March 29, 1996, Geneva, Switzerland
Some Aspects of Mediating Intellectual Property Disputes
by David W. Plant,
Fish & Neave
(New York, United States of America)
I. CREATING VALUE THROUGH MEDIATION
A. Control
The principal reason value is created through mediation is party control. In contrast to adversarial processes, mediation reposes in the parties themselves control over the resolution of their problem. The parties themselves create the solution; it is not imposed on them by a third person, i.e. a judge, a jury or an arbitrator. Thus, the opportunity for creating value, i.e. for finding a win-win solution is virtually unlimited.
B. Real Interests and Needs
The reason for this increased opportunity is that the parties are not constrained by the words within the four corners of formal pleadings, such as a complaint and an answer, or by the facts that may be material to the formally defined dispute, or by sophisticated legal principles. In other words, the parties can get behind formally asserted positions and entitlements and focus on their real interests and needs. Real interests and needs often are not reflected in formally pleaded IP disputes. However, in mediated resolutions of IP disputes, real interests and needs are evident and play a paramount role. That role will seldom be performed, however, unless the parties have control of the process for finding a solution to their problem.
C. Relationships
Another advantage of mediation, which is especially attractive in connection with IP disputes, is the real prospect of preserving old relationships and creating new ones. Litigation and arbitration, being adversarial processes, have precisely the opposite effect. They invariably tarnish, if not destroy, old relationships and throw up substantial road blocks to the creation of new relationships. Litigation and arbitration tend to exacerbate dislike and distrust. In contrast, mediation inherently turns adversaries into partners.
D. Some Specific Examples
1. After years of arbitration and related litigation, and thousands of pages of hearing transcript, AMD and Intel recently agreed to mediate. As result, they reached agreement on a solution they themselves crafted. The virtue of mediation was two-fold: (1) the parties real interests and needs could be taken into account, and (2) the parties could fashion a solution that was both their solution and broader than a solution imposed by an arbitrator or a judge.
It is interesting to speculate about the costs that would have been avoided and the value that would have been created, if the parties had devoted only a minor fraction of their arbitration and litigation efforts to mediation at an early stage in their dispute.
2. After extensive discovery and on the eve of a hearing on the patent owners motion for a preliminary injunction, the parties agreed to mediate. They did so at the encouragement of the judge. In two days, the matter was settled. The patent owner saved its patent from a potential holding of invalidity, and the accused infringer avoided a potential injunction. Clearly, value was created by this facilitated negotiation.
3. After each party had expended hundreds of thousands of dollars on discovery in a jurisdiction where trial was unlikely in the foreseeable future, the parties mediated pursuant to court order.
After two and one-half days of mediation (in two separate phases), the two principals got to know and to understand one another--and importantly, to grasp each others real interests and needs. The principals then met alone and reached agreement in principle as to a solution after a few hours of discussion.
Each party owned patents. Each sued the other for infringement. One party wanted to sell the business related to its patents. The pending lawsuit stood in its way. The other party staked its future on one of its patents, and it was especially important to its private investors to preserve this asset. The principals were able to share this information with one another and craft a solution in light of it, thus saving the cost of continued litigation and accommodating each others real interests and needs in a way a judge could not.
4. This case illustrates the need for good faith participation by both parties. A utility patent, a design patent, copy rights and trade dress were an issue. After both litigation and arbitration, the two parties were ordered to mediate their dispute. One party faced an immediate judgment for hundreds of thousands of dollars based on an arbitral award, as well as continued litigation with the prospect of being enjoined and incurring further liability for damages. The other party faced the cost of continued litigation and the possibility of being unable to prevent the first party from selling the product in issue.
One principal failed to appear at the first mediation session. A second session was scheduled. Both principals appeared. The animosity between them was more than apparent. The negotiations advanced to the point where all issues appeared to be resolved, except for the design of the product the accused infringer could sell. The mediator suggested that each party propose three designs and then select the least unattractive one of the other partys three designs. The mediator was to choose from the two designated designs the design which the accused infringer could sell.
The mediation progressed to the point where the two designs had been selected and all other issues agreed to in writing--except for a disagreement as to publicity that could be given to the settlement agreement. The parties agreed to negotiate overnight without the mediator and to return to the mediation the next morning. That morning, the parties were to execute a final agreement, after which the mediator would announce the design that was to be permitted by the agreement. Regrettably, the next morning, the accused infringer declined to return to the mediation.
Litigation has continued. The accused infringer has taken it on the chin. Not only has it incurred additional litigation expenses, it has also suffered adverse rulings in court. If the accused infringer had returned to the mediation, all of the ensuing costs and difficulties would have been avoided--and the accused infringer would have had a design it could sell free from challenge by the other party.
II. IP DISPUTES SUITABLE FOR MEDIATION
Virtually all IP disputes are suitable for mediation.
The exceptions include those situations where immediate injunctive relief is required (i.e. in counterfeiting, piracy, gray goods situations), where a party perceives a need for a precedent, and where one party is unwilling to negotiate or to do so in good faith. These situations are not rare. But neither are they so frequent as to render mediation only occasionally appropriate.
Mediation is frequently appropriate. Whereas, mediation cannot be the answer in every controversy, many patent, trademark, copyright, trade secret, licensing, joint venture, and research and development disputes may be successfully solved through mediation.
An important factor in assuring success of mediation in IP disputes is the mediator. Often a misunderstanding among the parties, or by the mediator, as to what to expect in the mediation has suggested that perhaps it is the nature of the dispute that is the cause of failure to settle. But before the conclusion solidifies that IP disputes are inherently not suitable mediation, those concerned should consider the mediator--i.e. the mediators training and experience, the mediators style (merely facilitative in contrast to pro-active evaluation), and the mediators power.
