Negotiating or Litigating: When, How, and With Whom

In 2006, Google unsuccessfully negotiated with Sun Microsystems for a license to use Java in Android, and moved forward without it. In 2010, Oracle, which had just acquired Sun, sued Google and eventually claimed close to 9 billion dollars, whereas tens of millions had been discussed in those earlier negotiations. The numbers suggested settling. Google litigated for eleven years until the Supreme Court of the United States ruled, by six votes to two, that it constituted fair use. What was at stake was not the amount, but the scope of copyright over an application programming interface—an issue that conditioned the entire software industry.

​Few sayings are repeated as often as "a bad settlement is better than a good lawsuit." As a warning about the costs of litigation, it is worth considering. As a rule for decision-making, it is incomplete for four reasons: the best time to negotiate is rarely the first one offered by the legal procedure; a bad settlement, unlike a bad judgment, cannot be reversed; negotiating is not a matter of intuition but the result of a prior legal analysis; and the decision does not end at negotiating or litigating, because one must also define with whom and in what manner to negotiate.

​Timing matters as much as the decision

​The opportunity to negotiate is not a single one. Except for legal exceptions, our system requires a preliminary conciliation before initiating a lawsuit, but it does not exhaust the possibilities: the proceeding itself foresees new conciliation instances, and the parties can settle at any stage of the case.

​The preliminary conciliation is held with as little information as possible: without a complaint, without a response, and without gathered evidence. The useful moment usually comes later, when the evidence has shown its limits or a court ruling has set the terms of the discussion. Failing to reach an agreement at the first hearing is not a failure; often, it is simply having chosen the right time.

​What the numbers show

​Litigation timelines are also shorter than usually assumed. According to the Judiciary's Department of Statistics, Labor Courts of Appeals issued final judgments in an average of 1.8 months—the lowest record of the decade—and Civil Courts in 3.8 months. The Yearbook of the following year adds a detail worth considering: the Courts of Appeals received 7,639 cases, 22.9% more than the previous year, which could put upward pressure on those timelines.

​A bad agreement is also definitive

​A bad court judgment can be appealed; a bad settlement cannot. A settlement, in as much as it extinguishes the waived rights and obligations, holds the authority of res judicata between the parties. Whoever settles without having measured what they are giving up does not avoid a risk: they assume it blindly.

​There is also an effect that is lost from sight when the conflict is viewed in isolation. The decision to settle or litigate is not exhausted in the court file: it has consequences for future claims down the line, on the counterparty's future conduct, and on the organization's standing in the eyes of third parties observing how it resolves disputes. An organization that settles every claim regardless of its merits sets an internal precedent and creates an external incentive. Today's cheap settlement can be tomorrow's expensive precedent. The flip side is just as concrete: sustaining a lawsuit freezes funds, distracts management, conditions balance sheets, audits, and ongoing operations, and at a certain point, becomes a business variable. Neither of the two decisions is neutral, and neither can be made by looking solely at the claim currently on the table.

​Negotiating is not intuition; it is a diagnosis

​It is often thought that negotiating is a personal skill and litigating is a legal technique. It is not quite like that. No one can set a reasonable settlement range without having first determined what is most likely to happen if an agreement is not reached, and that is technical data: qualifying the claim, reviewing the evidence and its suitability, verifying statutes of limitations and expirations, reviewing the criteria of the lower court and court of appeals, quantifying accessory items, and evaluating whether an eventual judgment is enforceable. Whoever sits down to negotiate without having done that work is arguing against a number made up by the other side.

​That diagnosis is half the work. The other half, which is usually omitted, is the counterparty: who actually decides on the other side—who is not always the person sitting at the table; what they need to achieve; what urgencies they have (the end of a fiscal year, an ongoing sale, liquidity needs); what real alternative they have left if there is no agreement; and how they behaved in previous conflicts. A counterparty with an urgent need for cash and another that can finance five years of litigation are two completely different negotiations, even if the court file is the same. The Harvard Negotiation Project method insists on distinguishing declared positions from real interests and measuring the Best Alternative to a Negotiated Agreement (the well-known BATNA). In a litigable conflict, that alternative has a name: the probable judgment. That is why the preliminary legal analysis is not an input of the negotiation, but its very substance. And knowing the counterparty's alternative matters just as much as knowing your own.

​It remains to define the strategy. When there are several variables at play (deadlines, payment method, scope of release, confidentiality, future supply), it is advisable to negotiate based on interests, because it allows trading concessions that each party values differently. When the only variable is the amount, the relationship ends with the agreement, and the counterparty plays in a positional key, the negotiation resembles haggling: you open far apart, make concessions in decreasing steps, and converge. Neither strategy is better in the abstract; the mistake is applying the wrong one to the case. Opening with the figure you consider fair against a positional negotiator guarantees ending up below it, because the other party will read that opening as a ceiling. Anchoring aggressively against someone who came to explore interests destroys in five minutes the trust that made a creative agreement possible.

​There are conflicts that must be litigated

​A lawsuit is not always the failure of a negotiation; sometimes it is the right decision. This is the case when the claim lacks foundation and paying would consolidate a standard that the organization will have to face time and again; when the interpretation of a rule that conditions the business model is disputed and a judicial ruling is needed to settle the issue; when the counterparty uses the negotiation to gain acknowledgments or information without a real intention to settle; or when expectations are so far apart that no possible agreement is better than the expected outcome of the trial process.

​The reverse warning also holds true. In 1985, a Houston jury ordered Texaco to pay $10.53 billion to Pennzoil for interfering in its acquisition of a stake in Getty Oil. Texaco resisted: the appellate court reduced the judgment to $8.53 billion, and in April 1987, the company filed for Chapter 11, the largest corporate bankruptcy in the United States up to that time. In December of that year, it paid $3 billion to settle the case. That is, it ended up settling anyway, but from within bankruptcy and after having lost stock value, credit rating, and bargaining power.

​Ten questions before the first conversation

​Before sitting down to negotiate, and even before deciding whether it is advisable to do so, you must have answers to these questions:

1. ​What is the maximum exposure, including interest, adjustments, legal fees, and costs?
2. ​What evidence do we have today, and how much of it will withstand cross-examination?
3. ​What evidence might the counterparty have that we haven't seen yet?
4. ​What have the competent court and its court of appeals been deciding in similar cases?
5. ​Is any statute of limitations or expiration period running?
6. ​Who actually decides on the other side, and what do they need to achieve?
7. ​What time, cash, or reputational pressures does the counterparty have?
8. ​How many equivalent claims exist, or could exist, behind this one?
9. ​Is an eventual judgment against the counterparty actually enforceable?
10. ​How long can the business sustain this open conflict?

​Whoever has those ten answers can negotiate, can litigate, and, above all, can choose the right timing for each. Whoever lacks them is not negotiating: they are guessing, and doing so with rights that, once settled, cannot be recovered. That is the work we do in every conflict entrusted to us, before the very first conversation with the counterparty.