The Use Of ADR In Intellectual Property Disputes

By Rosemary A. Townley* Bio  email 
Arbitrator

 

The use of Alternate Dispute Resolution (ADR)[1] is growing in acceptance among intellectual property practitioners. 

The American Arbitration Association (AAA) reports an increasing caseload in this area.  For example, approximately 350 cases involving copyright, patent and trademark issues were either mediated or arbitrated under the auspices of the AAA in 1997, while in 1996 approximately 223 cases were filed.[2]

 Brief definitions of the two major forms of ADR – arbitration and mediation – might be of aid to the reader unfamiliar with the processes.  The two forms are distinct in nature, and each is uniquely suited to different types of subject matter disputes.[3]

“Arbitration generally is defined as ‘a simple’ proceeding voluntarily chosen by parties who want a dispute determined by an impartial judge of their own mutual selection, whose decision, based upon the merits of the case, they agree in advance to accept as final and binding.”[4] 

Arbitration is most similar to a trial before a judge.  Unlike a trial, an arbitration proceeding is private and confidential and does not require strict adherence to the formal rules of evidence.  The proceeding can be conducted relatively quickly and economically. 

The parties may develop the terms of their own arbitration stipulation or agreement if they are not provided for in a contract. This agreement could be tailored so as to provide for litigation-type processes, such as motions in limine, limited discovery, or bifurcation of the hearing for liability and damages issues.[5]  In some cases, the parties add a clause to the stipulation or agreement providing for the review of an award by a standard which may be more or less demanding than that provided under section 10 of the Federal Arbitration Act.[6] 

An arbitrator, or a panel of three arbitrators, is mutually selected by the parties, either directly or with the assistance of an independent organization that maintains rosters and biographies of qualified arbitrators.

A commercial arbitration hearing usually will commence with a pre-hearing administrative conference between the arbitrator and the representatives of the parties.  The purpose of the conference is to review the governing rules of the proceeding and to address certain matters, such as the production of documents and the identification of witnesses.  At this conference, a hearing and briefing schedule typically is established, as well as any scheduling for the accomplishment of discovery matters, if the latter is agreed to by the parties or is provided for in a stipulation or agreement.

An arbitration hearing includes many of the same elements of a trial: opening statements are presented; witnesses are examined; documentary evidence is offered into the record; objections are raised and ruled upon by the arbitrator; and a record is maintained, either by a court stenographer or by the arbitrator.  Closing statements are made, either orally or in a written brief. 

The arbitrator’s decision usually is issued as a written opinion and award within 30 days from the close of the hearing, unless the parties agree to another format or deadline.  As a general rule, review of an arbitrator’s award is narrow.  That is, an award will not be vacated by a court except upon certain, limited grounds, such as “where the award was procured by corruption, fraud or undue means” or where there was “evident partiality or corruption in the arbitrators or either of them.”[7]

One exception to this general rule was set forth by the United States Court of Appeals for the Second Circuit in Halligan v. Piper-Jaffray, Inc.[8] Halligan involved an age discrimination claim[9] filed by a broker pursuant to a Form U-4[10] which was rejected by an National Association of Securities Dealers arbitration panel.  Judge Kimba M. Wood of the United States District Court for the Southern District of New York confirmed the arbitration award in favor of the defendant, Piper-Jaffray, Inc. 

In a ruling that may serve to expand the scope of appellate review of arbitration awards in the Second Circuit, the court of appeals found that the arbitration award reflected a “manifest disregard of the law” and held, in relevant part:

In view of the strong evidence that Halligan was fired because of his age and the agreement of the parties that the arbitrators were correctly advised of the applicable legal principles, we are inclined to hold that they ignored the law or the evidence or both.  Moreover, the arbitrators did not explain their award.  It is true that we have stated repeatedly that arbitrators have no obligation to do so .  . .

When a reviewing court is inclined to hold that an arbitration panel manifestly disregarded the law, the failure of the arbitrators to explain the award can be taken into account.  Having done so, we are left with the firm belief that the arbitrators here manifestly disregarded the law or the evidence or both.[11]

While it may be premature to toll the death knell for the finality of an arbitration award, mediation may be better suited for resolving intellectual property disputes prior to attempting to arbitrate the matter.

