Mediation is the best method of resolving most high tech and other intellectual property disputes. Mediation is fast and helps the disputants work together to find an effective solution, with much less expense than a full lawsuit. Mediated solutions preserve goodwill and reputations, and may even lay groundwork for future business. Mediation keeps control of a business' future where it belongs -- in the hands of the business executives, not judges.
Mediation is a form of alternative dispute resolution (ADR). It is a process in which a trained neutral person helps the disputants reach a settlement. It is essential that a principal with settlement authority represents each party; it is advisable also to have legal counsel. The mediation may begin with all participants together at one table, and the mediator may give each side a chance to make an opening statement. After the opening statements, the mediator may separate the parties and have private meetings with each side. As the mediator goes back and forth between private sessions, the mediator gradually determines each party's real business interests and finds common ground between them. Optimally, the parties suggest the pieces of the settlement, which the mediator helps to refine; however, if there appears to be an impasse, the mediator may offer a draft agreement for both sides' consideration. If the mediation is successful, the mediator will draft at least an outline of agreement, which the parties will sign before leaving. In certain instances, such as cross-license agreements to resolve intellectual property infringement disputes, the full agreement may need to be drafted later by the parties' lawyers based on the outline of the mediated settlement. The process is efficient, and generally takes only a day or two.
A mediator is a neutral person who is trained to facilitate communication and settlement between disputing parties. The mediator is not a judge or arbitrator; the mediator does not render a decision in which one party is declared the winner. Rather, the mediator listens to the business interests of each party, and pieces together a settlement. Each party can tell the mediator information in confidence, which may be helpful in reaching a settlement, but which will not be communicated to the opposing party. Some states, such as Virginia, certify mediators after completion of approved training courses and a required number of mediations under the tutelage of another experienced, certified mediator. These states often require that a mediator be certified before receiving court-referred cases. The mediator is often a lawyer, but not necessarily so. It is often useful to use a mediator with experience with similar types of disputes. See Why Use a Technology Mediator Instead of a General Mediator? Mediators typically charge hourly or daily rates, plus expenses, which usually are split between the parties.
Mediation is one tool in a spectrum of alternative dispute resolution (ADR) mechanisms. The spectrum ranges from negotiation, on the one end, to arbitration, on the opposite end. In many instances, mediation is the best choice of the ADR alternatives.
Mediation vs. direct negotiation
Direct negotiation is the best way to settle any dispute - when it is successful. But no one gets a hit every time at bat, and no matter how good the negotiator, some negotiations are bound to fail. Nonetheless, the disputants may believe that litigation is not an attractive option. Perhaps full-scale litigation will cost too much, or take too long to complete, or divert valuable executive time from other important matters, or bring negative publicity at a crucial time. In other instances, it may not be possible to negotiate. Perhaps a recalcitrant "gatekeeper" stands in the way of reaching the more reasonable decision-makers, or emotions run high between two long-time competitors. Perhaps each side is holding back a key piece of information because it is too confidential to disclose to the opponent.
Mediation offers a way to get settlement negotiations back on track. Mediators require that each party be represented by someone with settlement authority. Each party may be permitted to make an opening statement. This assures that the decision-maker finally will have heard the full story. This procedure also may provide a way to vent strong acrimonious feelings in a controlled setting - perhaps the only time the parties will really be heard. Additionally, each side may feel comfortable confiding sensitive business information to the mediator, which may enable the mediator to piece together a settlement that would not have been possible without that key information.
Mediation also can help an attorney convince a client that settlement is appropriate, without undermining the attorney's role as a strong advocate for the client's position. The mediator, rather than the attorneys, can give each side an appraisal of its strength and weaknesses, and provide a reality check that may promote settlement. Mediation may provide a gracious way out of a lawsuit that is headed toward a poor (and often expensive) outcome.
Mediation vs. arbitration
Arbitration is appropriate in some situations, particularly if the parties need a definitive judgment faster than the court could issue a decision. However, in many instances, arbitration has most of the negatives of litigation, and few of the benefits of mediation.
