What to do when your licensees don't play ball.

Mediation or litigation?

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.

The value involved could be quite significant to you. And, like many others, you might not have people in place who have the objectivity or the right experience to solve or negotiate these kinds of disputes.

Litigation can be very effective, but you will often find that going to court is like closing a door. The other party may actually think that they are right or even that you have done something which should allow them more freedom within your brand or market than you are willing to give them. By going to court the relationship can easily become sour and confrontational. The costs associated with building new relationships can be equally unattractive 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 could even get you to a point where your most problematic licensee or distributor becomes your best one. This can especially be the case if the dispute is quite emotional. 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 that it 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 is 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.

The absence of a court case avoids distractions to you and your team and the lessons learned from the process can be great for all involved.

If mediation does not get the result you are entitled to, you should be in a better position to terminate the relationship or to move towards litigation. You will show you have done everything reasonably possible to resolve the dispute and potentially have insight and information that you would not have had before.

In my experience negotiation and mediation are the first steps towards solving commercial disputes, especially if a positive and profitable outcome is preferred.

Some tips on the mediation in disputes with licensees and distributors:

Review your agreement against the situation that you are dealing with. Do not assume that you are right until you checked.

Consider mediation prior to litigation. Bring in an experienced individual who can do an objective review of the situation and has the skill to move both parties towards a reasonable solution to the dispute.

Be clear about the result you expect as your mediator can actually take into account what the desired result is. This makes the outcome more predictable and unlike adjudication it gives you the option to change direction if it looks unlikely that you will achieve your goals.

Be open-minded. Try to learn from the process. Your mediator might point out things that you could have done better as a business. Take this as a positive. Consider implementing improvements to make your company a better licensor or brand.

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