“Mediation” is a process in which a neutral mediator assists the parties in reaching their own settlement but does not have the authority to make a binding decision.”[12]  A less formal process than arbitration, a mediator  meets with the disputing parties and their representatives in a series of informal conferences, including joint meetings and caucuses.  The mediator will attempt to hear all facts and issues and will offer suggestions to aid the parties in identifying common ground.  The mediator does not decide who is right or wrong in the matter.[13]  Rather, the mediator attempts to facilitate discussion in order to reach what is essentially a negotiated settlement.

Mediators are selected through an independent administrative agency or by direct appointment by the parties based on their knowledge of the individual.  The mediator’s expertise in the subject matter of the dispute can be an important factor in the selection process, depending upon the technical issues involved, but may not be the primary one.  As noted in an observation by two commentators in the area of international intellectual property law:

Process skills are paramount to subject matter expertise.  Whether the mediator with subject matter expertise will be a hindrance or an advantage depends upon just how technical the subject matter of the dispute is.  There is no ready answer, but the issue must be considered.

Many practitioners believe that previous knowledge in issues related to the field of dispute by the mediator can speed the process and save considerable time.  But most experienced practitioners in mediation would probably agree that it is better to have a skilled mediator without expertise in the area of the dispute, than to have an expert in the field with marginal or no mediation process skills.[14]

In certain cases, the “co-mediator” model may be preferred.  This involves two mediators with complementary skills working together to achieve a settlement with the parties.  For example, a subject matter expert, such as a design engineer, could be paired with an experienced mediator who has the process skills to guide the parties.[15]

As a rule, a mediation conference can be scheduled relatively quickly and requires less preparation than would be needed for litigation or arbitration.

A 1998 study of general and deputy counsel and chief litigators of Fortune 1,000 corporations, conducted by researchers at Cornell University and PricewaterhouseCoopers, LLP, showed that ADR techniques, especially arbitration and mediation, are in widespread use. [16]  Most firms reported a preference for mediation as a means of dispute resolution. The study also reported that of those disputes that dealt with intellectual property issues, 28.6% were referred to mediation and 21.0% to arbitration.[17]

In the study, the respondents indicated that one of the most significant reasons for using ADR is that it is less expensive than litigation and provides a means to reach a settlement in a more expeditious manner.  Mediation was considered by the respondents to be a more satisfactory process than litigation because they believed that it provided an opportunity for the parties to exercise more control over the resolution of a dispute.[18] 

In addition, the study found that 70% of those parties that utilized arbitration and mediation techniques were “very likely” to use these techniques in the future.[19]  However, 93% of the respondents noted that a significant barrier preventing the more frequent use of ADR is the inability to convince opposing side to agree to its use in resolving disputes.[20] 

One frequently published commentator who urges the use of ADR methods to resolve intellectual property disputes, David W. Plant, Esq., a partner at Fish & Neave in New York City, reports that “the anecdotal track record” of mediation shows that it is successful in resolving 70% to 80% of intellectual property disputes.[21]  He encourages the use of mediation to resolve these disputes, especially as an alternative to the unpredictable Markman[22] hearings in patent infringement cases.  Plant describes some of the reasons why practitioners should consider the use of mediation:

Whether parties and their counsel believe mediation will guarantee a settlement of a particular dispute (it will not), given the (anecdotal track record . . .) of intellectual property disputes (either before or during litigation where the parties have been locked in mortal combat), it is good business for parties, and it is professionally responsible for counsel, to give mediation a good-faith try.  It is a no-risk, trivial-cost alternative to highly unpredictable and high-cost litigation.  It makes sense for the parties to take charge of their own destinies, and to resolve for themselves their intellectual property problems.[23]

Similarly, mediation is favored by practitioners of intellectual property law in the international arena.  Their reasons include the practicality of lower costs, time-saving features, confidentiality, control by the parties, the avoidance of precedence, the satisfaction by the parties with the outcome, and the preservation of relationships between the parties.  In an article that first appeared in the Journal of World Intellectual Property, Carmen Collar Fernandez and Jerry Spolter urge that parties consider this ADR mechanism of mediation for the following reasons:

The world of intellectual property law calls for dispute resolution mechanisms as fast-paced and efficient as the evolution of the underlying technology and ideas which are the subject of the disputes.