Arbitration is very similar to litigation, though perhaps in a more compressed timeframe. The parties often engage in extensive discovery, submit lengthy legal briefs, and participate in an evidentiary hearing, following which a third-party decision-maker issues a decision in which someone must lose. The cost in legal fees, expenses, and executive time is not much less than in a lawsuit. The same uncertainty prevails until the arbitrator's decision is issued, which may be a year or more from the outset. Moreover, arbitration decisions are usually binding, and extremely difficult to appeal, making it likely that one of the parties will be unhappy and stuck with the outcome.
Mediation avoids the pitfalls of arbitration. Mediation is faster; it can be convened very quickly and often takes only a day or two. It dispenses with discovery, pleadings and motions, and preparation for and attendance at lengthy hearings. Legal fees and expenses are significantly less, as is diverted executive time. Moreover, mediation minimizes risk by keeping the control of the outcome in the hands of the disputants, not a third party arbitrator. There won't be an agreement unless all parties accept it. No one is stuck with a "bad" decision following mediation. And options such as litigation or arbitration are still available if the parties do not reach agreement.
When direct negotiation is not successful or may not be a viable option, and arbitration is not much more attractive than a full-scale lawsuit, disputants should try mediation.
Many companies have taken a step in the right direction of simplifying dispute resolution by including an alternative dispute resolution (ADR) clause in their contracts. However, inserting a couple of lines is not enough - it requires more thought and a number of decisions to be made. For example, does the clause set forth certain events or time limits that would trigger use of an ADR procedure? What types or combination of ADR procedures are to be utilized? (Most suggested ADR clauses include a combination of ADR techniques, beginning with negotiation.) Does the clause specify the choice of a neutral(s)? If the clause calls for arbitration, does it discuss use of or limitations on discovery and hearings? What about appeal and enforcement of an arbitration award? For those inclined to cover all issues thoroughly, it might be best to reference and append a separate ADR agreement. A mid-point might be to include a simple ADR clause, and reference and attach current rules of an ADR provider such as the American Arbitration Association, which would govern in the event of a dispute.
Moreover, it is important to keep in mind all ADR options, and choose the best procedure for the particular dispute. Many pre-existing contracts contain arbitration clauses, which under current practice often are being interpreted to refer the dispute to any appropriate type of ADR that may resolve the dispute quickly, cheaply, and satisfactorily, including but not limited to arbitration. For example, almost any dispute related to the securities industry is governed by an arbitration clause referring the matter to the National Association of Securities Dealers (NASD), which operates a very successful arbitration program. NASD has developed and administered arbitration dispute settlement procedures for over 25 years and now handles over 80 percent of all securities arbitrations in America. However, NASD started a mediation program in 1995, and most of its mediation cases come directly from its arbitration docket. NASD now considers mediation to be its first recourse for resolving securities disputes, despite the fact that the disputes were referred to NASD under "arbitration" clauses.
Help is available for drafting ADR clauses. The following sites have sample ADR clauses, and discussion concerning the choices to be made in drafting them.
American Arbitration Association - Rules/Procedures - Guides -Drafting Dispute Resolution Clauses - A Practical Guide
CPR Institute for Dispute Resolution - CPR Clauses, Rules and Procedures -Model Clauses
The decision makers for each party are the most important participants in mediation; there won’t be a settlement until they agree. To make the most of their time and effort, the business representatives should be properly prepared for the mediation. And the preparation is very different from preparing for a deposition or trial testimony.
Understand your role. Your role in mediation is very different from that in a lawsuit. The goal of mediation is to reach a business settlement, not a legal decision, so the business person is very participatory in the mediation. You and your counsel will decide who will give the opening statement – perhaps you both will give portions. In private caucuses with the mediator, you will be intimately involved in the dialogue.
Have full settlement authority. The decision to settle must reside with the business person present at the mediation session – not with an absent CEO, or with a parent company’s board of directors, or with an insurance representative purportedly reachable by phone. The decision maker must participate in the mediation sessions and understand the nuances of the negotiation. If approval from others is unavoidable, know how to reach them at any time, even if it means carrying their office, cell and home phone numbers. Negotiations that drag out while approval is pending are, at best, more expensive, and at worst, may fall apart.
Know the corporate “big picture” as well as the “snapshot” of this particular dispute. Litigation and arbitration exist to find fault for past deeds. Mediation, on the other hand, is forward thinking. The objective is to find a business resolution, which may be affected by -- and affect -- other corporate interests. It therefore is imperative to keep foremost in mind the company’s short and long term objectives. Keeping business priorities straight often will put the current dispute in perspective, and provide a roadmap to settlement.
