28 November 2016
MEMORANDUM
1. Overview
1.1

Red Corp (“Red”) is considering contracting with Blue Inc (“Blue”) to expand its online
apparel retailing platform and to jointly develop a line of care robots.

1.2

Initial correspondence has produced preliminary agreements on both matters [Record(“R”) ¶43 & ¶45]. The purpose of the December 4 2016 meeting is to investigate thecommercial viability of these ventures and gather ideas for future development.

1.3

In the event agreements cannot be reached, Red will still seek to maintain a positive andcollaborative business relationship with Blue. This will involve making representations toshow Red is open to other mutually beneficial corporate deals in the future.

2. E-Commerce Site Development
2.1

Main Objective: A “Fresh Start”
Red currently uses Blue’s online apparel retailing platforms Blue Village (Arbitria) andBlue Village (Negoland). Red’s eventual aim is to move from Blue’s platforms to its own
online stores. Current projections show Red will obtain increased profit margins withgrowth trends in the e-commerce market should we move to our own platform [RedConfidential Information (“Red CI”) ¶1].
Red’s main objective aligns with Blue’s interests in further developing and establishing its
e-commerce support services. However, this plan conflicts with Blue’s interests because
Red will be leaving Blue Village (Negoland). Red also recognises that Blue may perceive
Red as an emerging competitor in the online apparel business [R ¶39]. If this becomesproblematic during negotiations, Red will emphasise the potential for future collaboration,such as engaging Blue to build further websites for Red’s increasingly international
operations [R ¶5].

2.2

Secondary Objective: “Ideas Boom”
Red’s secondary objective is to explore innovative ways of creating an omni-channelmarketing and purchasing system. Red wishes to capitalise on the increasing smartphone
usage in the target demographic group [R ¶38], and the advantages this brings inincreasing customer engagement and satisfaction. It is in the interests of both Red andBlue to move away from Blue’s standard e-commerce site logistics and infrastructure andseek innovative ideas, given the problems with the Blue Village (Negoland) online store.

1	  Red will seek assurances from Blue that the Red’s new online store will be qualitatively
different from Blue Village (Negoland).
Red recognises it may not be commercially sound to move to our own platform in theshort term [Red CI ¶1], and a re-development of Blue Village (Negoland) may be morepractical. In this case, Red will seek to ensure that Blue shares its consumer information
so we can make use of this data.
2.3

Payment for Website Development
Payment for the website has two components: the lump-sum fee for site development paidon completion and the commission paid for site maintenance. Our initial position is to pay
Blue $10 million upon completion and a 20% commission [R ¶41]. As our instructions
allow for up to $30 million lump-sum fee, Red can use staged increases in the lump-sum
fee to leverage concessions elsewhere.

2.4

Terms of Ongoing Service
Due to the lack of know-how within Red, it is in our interests to stay with Blue in theshort term so Blue can set up incidental operations regarding logistics, payment anddistribution [Red CI ¶2(2)]. In order to ensure Red’s interests are protected, we will seek
to have all such information transferred to us at the end of the contract.

2.5

Omni-Channel Strategy Proposal: The “Three Tiered Approach”
This part of the negotiation will be exploratory. Red’s Director of Apparel Business will
present our “three-tier approach” to sales, which ties together the website, the physicalstores and mobile devices for a holistic shopping experience. This approach also
capitalises on the growth in smartphone usage in the target demographic group (ages 20–49) and in the online apparel retailing industry generally [Exhibit 2]. However, Red willremain perceptive to the significant role of physical store sales to its annual revenue[Exhibit 1]. Red will propose a custom mobile application that tracks customers’
shopping patterns within its stores, and will seek Blue’s expertise to develop this idea
further. Specific go-live dates of new services are to be determined at a later date [Red CI¶2(3)].