International, multibillion-dollar corporations engaged in the pursuit of business profits derived from intellectual property simply cannot afford the time and resources to sit around with a phalanx of attorneys waiting years and spending millions to resolve disputes pertaining to trademarks, copyrights, patents, and trade secrets.[24]

Many of the commentators emphasize the importance of the confidentiality of the process, which is one of the most critical elements of  mediation.  This concern for and interest in confidentiality has also been recognized by the Second Circuit.  In Lake Utopia Paper Ltd. v. Connelly Containers, Inc.,[25] the court noted:

If participants cannot rely on confidential treatment of everything that transpires during these sessions, then counsel of necessity will feel constrained to conduct themselves in a cautious, tight-lipped, non-committal manner more suitable to poker players in a high stakes game than adversaries attempting to arrive at a just solution of a civil dispute.[26]

Certain states, such as California, Massachusetts, Indiana, Michigan, Texas, Oklahoma, Colorado, Florida, Utah, Washington, and Oregon have codified the confidentiality protections of the mediation process.[27]

At minimum, a mediation agreement should contain specific language setting forth confidentiality protections for the information disclosed in a mediation session, unless the parties agree to the contrary.  In addition, mediators usually insist on a clause within the mediation agreement precluding either party from subpoenaing the mediator to testify about any discussions that occurred during the sessions.

The New York Law Journal reported recently that the American Bar Association and the National Conference of Commissioners on Uniform State Laws released the first draft for public comment of a proposed Uniform Mediation Act.  The stated intent of this project is to clarify the mediation process and to add protections for the participants.[28]

In 1994, three major Associations that are closely involved in mediation matters, the American Bar Association, the American Arbitration Association, and the Society of Professionals in Dispute Resolution issued the results of a joint project that was designed to develop a general framework for mediation practice and to promote public confidence in the process.  The “Model Standards of Conduct For Mediators”[29] deals with issues such as the principle of self-determination by the parties, the confidentiality of the process, the impartiality of a mediator, the need for a mediator to disclose any potential conflicts of interests, and the competence of a mediator.

This article only the broadest overview of the literature on the topic of ADR and intellectual property.  The materials cited in the endnotes contain a wealth of more detailed information from practitioners, mediators and arbitrators who have used ADR procedures with varying degrees of success and/or satisfaction.  The reader is urged to take a closer look at this material in order to become more fully aware of the scope of ADR procedures and their efficacy in resolving intellectual property disputes.


* Rosemary A. Townley, Esq., Ph.D., Member, National Academy of Arbitrators; American Arbitration Association’s Commercial, Labor and National Employment Panels; Chair, New York State Bar Association, Labor and Employment Law Section; and Adjunct Professor of Law, St. John’s University School of Law.  Copyright © 1999, Rosemary A. Townley. All rights reserved.

[1] ADR methods include mediation, arbitration, neutral evaluation, fact-finding, mini-trials, and other hybrid forms of resolution, such as “med-arb” or mediation-arbitration.

[2]  See Christine Lepera, What The Business Lawyer Needs to Know About ADR, NEW YORK STATE BAR ASSOCIATION ENTERTAINMENT, ARTS AND SPORTS LAW SECTION AND THE AMERICAN ARBITRATION ASSOCIATION: MEDIATION (1999), citing George H. Friedman, High-Tech Revolution Spurs Use of ADR, THE METROPOLITAN CORPORATE COUNSEL (Greater New York Metro ed. Sept. 1997), at 33.

[3]  See Julie A. Klein, Researching Results of Alternative Dispute Resolution, N.Y.L.J., July 1, 1999, at 3-4.  Klein notes that there is no single entity which has, over a consistent period of time, “collected, maintained, analyzed, tracked and disseminated research data covering various aspects of alternative dispute resolution in business related transactions.”  Ms. Klein also reports that the AAA announced on June 10, 1999, that it is sponsoring the “Global Center for Dispute Resolution Research”, an autonomous, self-governing organization which will “examine the use and effectiveness of dispute resolution on a worldwide basis.”

[4] FRANK ELKOURI & EDNA ELKOURI, HOW ARBITRATION WORKS 2 (Marlin M. Volz & Edward P. Goggin, eds., 5th ed. 1997) at 2.