On this score, the question often arises as to the importance of the mediators familiarity with the technology, business or legal precepts at issue. The majority of informed observers would probably hold that the mediators skill and experience in mediating is far more important than the mediators familiarity with a specific technology, business or legal precept.
Plainly, the willingness of all parties--especially principals--to negotiate in good faith is crucial to the success of a mediation of an IP dispute. This manifestly disqualifies piracy, counterfeiting and similar situations as candidates for mediation. Pirates and counterfeiters are not likely to negotiate in good faith. Also, in other less extreme cases, one party may be unwilling to negotiate in good faith--sometimes, from the outset; other times, after the mediation has been underway and progress appears to be occurring.
Animosity, anger and distrust engendered by keen competition, conflicting personalities or scorched earth litigation do not necessarily preclude mediation. On the contrary, the opportunity to vent ones spleen afforded by mediation may be the primary factor in permitting parties to join together in finding a solution to their problems.
III. BARRIERS TO MEDIATION AND TO RESOLUTION
Barriers to resolution of disputes through mediation may arise at the moment a party considers getting to the table and continuously thereafter until the ink is drying on the signature lines of a written agreement.
Getting to the table is far easier if there is a pre-dispute agreement, or a court order, to mediate. Today, it is not unusual for a dispute resolution agreement to contemplate two or three phases of out-of-court dispute resolution. For example, the parties may agree to negotiate and then mediate. Or they may agree to negotiate, then mediate, and finally, arbitrate. Also, in the United States, it is becoming more and more common for a court to order mediation in IP disputes.
After a dispute has arisen, there may still linger in some business minds the notion that suggesting mediation in lieu of all out, scorched earth litigation is somehow waving a white flag before the battle has even been fully joined. However, it is more likely in most business circles that the level of sophistication about ADR is sufficiently high for all concerned to understand that to suggest mediation reflects only an enlightened sense of professional and business responsibility together with the educated desire to find a solution through a process in which the parties themselves participate and fashion the solution without the need for a third party who will impose a solution on them. Moreover, corporate pledges, corporate policies, professional duties and responsibilities, post-dispute court orders and the general environment favoring alternatives to litigation all create a climate in which an informed business person and counsel should expect to propose, or to receive a proposal for, mediation.
Other barriers to resolution include the failure of all principals to participate, the failure to include interested third parties (i.e. insurers, indemnitors, significant investors), the failure to negotiate in good faith, a fundamental unwillingness to settle, the failure to prepare parties to participate, and the failure of counsel to act as counsel rather than as a Rambo litigator. Other important barriers include the failure of a party to advance beyond formally stated positions and to consider and think through not only its own interests and needs but also the interests and needs of the adversary. Indeed, a barrier may be erected by a partys failure to understand that mediation is a process in which the parties are in fact partners, rather than adversaries, in attempting to find a mutual solution to their mutual problem. To assist in lowering this barrier, it often is advisable to have a principal present who is not emotionally invested in the dispute, and who can stand back and assess the situation objectively.
In short, the barriers to mediation and to resolution can be dissolved if the principals behave and communicate as reasonable, objective business people.
IV. MULTI-JURISDICTIONAL LITIGATION
IP disputes are frequently global in character, both in terms of the parties involved and the rights in issue. Strategic reasons may mandate that an IP owner litigate in different fora at different times or even concurrently. On the other hand, other reasons may suggest wisdom in avoiding such litigation and attempting a global resolution that is crafted by the disputants directly.
Among the drawbacks of multi-jurisdictional litigation are the spectre of inconsistent results achieved at substantial cost--both in arriving at the results and in sorting them out. Arbitration is not always the answer in connection with multi-jurisdictional IP disputes, especially in light of the wide variations from jurisdiction to jurisdiction with respect to
- the arbitrability of IP disputes,
- the enforcement of arbitral awards in the IP field, and
- applicable procedures (even with respect to different arbitrations under the rules of the same institution).
V. ENHANCED ALTERNATIVES
As a process for dispute resolution, mediation suffers from few constraints. It is very much open-ended, thus lending itself to almost infinite variations on the theme. As we have already seen, mediation may be concluded with arbitration of a remaining issue. This is usually binding arbitration, thus wrapping up the last of the issues in dispute. Non-binding arbitration, or an informal evaluation, may be useful in assisting one or both parties to understand the pros and cons of the alternatives to settlement, e.g. the cost of and likelihood of success in litigation.
Indeed, mediation has been used to assist the parties in working out the process for resolving their disputes. For example, the parties and a neutral may confer together and agree upon a process for resolving the dispute. This has eventuated in both further mediation regarding the dispute itself and in non-binding arbitration of such issues as patent infringement and trade secret misappropriation. Also, party-appointed arbitrators have acted as mediators in assisting parties to select a third arbitrator in international IP arbitration.
Combining mediation and arbitration gives rise to delicate ethical issues. For example, mediators almost always receive from the parties confidential information that would never be disclosed, or if disclosed, admitted into evidence, in an adversarial proceeding. Arguably, this circumstance may disqualify a mediator from continuing in the dispute resolution process as an arbitrator. Similarly, this circumstance causes some mediators to hesitate to provide an informal evaluation on the merits. Once such an evaluation has been given, it is not uncommon for one party to be disappointed and to thereafter view the mediator as no longer neutral. This may compromise the mediators ability to proceed effectively in facilitating negotiations.
In addition to affording an infinite variety of processes by which parties may solve their problem, mediation also provides ample substantive alternatives for the parties to explore as bases for their solution. And finally, counsel and clients should not overlook the monetary savings and the protection of confidential information which are customary enhancements that flow from mediation.