Be factually prepared – or have a team on call. Of course, the decision maker should become familiar with the facts of the dispute. However, it may not be possible to know everything; many disputes involve technical issues or details for which the business representative may need to call on another employee’s knowledge. Sometimes it will be worthwhile to include the specialist as part of the mediation team. If not, at least have them on call for immediate assistance.
Know your true business interests and distinguish them from your negotiating positions. Anticipate your opponent’s positions and interests. Parties usually start mediations with opening statements that project strength and commitment to particular legal positions or negotiating stances. That’s fine. But don’t get too wrapped up in the bravado. Know your business interests and don’t lose sight of those priorities. Then put yourself in your opponent’s shoes. Anticipate their positions, and brainstorm what business interests may be driving their negotiating decisions.
Know your best and worst alternatives to settlement. The mediator will help you explore your Best and Worst Alternatives to Agreement (“BATNA” and “WATNA.”) What are they? Think about it in advance, and revise them as you hear new information during the mediation.
Be open-minded. The mediator knows more about the other side’s interests than you do, and if you have been forthcoming about your interests, the mediator may see settlement possibilities that you cannot from your limited information and perspective. Thoughtfully consider “what if…?” scenarios posed by the mediator. Try out and build on suggestions, or help the mediator understand why they wouldn’t work so the mediator can look for a more acceptable solution.
For other perspectives, see; “Preparing for Your Mediation,” by Tom Sebok (http://www.mediate.com/articles/SebokT.cfm) .
Some lawyers hesitate to recommend mediation out of concern for lost litigation fees, or fear that the client will think the lawyer is not aggressive and committed to the case. These are extremely short-sighted and misguided views. In reality, most clients today appreciate a lawyer who can obtain a beneficial outcome with the least amount of cost and risk.
Moreover, ethics experts now suggest that the American Bar Association’s Model Rules of Professional Conduct establish a duty to counsel a client on ADR options. Some state bar associations direct its bar members to inform or advise a client as to all options for resolving a dispute. At a minimum, best practices would suggest that an attorney needs to discuss all options thoroughly with the client.
Planning for Mediation . Lawyers and business persons should begin to plan for mediation as soon as they begin to negotiate a new relationship. Discuss and include ADR clauses in a client’s contracts. See Laying the Groundwork for Mediation: Contracts Clauses. Consider including specific mediators or groups in the contract, so the parties don’t fight later over selecting a mediator. Don’t wait for a dispute to arise.
Preparing for Mediation . When a dispute arises, of course the attorney will analyze the facts and determine the strength of the client’s legal positions. But then the attorney should put aside its ‘legal advocate’ role, and act as a business advisor/sounding board. The attorney should help to identify the client’s interests and distinguish between true needs and perceived desires. For example, does the client need a legal judgment (which could cost millions of dollars and take several years to get), or is a faster, less risky settlement better for the client in light of its overall business interests? Don’t forget to anticipate the other party’s positions and interests. Then consider the cost, both tangible and intangible, of not settling. Both the client and its attorney should have a clear road map of interests that must be met, and things that could be traded or dropped.
Pre-Mediation Submissions . Mediators often request background documents, such as contracts or major documents from pending lawsuits. Additionally, they may request a summary of facts and legal arguments, which may be exchanged between the parties. Mediators often also require a statement, which is submitted confidentially to the mediator only, about prior settlement discussions, current positions, and possible solutions.
During the Mediation . Lawyers may present an opening statement to establish the client’s positions, develop a checklist of issues that need to be addressed in a final agreement, and draft the final agreement. But the attorney’s most useful role in settlement discussions is to act as a sounding board and reality check, keeping in mind the client’s business interests, and helping, not hindering, settlement. A lawyer who develops a good understanding of the clients’ long term business goals will benefit from a closer client relationship, not just a single litigation.
Links to related articles : ADR – Ethically Speaking, by Paula M. Young, www.mediate.com/articles/young2.cfm ; Tips for Attorneys – Preparing for Mediation, by Eileen Barker, http://mediate.com/articles/ebarker.cfm .
