The MicroTouch team also added a provision making the contract enforceable under Massachusetts law. That was more than just parochialism on its part. The Japanese court system is notoriously sluggish, and Massachusetts boasts well-developed high-technology law. "Precedents help everyone," says Nagel. "You want to be in the most sophisticated system you can."
Perhaps most important -- and, as it would turn out, the biggest sticking point -- was the contract's noncompete clause. It was the same standard clause you might find in any distribution agreement, lasting for five years, two years beyond the life of the contract itself. But to broaden it, Logan added a nondevelopment clause, which addressed his worst fears. "I worried they'd terminate the contract and, the next day, unveil their new touch screen," he says.
The Nissha executives appeared to agree with these provisions, though they hesitated over each new clause, claiming they had to check with the appropriate government agency. That's often the case with Japanese executives; they act a bit like car salesmen running back to check with the sales manager about offering you that special low price. Logan occasionally used his board of directors as a foil, but he made most decisions right on the spot. By Christmas 1988 they had reached an agreement to everyone's liking.
Or so Logan thought, as he planned the ritual for signing the contract. By now, Logan knew enough about Japanese custom to make a ceremony out of it. The Nissha executives were to appear at a downtown Boston skyscraper, in the office where MicroTouch would hold its board meeting later that day. While the board watched -- along with the venture capitalists who had funded Logan -- they would pick up the special fountain pens and, with a flourish, sign the 12-page contract. The Nissha executives arrived, but they declined to sit down. We're sorry, one of them announced, but we have reason to believe that if we sign this contract we could face criminal prosecution and fines of $25,000. Logan's face reddened. "I was getting sick of the whole thing at this point," he says.
Plimpton tried to get at the root problem. The Japanese fair-trade commission, they told him, did not look favorably upon the noncompete clause. Never mind enforcing it, the government wouldn't even allow it. "The government seemed unhappy that the document had no language about future intentions or any long-term relationship," Plimpton recalls. "They felt we might take advantage of Nissha."
Well, the MicroTouch group reasoned, if the government wants something more, why not sign a letter of intent to enter a joint venture? Logan had previously rejected the idea, feeling that the market probably wasn't big enough to justify such an expense. But a letter of intent, he points out, "would not legally bind us to a joint venture -- only to investigating one." Plimpton floated the idea; it seemed like it might just fly. It did, though Nagel admits, "I'm not sure why." The contract was finally signed last January. There was no ceremony. "I was tired of spending money on lawyers," Logan says.
So far, Logan believes his money and time were well spent. The contract is holding up. It could become a model, he says, for the kind of agreements that U.S. manufacturers might strike with European distributors after 1992. Then there will be competitive and financial advantages to forming closer relationships with distributors: the market will be harder to infiltrate and customers will demand more. "This kind of contract could be just the right thing," Logan says.
Assuming, that is, that MicroTouch and Nissha continue to work well together. Logan, trained as an economist, doesn't discount any possibility. "I'm not saying this is a 100% sure thing," he says. "It's not foolproof. Even if no one of these barriers is expensive enough to prevent them from ripping us off, the sum total probably will be. That's the law of probability. But I guess we won't really know for a few years."
LINES OF DEFENSE
What to include in your distribution contract
James Logan, president of MicroTouch Systems Inc., approached his negotiations with a Japanese distributor well aware of the risk of his technology being copied. So he carefully worked out a 12-page contract to protect himself. Here are the main lines of defense upon which it rests:
* Patents and trademarks. While U.S. patents are hard to enforce in Japan, they do provide some deterrence to copycats.
* Noncompete/nondevelopment clause. The Japanese government will not usually enforce such clauses beyond the duration of exclusive agreements, regarding them as stifling competition. Nonetheless, MicroTouch included a noncompete in the contract and got away with it by also signing a nonbinding letter of intent to enter a joint venture. Another option: open a wholly owned subsidiary in Japan, or a branch office. The government is much less likely to scrutinize contracts between two companies in Japan.
* Access to marketing information. You can specify that you want the distributor to send you the names of customers, applications, and information about competitors. You can also be explicit about visiting customer sites; Logan wasn't, and he regrets it. But he has a backup. Jack Plimpton, Logan's former marketing director and now an independent consultant, visits Japan every six weeks and can keep an eye on things.
* Local enforcement. You don't want to go to court in Japan -- or any country outside the United States -- if you can help it. But if your partner won't agree to interpret the contract according to U.S. law, suggest arbitration in a third country such as Hong Kong or England, where American arbitration processes are recognized.