2.6

BATNA
Red has the alternative option of developing its website with Yellow Corp (“Yellow”).
Yellow is not an apparel specialist, and may not be able to successfully develop the omnichannel strategy [Red CI ¶4]. On the other hand, Yellow’s contract will be at a much
lower cost. If Blue insists on an unreasonably high price, Red will contract with Yellow.
2	  2.7

Offers
While remaining flexible, Red plans to make the following staged offers:
OffersWebsite Cost ($)

Commission

Term of Service

Current Offer[R ¶41]10 million

20%

1 year15 million*20%

1 year10 million

22.5%*

1 year10 million

20%

2 years*

Limit of Instructions

30 million

25%

3 years

BATNA (Yellow)[Red CI ¶4]

5 million10%

3 years

Stage 2 Offer*Stage 2 offer dependent on Blue’s interests

3. Robot Development Venture
3.1

Main Objective: “Nursing Home is the Priority for Now”
Red has experienced sluggish growth in its nursing home business compared to its assisted
living rental residences business [Exhibit 1]. Red’s interests are to reduce costs andincrease patient satisfaction in our nursing care services. Thus, Red’s main objective is forBlue to prioritise development of “care support” type robots [R ¶45, Red CI ¶3(1)].
Red has lesser interests in Blue developing “independence support” and “communicationand security” type robots. Red’s interests are at odds with Blue, who wish to give priority
to the development of “communication and security” type robots [R ¶45]. Red recognisesthat “independence support” type robots may reduce demand for nursing care services. If
Blue insists on developing “independence support” type robots only, Red recognises thatit can use these robots in our assisted-living rental residences.

3.2

Secondary Objective: “Market Leader”
Red wishes to establish itself as a market leader within two years [Red CI ¶3(1)].
Introducing “care support” type robots in our nursing home business will differentiate Red
from its competitors, as well as address the caregiver shortage [Red CI ¶3(1)]. Red also
recognises that other robots may be useful in our facilities. In any event, Red will seek touse Blue’s new products under a three-year exclusive contract [Red CI ¶3(2)].

3	  3.3

Type of Robots to be Jointly Developed
According to current projections [Exhibit 23], it is difficult to justify a business case forsolely developing “care support” type robots. Demand for “care support” type robots will
only eclipse demand for “independence support” type robots post-2025 in Negoland, anddemand will always be lower in Arbitria.
If Blue rejects our offer of prioritising the development of “care support” type robots, Red
will take a mediated approach. Red will seek development of “care support” type robots
starting from 2018 or later for two years in exchange for increased support. This offer may
also become a useful bargaining tool to assist in gaining concessions elsewhere.
An alternative option is to leverage the development of “care support” type robots withincreased payments for the E-Commerce Site Development (see 2.4 above), whereby
Red subsidises development costs currently borne by Blue [R ¶45(2)].

3.4

Ownership of IP & Exclusivity Licence Period
As Red does not wish to own the intellectual property rights to the robots [Red CI ¶3(2)],we will initially attempt to exchange these rights for a three-year exclusivity licence [RedCI ¶3(2)]. If this offer is rejected, Red will propose installing robots in Red’s nursing
homes and assisted-living residences in exchange for the licence [Red CI ¶3(4)].

3.5

BATNA
Red has the alternative option of purchasing “care support” type robots from Orange Inc(“Orange”). However, these robots may be lower quality, more expensive, and without anexclusivity license [Red CI ¶5]. Competitors would also have access to Blue’s new robots.
As a result, Red is willing to make higher concessions in order to secure a deal with Blue.

3.6Offers
Whilst keeping flexible, Red plans to make staged the following offers:
Offers

TypeDevelopment Period

Exclusivity

Initial Offer[Red CI ¶3]

Care Support

2 years(Jan 2017–Dec 2018)

3 years(Jan 2019–Dec 2022)

Independence Support1 year (2017)

Care Support

2 years(Jan 2018–Dec 2019)

Care Support

2 years(2017–2019)

Stage 2 Offer

BATNA (Orange)[Red CI ¶5].

4	  3 years(Jan 2020–Dec 2023)

N/A