While it is no surprise that Alternative Dispute Resolution ("ADR") is a valuable tool for dispute resolution, corporate counsel may be surprised to learn that the arena of intellectual property is uniquely positioned to take advantage of many forms of ADR. The broad field of intellectual property covers not only patents and trademarks, but also includes copyright, industrial design, trade dress, and trade secrets; it is common for intellectual property disputes to involve many of these at a time.
A Look Back
In 1925, Congress passed the Federal Arbitration Act (9 U.S.C. §1 et. seq.), permitting parties to a dispute to voluntarily agree to submit their grievances to binding arbitration. While there have been no indications that the courts will decline to uphold arbitrations involving trademarks and copyrights, it was not until the Patent Arbitration Act in 1983 (35 U.S.C.A §294) that courts began to permit parties to a patent validity dispute to submit to voluntary, binding arbitration. See N.V. Maatschappij Voor Industriele Waarden v. A. O. Smith Corp., 532 F.2d 874 (2d Cir. 1976); c.f. Flex-Foot Inc. v. CRP, Inc., 238 F.3d 1362 (Fed. Cir. 2001); see also 5 McCarthy on Trademarks and Unfair Competition § 32:198 (4th ed. 1996) (stating no rule against arbitrating trademark validity).
Common Types Of ADR
Mediation. Probably the most popular ADR technique used in intellectual property disputes is mediation. Meditation is a process whereby the parties meet, possibly face to face, to discuss their relative positions with a neutral. The mediator, or neutral, may be agreed-upon between the parties, or may be appointed by a process defined by the parties. In meditation, the actual parties themselves, not just the attorneys, often negotiate directly. The process is not binding, and its success depends on the willingness of the parties to participate. Mediation can be used as part of a greater dispute resolution process that may even include litigation, or as a stand-alone dispute resolution mechanism. See, generally, Steven J. Ellman, Problems in Patent Litigation: Mandatory Mediation May Provide Settlements and Solutions, 12 Ohio St. J. on Disp. Resol. 759, 770-1, 774 (1997).
Arbitration. Another option for intellectual property disputants is binding arbitration. Arbitration is usually more structured than mediation, and the parties may opt to have one or three panelists decide the issues. Often, the terms of binding arbitration are set out ahead of time in the license agreement or in another agreement by way of an arbitration clause. An arbitration agreement or clause will typically include a method for determining the panel, the applicable law, the location of hearings, and a list of issues or any exceptions to issues that may be arbitrated. Intellectual property arbitration awards may be enforced in state or federal court. See Flex-Foot, Inc., 238 F.3d at 1364-5; see also, generally, Ellman, supra, at 772-3.
Med-Arb. One unique approach to ADR is the use of a blend of mediation and arbitration. For example, the parties may agree in advance to first attempt mediating a dispute, then, if mediation fails, to submit any unresolved issues to arbitration. The parties may use the same neutral for the mediation and the arbitration, or select a new neutral for the second process.
Early Neutral Evaluation. Particularly useful in expensive patent and licensing disputes, early neutral evaluation ("ENE") occurs early in litigation. Each party presents a brief and then orally argues an abbreviated version of its case to the evaluator (who is a skilled litigator, familiar with the relevant legal issues) with all attorneys and parties present. The ENE may ask questions of the attorneys and parties. After the session is complete, the ENE prepares a summary for the parties, outlining who is likely to win on the merits and projecting the cost of attorney's fees if the case should continue through litigation. The ENE shares this information with the parties and may help to facilitate mediation, if requested.
Summary Jury Trial. Similar to early neutral evaluation, summary jury trial may be ordered by courts in very complex litigation or used voluntarily in disputes involving complex factual issues. The primary difference is that a representative "jury" is called to hear the factual issues in dispute in a very abbreviated format. Once a verdict is reached, parties may talk to the "jury" to find out why individuals voted the way they did. This technique is often used to analyze the strength of a case and to determine how certain arguments will play with a jury. Sometimes a summary jury trial will lead parties to conclude that the issues are too complex for a lay jury. Summary jury trials often lead to other forms of ADR or settlement.
