> Finally, on Mar. 24, the two signed the option, agreeing to the
> 1 percent to 4 percent range, with an exact percentage to be
> determined later.
Then later on when it came time to deal with the exact percentage:
> It [licensing agreement sent by Under Armour] included a royalty
> rate of 1.5 percent for the first stage of sales, and 1 percent
> thereafter. Through his attorney, Hann countered with 5.75
> percent and 4.25 percent.
This is where things broke down. It's puzzling why he didn't stay within the range of the 1 to 4 percent earlier agreed upon. Perhaps 3.75% to start and 2.75% after. Then negotiate down from there. The article states:
> Aerospace engineer M. Frank Rudy, who sold “Air” to Nike, was
> awarded a royalty of around a single percentage point...
I'm thinking Rudy's done pretty well on a meagre one percent.
> I'm thinking Rudy's done pretty well on a meagre one percent.
Has he? If he has, then great. I wouldn't be shocked to learn that other shoe tech inventors (especially those preceding him) got even less than he did and that someone accused him of being a greedhead or unreasonable when he negotiated for that measly one percent.
It also sounds as though Under Armour locked Hann into a royalty range and then, when the time came to settle on a number, went down to almost the lower end of that range. Hann wouldn't have been completely insane if he picked the out-of-range numbers to try to pull UA towards the upper end of the proposed range.
Of course they're going to start negotiations at the lower end of the range. That's what every buyer does. But when he countered he should have stuck within the previously agreed max of 4%, presented a number, and backed it up with reasoning. Going outside of that range in the hopes of bringing up the average is poor form and something an experienced negotiator isn't going to accept.
Given that Under Armour holds some fairly large cards (resources to fund development, production, sales, distribution, marketing, etc.), the reasoning would consist of his large cards like the innovation inherent in the technology as well as what other companies have indicated as a range they'd be willing to pay.
For example: "There's no other shoe technology around which has been proven in a sports lab to have as great a benefit as this. Olympic athletes using these shoes have performed at a level that will push them beyond gold medal records. We chose Under Armour because of ________, and we want it to be the brand associated with high performance athletes. Just as the last Olympics secured Speedo as the #1 brand for high performance swimwear, so should the next Olympics be synonymous with Under Armour for high performance shoes. Just imagine the medal ceremony for all the running events with the medal winners all sporting Under Armour shoes. Think of what a coup that would be. We've approached other manufacturers who have indicated they're comfortable with a 2.5% to 4% range. However, we're really hoping we can make the numbers work with you so that we don't have to take this technology to another company that isn't as passionate. Based on this what we're proposing is..."
Having reread the original article, I see that UA did in fact raise their offer after he asked for a higher-than-previously-agreed-upon royalty:
For the next three months, Under Armour refused a
face-to-face meeting but did make concessions, raising
its percentage and throwing in a monthly advance. Hann
held out for higher numbers. He fielded interest from a
new set of investors and became more wary of Under
Armour. “I feel like the mouse dancing with the bear,” he
said. “No matter how careful the bear is, the mouse
better watch out.” In late October 2010, Kevin Haley,
senior vice-president of innovation, took over the
project from Fulks. Haley offered to put the licensing
negotiation on hold and renew the option agreement at
$15,000 per month. The implication was that this would
allow them to work together like old times.
Hann rebuffed the offer, believing Under Armour was
bluffing and it was a way of avoiding a licensing
agreement. In early December 2010, Under Armour’s
attorney delivered the news: The company decided to move
in a different direction. Hann’s work with the company
was over.
The article doesn't say whether they "higher numbers" that Hann was trying to get out of UA were the out-of-bounds ones he countered with originally or simply within the high end of the original range.