[5]  Some critics have charged that arbitration proceedings have come to resemble court hearings to the point that arbitration “has become a substitute courtroom.”  See Gail Diane Cox, Arbitration Is No Simple Matter, NAT’L L.J., June 28, 1999, at A1.

[6] 9 U.S.C. § 10.  For a discussion of various standards used by courts in reviewing arbitration awards, see Olivier Antoine, Judicial Review of Arbitral Awards, DISPUTE RESOLUTION J., Aug. 1999, at 23-32. One frequent commentator on arbitration trends, Carroll E. Neesemann of San Francisco’s Morrison & Foerster L.L.P., argues that parties should be encouraged to include appeals procedures into their arbitration contracts which he views as “an opportunity to maximize the benefits of arbitration.”  See Cox, supra note 5, at A10.

[7]  Federal Arbitration Act, 9 U.S.C. § 10.  For comparable language applicable under New York State law, see NYCPLR  §§ 7510-11.

[8] 148 F.3d 197 (2d Cir. 1998).

[9]  The U.S. Supreme Court has ruled that federal statutory employment-related claims, which are raised pursuant to the Age Discrimination in Employment Act (ADEA), or Title VII of the Civil Rights Act of 1964, or the Americans with Disabilities Act (ADA), are subject to arbitration.  See Gilmer v. Interstate/Johnson Lane Corp., 500 U.S.20 (1991).

[10]  The standardized form that must be completed by brokers in the securities industry is known as the Form U-4 (Uniform Application for Securities Industry Registration).  The signing of this form by a broker constitutes an agreement to arbitrate any dispute, claim or controversy between the broker and the firm, customer or any person, that is required to be arbitrated under the rules or by-laws of the organizations listed, including the National Association of Securities Dealers.  See Williams v. Cigna Financial Advisors, Inc., 56 F.3d 656, 660-61 (5th Cir. 1995).

[11]  Halligan, 148 F.3d at 210.  The “manifest disregard of the law” standard was first enunciated in dicta by the U.S. Supreme Court in Wilko v. Swan, 346 U.S. 427 (1953).

[12] See generally AMERICAN ARBITRATION ASSOCIATION, A GUIDE TO MEDIATION AND ARBITRATION FOR BUSINESS PEOPLE 3 (1998).

[13] One commentator characterizes this notion of “no winners” as one which is “alien” to Western lawyers, who are taught to deal only with the goal of victory. She notes that in China, there “are 10 million mediators compared with 15,000 lawyers.”  See Sheila M. Johnson, A Medical Malpractice Litigator Proposes Mediation, DISPUTE RESOLUTION J., Spring 1997, at 48-49.

[14]  See Carmen Collar Fernandez & Jerry Spolter, International Intellectual Property Dispute Resolution: Is Mediation a Sleeping Giant?, DISPUTE RESOLUTION
J., Aug. 1998, at 66.

[15]  See id.

[16] See David B. Lipsky & Ronald L. Seeber, Patterns of ADR Use in Corporate Disputes, DISPUTE RESOLUTION J., Feb. 1999, at 66.

[17]  See id. at 69.

[18]  See id. at 71.

[19] See id.

[20] See id.

[21] See David W. Plant, The Lessons of Markman’s Progeny: The Virtues of ADR in Resolving Intellectual Property Disputes, ADR CURRENTS (Dec. 1998), at 12-13.

[22]  See Markman v. Westview Instruments, Inc., 517 U.S. 370 (1996).

[23]  See Plant, supra note 21, at 13.

[24]  See Fernandez & Spolter, supra note 14, at 53.

[25]  608 F.2d 928 (2d Cir. 1979), cert. denied, 444 U.S. 1076.  See Dennis Sharp, The Many Faces of Mediation Confidentiality, DISPUTE RESOLUTION J., Nov. 1998, at 56.

[26] Lake Utopia Paper Ltd., 608 F.2d at 930.

[27] See id. at 58.  See also Edward Costello, Jr. and Cynthia Archuleta, Mediation Confidentiality: A Look at Statutory Law and Rules, ADR CURRENTS, Mar. 1999, at 20.

[28]  See Today’s News: Update, Sept. 14, 1999, at A1.  The report also notes that copies of the act and information concerning commenting upon it are available on-line at “www.pon.harvard.edu/guests/uma.”

[29]  Copies of this pamphlet are available from any three of the participating organizations.


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