Benefits To Using ADR In IP disputes
Customized Process and Solution. Probably the greatest benefit of using ADR in intellectual property disputes is the ease with which the process can be customized to meet the needs and respective sizes of the parties. The parties can choose to use one or more forms of ADR, with the idea of resolving as many issues as possible prior to litigation. Proprietors of small businesses can be involved in the process, while large corporation CEOs can send teams of lawyers and empowered in-house counsel to attempt a resolution. These parties have the opportunity to customize and structure a settlement that meets their unique needs. Perhaps a cross-license is of mutual interest to the parties, or perhaps the parties' competing interests can be accommodated by geographic limitations or restrictions on the scope of use. Perhaps a patent right could be traded for a trade secret or a copyright. These are all solutions that the parties themselves could discover and create, while the courts cannot. By negotiating a win-win solution, parties who may have a history of cross licensing or cooperation can continue to cooperate in harmony, without upsetting the balance of the entire relationship.
Confidentiality. Companies with many cross-licensed goods may desire to keep the ADR processes secret to protect the value of licenses not at issue. If the dispute involves trade secrets, special precautions may be taken to ensure that confidential information remains that way. Mediated settlement terms and arbitration awards may be kept secret, with the neutral(s) bound by confidentiality agreements.
Choice of Neutrals. In ADR, the parties are free to choose the neutrals that will be hearing or mediating the dispute. This can be very important when technology, particularly patent claim construction, is the focus. Arbitrators who are skilled in the art at issue do not need to be educated from the most basic level and can quickly apply their knowledge. Even the U.S. Supreme Court has said "patent litigation can present issues so complex that legal minds, without appropriate grounding in science and technology, may have difficulty in reaching [a] decision." Blonder-Tongue Labs., Inc. v. Univ. of Ill. Found., 402 U.S. 313, 331 (1971). Utilizing skilled patent attorneys as arbitrators in technical disputes allows the hearing time to be spent on the legal issues and on exploring the finest points of novelty. See e.g., generally, Richard Sayler, The Case for Arbitrating Intellectual Property Licensing Disputes, 60-APR Disp. Resol. J. 62 (2005).
Shorter Time Frame. While litigation can range from a year and a half to upwards of twenty years in intellectual property lawsuits, ADR mechanisms are designed to end in a timely fashion. It is rare to have even a complex intellectual property dispute last for over a year. In many forms of ADR, the parties and the neutral(s) can agree to discovery and timelines without the rhetoric of court dockets and formal requests. Moreover, because the number of hours spent on the dispute is decreased, attorney's fees are typically decreased proportionally.
Decreased Overall Cost. Although for many large corporations involved in multi-million dollar intellectual property litigation, cost is not typically the overriding factor for many small to medium-sized companies, and to individuals, cost is often paramount. Because the parties can structure the process to meet their needs, it is easier for them to also control the process costs, as well as the cost of the outcome.
Level the International Playing Field. Most of the major countries of the world have become signatories to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards ("the Convention"). This allows international parties to a dispute to determine choice of law and venue, and to take advantage of many of the other benefits of ADR, without having to pick one forum or the other. Countries that are signatories to the Convention will enforce arbitration awards from other signatory countries. See Convention on the Recognition and Enforcement of Foreign Arbitral Awards, June 10, 1958, 21 U.S.T. 2517, 330 U.N.T.S. 38.
How To Find Intellectual Property-Qualified ADR Neutrals
Due to the relatively close-knit nature of the intellectual property community, many parties are able to choose neutrals via word-of-mouth recommendations. However, many ADR service providers, such as the National Arbitration Forum (NAF), also have pre-screened, highly-qualified panels of neutrals available. By using an ADR service provider, parties (and neutrals) can hand off some of the administrative details to qualified, professional case coordinators who can help facilitate the process. The intellectual property neutrals for the ADR process chosen may be selected, from the provider's database of resumés based on such factors as cost, experience, or technical background. Many ADR service providers have specific rules, such as NAF's Code of Procedure, which can govern the administrative process, much like the Federal Rules of Civil Procedure.
Although resolving intellectual property disputes can be technically complex, time-consuming, resource- draining, and adversarial, ADR offers solutions that can reduce the complexity, time, cost, and controversy. Whether private ADR neutrals or an ADR service provider are used, neutral selection is important, especially in complex, technical disputes. When preparing intellectual property licensing agreements, consider including ADR clauses for some or all possible issues that may arise. Examples of arbitration and mediation clauses can be found at.
Published February 1, 2006.