Save time and money:
Mediation avoids the expensive and time-consuming discovery, briefs, trials, and appeals of lawsuits. Your company's human resources and funds can be put where they are most useful - into growing your business.
Control the outcome:
A mediator does not render decisions like a judge or arbitrator; the parties craft the settlement with the mediator's help. So your company won't receive a "bad" decision. This is especially important in high tech disputes in which a judge, jury or arbitrator may misinterpret unfamiliar technology.
Mediations are confidential, so no one other than the parties need know they have occurred. This preserves your reputation - an important sales advantage. It also keeps disputes quiet at critical times, like before an IPO or merger. Mediation statements also are protected as confidential settlement negotiations, so they can't be used in future litigation.
Preserve and strengthen business relationships:
Every company wants to retain customers, but sometimes customers are dissatisfied and won't pay their bills. A lawsuit is sure to alienate a customer. Mediation may eliminate the dissatisfaction, secure payment, and lay groundwork for future business. Mediation also resolves problems with vendors, distributors, resellers, developers, and consultants.
Craft creative solutions:
Mediation not only resolves the problem, but also may forge new business, such as license agreements, joint ventures, service agreements, or sales of other goods or services.
Mediation has a high success rate -- 80% -- and engenders greater satisfaction with the outcome than at the conclusion of litigation.
Mediation is non-binding, so other options, such as litigation or arbitration, are still available if mediation is not successful. Due to the low cost and minimal time invested in mediation, and its high success rate, mediation should be the first choice for dispute resolution.
Mediation is not just for simple contractual disputes. Indeed, complex intellectual property matters may be resolved best through mediation. An intellectual property dispute may be especially ripe for mediation if any of the following factors exist:
One or both parties may have an interest in cost control: Most intellectual property matters are expensive to litigate. It is not unusual for a patent infringement dispute to cost each side well over $1 million through trial, and such cases are often appealed, adding more to the cost. Moreover, they often are settled via business agreements. Much of the cost of extensive discovery, trial preparation, voluminous exhibits, expert witness testimony, and diverted executive time can be spared by using mediation at an early stage to craft an appropriate settlement.
A business resolution may solve the legal dispute: A mediator can help the parties craft a variety of business arrangements, such as licensing (or cross-licensing) agreements, joint ventures, distributor agreements, usage phase-out agreements, etc., which may lay the groundwork for future business. A mediated agreement may extend well beyond the subject matter of the pending lawsuit and accommodate larger business interests.
The decision maker may misunderstand the law or technology: If the judge, jury or arbitrator may have trouble understanding intellectual property law issues such as prior art or doctrine of equivalents, or the underlying technology, it may be best to avoid the possibility of being handed a "poor" decision. The parties can keep control of the outcome by mediating, rather than relinquishing the decision to a third party.
The defendant may feel disadvantaged in the forum chosen by the plaintiff: In complex intellectual property matters, a defendant may need lots of time (and money) to prepare its defense and cross-claims alleging invalidity of the patent, trademark or copyright. If time is short, such as in investigations before the US International Trade Commission, or in federal courts such as the "rocket docket" of the Eastern District of Virginia, it may be better to settle a dispute than to defend under such constraints. Similarly, a defendant may prefer not to defend in a jury trial in the plaintiff's "home" court, or in a jurisdiction with precedent favorable to the plaintiff. Mediation offers a sensible way to end the dispute before it's too late.
The useful life of the subject matter may be depleted before the litigation is over: Many "hot" products or technologies are covered by patents, trademarks or copyrights, and by virtue of their appeal become subject to infringement. But how good is a favorable judicial decision if the patented technology already has been superceded by another patent, or if last season's most popular toy now sits on the shelf, or if some other copyrighted software game now heads the "top 10" sales list? Mediation can resolve the dispute quickly, while the product is still commercially viable.
One or both parties are concerned about disclosure of confidential information: Many intellectual property disputes, particularly alleged trade secret misappropriation, involve confidential business and technical information. Mediation avoids disclosure of such sensitive information, to the public and to your adversary. Everything said in mediation is protected as confidential settlement discussions, and cannot be introduced in litigation or disclosed in public. Additionally, a party can disclose certain information in confidence to the mediator, who will not transmit it to the opponent.