.

Consider mediation prior to litigation. It can be very effective and refreshing to bring in an experienced individual who is not only able to do an objective review of the situation but has the skill to show both parties what is a reasonable solution to the dispute.

Be clear about the result you expect. Your mediator needs to know what the boundaries are so that he can always have those in mind whilst discussing details with the other party. In contrast to adjudication, your mediator can actually take into account what the desired result is. This makes the outcome more predictable and gives you the option to change direction if it looks unlikely that you will achieve what you set out to achieve.

Be open-minded. Your mediator might point out some things that you could have done better as a business. Take this as a positive and consider implementing improvements to make your company a better licensor or brand.

Remember to ask your mediator what improvements could benefit your agreement, licensee and business once the mediation process is finished. Try to learn from the process.

Consider an interactive anti-counterfeit and grey market reporting system like Authicode going forward to avoid further disagreements regarding volume of sales or market boundaries.

Contact us for more information on mediation of licensing, distribution and sourcing disputes.

Photo credit: fErTaS via photopin cc

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